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PETITIONER: RAJ STEEL & ORS. ETC. ETC.

       Vs.

RESPONDENT: STATE OF A.P. & ANR. ETC. ETC.

DATE OF JUDGMENT16/05/1989

BENCH: PATHAK, R.S. (CJ) BENCH: PATHAK, R.S. (CJ) KANIA, M.H.

CITATION:  1989 AIR 1696            1989 SCR  (3) 305  1989 SCC  (3) 262        JT 1989  Supl.    226  1989 SCALE  (1)1573

ACT:     Andhra  Pradesh General Sales Tax Act, 1957/Andhra  Pra- desh  General  Sales Tax Rules. Sections 2, 5, 6  and  First Schedule  Item  157/  Rule  6--Assessees--Manufacturers   of beer/cement--Goods--Beer  sold in bottles packed in  Cartons and  cement in gunny bags--Assessment to sales tax  made  on the turnover of packing material--Whether valid.

HEADNOTE:        The appellants in some of the appeals are manufactur- ers  of  or  dealers in beer, the appellants  in  the  other appeals are manufacturers of or dealers in cement.      The  appellants  filed  writ petitions  in  the  Andhra Pradesh High Court challenging the assessment made under the Andhra  Pradesh General Sales Tax Act, 1957 on the  turnover of  packing material employed either by way of  bottles  for containing beer or by way of gunny bags for packing  cement. The  appellants challenged the application of such  rate  in assessments  made in relation to the period before  8  July, 1983. The appellants also challenged the application of that rate proposed pursuant to s. 6C in show cause notices issued by  the concerned authority. Section 6C was inserted in  the Act with effect from 8 July, 1983.     The  High  Court while dismissing  the  writ  petitions, proceeded on the basis that, having regard to the nature  of the  goods and to the trade practice in respect of beer  and cement,  the containers were necessary concomitants  in  the transactions, and the transfer of property in the containers was  incidental or unavoidable, that the  sale  transactions had to be regarded as composite and integrated sales of  the containers  and their contents and what was really sold  was the  bottled  beer or the cement packed in gunny  bags.  The learned  Judges  expressed the view that  the  consideration paid  by the purchaser to the dealer consisted not  only  of the price of the contents, namely, beer or cement, but  also included  the price of the containers, that is, the  bottles and the cartons in the case of beer and gunnies in the  case of cement. While  allowing the appeals and remanding the cases  to  the High 306

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Court, and in the case of the writ petitions, while  direct- ing  the assessing authority to determine the matters  after allowing the dealers to show cause, this Court,     HELD: (1) A transaction of sale may consist of a sale of the product and a separate sale of the container housing the product with respective sale considerations for the  product and the container separately; or it may consist of a sale of the product and a sale of the container but both sales being conceived  of  as  integrated components of  a  single  sale transaction;  or  what may yet be of a third  case,  it  may consist  of a sale of the product with the transfer  of  the container  without  any sale  consideration  therefore.  The question in every case will be a question of fact as to  the nature  and ingredients of the sale. It is not right in  law to  pick  on  one ingredient only to the  exclusion  of  the others and deduce from it the character of the  transaction. In every case, the assessing authority is obliged to  ascer- tain the true nature and character of the transaction upon a consideration of all the facts and circumstances  pertaining to the transaction. [310C-E; H; 311A]     Hyderabad  Deccan Cigarette Factory v. The State  of  A. P., [1966] 17 STC 624, referred to.     (2) There can be as many different kinds of transactions as  the  circumstances  of the case may  require  either  by reason of prevailing trade practice or market conditions  or personal convenience, and as human ingenuity may devise  for bonafide  reducing the burden of tax. Whether a  transaction for  sale of packing material is an independent  transaction will depend upon several factors. [312E]     (3)  The  issue as to whether the packing  material  has been  sold or merely transferred without  consideration  de- pends on the contract between the parties. The fact that the packing  is of insignificant value in relation to the  value of  the  contents may imply that there was no  intention  to sell  the  packing,  but where any packing  material  is  of significant  value  it may imply an intention  to  sell  the packing material. In a case where the packing material is an independent  commodity and the packing material as  well  as the contents are sold independently. The sale of the packing material is liable to tax independently. [313E-G]     Commissioner  of Taxes, Assam v. Prabhat  Marketing  Co. Ltd., [1967] 19 STC 84; The State of Karnataka v. Shaw  Wel- lace & Company Ltd., [1981] 48 STC 169; Arlem Breweries Ltd. v.  The Assistant Commissioner of Sales Tax, Panaji,  [1983] 53 STC 172; M/s. Jamana Flour 307 Mill (P) Ltd. v. State of Bihar, AIR 1987 SC 1207 and Punjab Distilling  Industries  Ltd. v. The Commissioner  of  Income Tax, Simla, [1959] Supp. 1 SCR 683, referred to.     4.  Section 6C seems to envisage a case where it is  the goods which are sold there is no actual sale of the  packing material.  The  section provides by legal fiction  that  the packing material Shall be deemed to have been sold alongwith the  goods. In that event, the tax will be leviable on  such deemed  sale  of  the packing material at the  rate  of  tax applicable to the sale of the goods themselves. It is diffi- cult to comprehend the need for such a provision. It can  at best  be regarded as a provision by way of clarification  of an existing legal situation, which merely explains that  the components which have entered into determining the price  of the goods cannot be treated separately from the goods  them- selves, and that no account was in fact taken of the packing material  when the transaction took place, and that if  such account must be taken then the Same rate must be applied  to the  packing  material as is applicable to the  goods  them-

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selves. [314D-E; 315A-B]     (5)  It  is difficult to accept the  contention  of  the appellants that a rate applicable to the packing material in the  Schedule should be applied to the sale of such  packing material  in a case under s. 6C, when in fact there  was  no such  sale of packing material and it is only by legal  fic- tion,  and  for  a limited purpose, that such  sale  can  be contemplated. In the circumstances, no question arises of s. 6C  being  constitutionally  discriminatory,  and  therefore invalid. [315B-C]     (6) The High Court has proceeded on the assumption  that what  is  charged  is the price of the bottled  beer  or  of cement packed in gunny bags. No attempt was made by the  tax authorities  to  ascertain  the facts of each  case  and  to determine  what were the actual ingredients of the  contract and the intention of the parties. Assumptions had been  made when what was required was a detailed investigation into the facts.  Because  of the lack of adequate and  clear  factual material,  the High Court also was compelled to  proceed  on the  basis of generalised statements and broad  assumptions. [315C-E]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal NO. 186875 of 1986.     From  the  Judgment  and Order dated  28.2.1986  of  the Andhra Pradesh High Court in W.P. Nos. 10181 of 1983, 11830, 4677, 4763, 4778 of 1985, 4926, 4935 and 4948 of 1986. 308     A.K. Ganguli, A.K. Sen, Shanti Bhushan, Harish N. Salve, S. Krishnan, J.B. Dada Chanji, Mrs. A.K. Verma, Joel  Pares, R. Dave, A. Subba Rao, Sunil Kumar Jain, Vijay Hansaria,  K. Srinivasa Mufti, Kailash Vasudev, Nauni Lal, A.T.M. Sampath, R.  Karanjawala, Mrs. M. Karanjawala and H.S. Anand for  the Appellants.     M.K.  Banerjee, Solicitor General, B. Datta,  Additional Solicitor General, T.V.S.N. Chari, Ms. Sunita and Ms. Vrinda Grover for the Respondents. The Judgment of the Court was delivered by     PATHAK,  CJ.  These  appeals are  directed  against  the judgment  of  the High Court of  Andhra  Pradesh  dismissing several  writ petitions filed by the appellants  challenging assessments made under the Andhra Pradesh General Sales  Tax Act  1957 on the value of packing material at the  rate  ap- plicable to goods packed therein.     The appellants in some of the appeals are  manufacturers of  or dealers in beer, the appellants in the other  appeals are manufacturers of or dealers in cement. The beer is  sold in bottles packed in cartons. The cement is sold in gunnies. Section  5  of  the Andhra Pradesh  General  Sales  Tax  Act (hereinafter referred to as ’the Act’) provides for the levy of sales tax on the turnover of goods at the rates specified in  that  provision. In the case of goods mentioned  in  the First Schedule to the Act tax is leviable at the rates,  and at  the  point of sale, specified therein. In  the  case  of goods  mentioned  in  the Sixth Schedule,  likewise  tax  is leviable  at the rates and at the points specified  therein. Item  19 of the First Schedule speaks of  ’Containers  other than gunnies and bottles’. These goods are subject to tax at the rate of 5 paise in the rupee at the point of first  sale in  the  State. Item 123 of the  First  Schedule  enumerates ’glass  and glassware’, which is subject to sales tax  at  9 paise in the rupee at the point of first sale in the  State.

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In respect of cement tax is leviable by reference to item 18 of  the First Schedule at the rate of 10 paise in the  rupee at  the  point of first sale in the  State,  while  gunnies, formerly mentioned under item 67 of the First Schedule,  and now  included in item 157 of that Schedule, are  subject  to tax  at  the point of first sale in the State. And  beer  is covered  by item 1 of the Sixth Schedule under the  category ’Country  Liquor’  taxable at the rate of 10  paise  in  the rupee at every point of sale other than at the point of last sale, at which point the rate is 5 paise per rupee. 309     Clause (s) of Section 2 of the Act defines ’turnover’ to mean  the  total amount set out in the bill of sale  (or  if there  is no bill of sale, the total amount charged) as  the consideration  for  the sale or purchase of  goods  (whether such  consideration be cash, deferred payment or  any  other thing of value) including any sums charged by the dealer for anything  done  in respect of goods sold at the time  of  or before the delivery of the goods and any other sums  charged by  the dealer, whatever be the description, name or  object thereof;  or the aggregate of amounts charged under  section 5-C.     With effect from 8 July, 1983, section 6-C was  inserted in  the  Act by Andhra Pradesh Act No. 11 of  1984,  and  it provides:               ’Notwithstanding  anything in sections  5  and               6-A,  where goods packed in any materials  are               sold or purchased, the materials i,n which the               goods  are so packed shall be deemed  to  have               been  sold or purchased along with  the  goods               and the tax shall be leviable on such sale  or               purchase of the materials at the rate of  tax,               if any, as applicable to the sale, or, as  the               case may be, purchase of goods themselves.’     The net turnover of a dealer assessable to tax is deter- mined  under rule 6 of the Andhra Pradesh General Sales  Tax Rules,  after deducting the amount specified in clauses  (a) to  (1)  of  that rule from the  total  turnover.  Of  these clauses, clause (g) speaks of:               ’Amounts  relating  to  charges  for  services               rendered  in  connection with the  packing  of               goods  when specified and charged for  by  the               dealer  separately, without including them  in               the price of goods sold.’     The  appellants filed the writ petitions, out  of  which the  present appeals arise, in the High Court  at  Hyderabad challenging  the assessments to sales tax made on the  turn- over  of packing material employed either by way of  bottles for  containing  beer or by way of gunny  bags  for  packing cement.  The appellants challenged the application  of  such rate in assessments made in relation to the period before  8 July,  1983. The appellants also challenged the  application of  that rate proposed pursuant to s. 6C in show  cause  no- tices  issued by the concerned authority.  While  dismissing the  writ  petitions, the High Court has  proceeded  on  the basis  that having regard to the nature of the goods and  to the  trade practice in respect of beer and cement  the  con- tainers were necessary concomitants in the transactions, and the transfer of 310 property  in the containers was incidental  or  unavoidable, that  the sale transactions had to be regarded as  composite and  integrated sales of the containers and  their  contents and what was really sold was the bottled beer or the  cement packed  in gunny bags. The learned Judges  observed  further

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that  even  where money was paid to the dealer  as  security deposit refundable on the return of the bottles the sale  of the  bottle could not be treated as an independent  transac- tion different and distinct from the transaction of sale  of the  beer. So also was the case in the sale of  cement  con- tained  in  gunnies. The learned Judges expressed  the  view that  the consideration paid by the purchaser to the  dealer consists not only of the price of the contents, namely, beer or  cement, but also includes the price of  the  containers, that is the bottles and the cartons in the case of beer  and gunnies in the case of cement.     It  is commonly accepted that a transaction of sale  may consist of a sale of the product and a separate sale of  the container housing the product with respective sale consider- ations  for the product and the container separately; or  it may  consist  of  a sale of the product and a  sale  of  the container  but both sales being conceived of  as  integrated components  of a single sale transaction; so., what may  yet be  a  third case, it may consist of a sale of  the  product with the transfer of the container without any sale  consid- eration  therefore.  The question in every case  will  be  a question of fact as to what are’. the nature and ingredients of the sale. It is not right in law to pick on one  ingredi- ent  only to the exclusion of the others and deduce from  it the  character of the transaction. For example, the  circum- stance  that the price of the product and the price  of  the container  are  shown separately may be  evidence  that  two separate  transactions are envisaged, but that  circumstance alone  cannot  be conclusive of the true  character  of  the transaction.  It  is not unknown that traders may,  for  the advantage of their trade, show what is essentially a  single sale transaction of product and container, or a  transaction of a sale of the product only with no consideration for  the transfer  of the container, as divisible into  two  separate transactions,  one of sale of the product, and the  other  a sale  of the container, with a distinct price shown  against each.  Similarly  where a deposit is made by  the  purchaser with  the dealer, the deposit may be pursuant to a  transac- tion where there is no sale of the container and its  return is contemplated, and in the event of its not being  returned the security is liable to forfeiture. Alternatively, it  may be a case where the Container is sold and the deposit repre- sents  the consideration for the sale, and in the  event  of the  container being returned to the dealer the  deposit  is returned  by way of consideration for the re-sale. In  every case, the assessing authority is obliged to ascertain the 311 true nature and character of the transaction upon a  consid- eration of all the facts and circumstances pertaining to the transaction. That the problem almost always requires factual investigation into the nature and ingredients of the  trans- action  has  been repeatedly emphasised by  this  Court.  In Hyderabad  Deccan Cigarette Factory v. The State  of  Andhra Pradesh, [1966] 17 STC 624 this Court said:               "It is not possible to state as a  proposition               of  law  that whenever particular  goods  were               sold in a container the parties did not intend               to sell and buy the container also. Many cases               may  be  visualized  where  the  container  is               comparatively of high value and sometimes even               higher  than  that contained in it.  Scent  or               whisky may be sold in costly containers.  Even               cigarettes  may  be  sold in  silver  or  gold               caskets.  It  may be that in  such  cases  the               agreement  to pay an extra price for the  con-

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             tainer  may  be more readily implied.  In  the               present  case, if we may say so with  respect,               all the authorities, including the High Court,               dealt  with the question as a question of  law               without considering the relevant factors which               would    sustain   or   negative   any    such               agreement  .......               A perusal of the orders of the various author-               ities  and the High Court shows that a  simple               question  of  fact  has  been  sidetracked  by               copious citations. Whether there was an agree-               ment  to sell the packing materials is a  pure               question  of fact and that question cannot  be               decided on fictions or surmises. That is  what               has happened in this case. The Commercial  Tax               Officer invoked a fiction; the, Assistant Com-               missioner of Commercial Taxes relied upon  the               doctrine of "finished product"; the  Appellate               Tribunal  relied upon surmises; and  the  High               Court, on the principle of implied  agreement.               But  none has tackled the real  question.  The               burden lies upon the Commercial Tax Officer to               prove  that  a turnover is liable to  tax.  No               doubt  he can ask the assessee to produce  the               relevant material; and if he does not  produce               the  same,  he may draw an  adverse  inference               against  him. But, he must decide the  crucial               question  whether the packing  materials  were               subject  of the agreement of sale, express  or               implied.  To  ascertain the said fact  he  can               rely upon oral statements, accounts and  other               documents, personal enquiry and other relevant               circumstances  such  as  the  nature  and  the               purpose of the packing materials used." 312 Again, in Commissioner of Taxes, Assam v. Prabhat  Marketing Co.,  Ltd.,  [1967] 19 STC 84 this Court accepted  as  well- founded submission that the parties may have intended in the circumstances  to sell hydrogenated oil apart from the  con- tainers, and the mere fact that the price of the  containers was  not  separately fixed would make no difference  in  the assessment of sales tax, and went on to observe:               "It  is  well-established  that  in  order  to               constitute  a sale it is necessary that  there               should be an agreement between the parties for               the  purpose of transferring title  to  goodS,               the  agreement  must  be  supported  by  money               consideration,  and  that as a result  of  the               transaction the property should actually  pass               in  the goods. Unless all the ingredients  are               present  in the transaction there could be  no               sale of goods and sales tax cannot be  imposed               State  of Madras v.  Gannon Dunkerley and  Co.               (Madras) Ltd., [1959] S.C.R. 379 .............................................................               The question as to whether there is an  agree-               ment to sell packing material is a pure  ques-               tion of fact depending upon the  circumstances               found in each case."     There can be as many different kinds of transactions  as the  circumstances of the case may require either by  reason of prevailing trade practice or market conditions or person- al  convenience, and as human ingenuity may devise for  bona fide  reducing the burden of tax. In The State of  Karnataka v. Shaw Wallace and Company Ltd., [1981] 48 STC 169 the High

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Court  of Karnataka pointed out that there was an  agreement to  sell  the  bottles and crates in which  the  liquor  was conveyed  and there was also an agreement in regard  to  the price  of  those containers, and therefore the  turnover  in regard to those items had to be determined and the appropri- ate  rate of sales tax had to be charged as provided in  the Karnataka Sales Tax Act. Reference was made to the  require- ment  in the Karnataka Excise Act, 1966 that the liquor  had to  be  sold in sealed containers but that, the  High  Court said, did not automatically lead to the conclusion that  the same rate of sales tax was applicable to containers also. It was  observed  that such a presumption could  not  be  made, specially  when separate rates were specified in  the  Sales Tax  Act  in regard to the containers and the  contents.  In Arlem Breweries Ltd. v. The Assistant Commissioner of  Sales Tax, Panaji, [1983] 53 STC 172 the Panaji Bench of the  High Court of Bombay noted that item 22 of the First Schedule  to the  Goa, Daman and Diu Sales Tax Act, 1964, which spoke  of the item "foreign liquor and 313 India-made foreign liquor" indicated that the tax was levied only on the liquor and not against the bottle and liquor  or bottled  liquor. The sale was of beer and the  bottles  were treated separately. It was also pointed out that the  agree- ment by the assessee with the wholesaler did not create  any obligation  on the purchasers to return the bottles nor  did it  fix any time for their return. The payment of an  amount for  the  bottles in advance as a term of the sale  was  re- ferred  to as cost of the bottles and this, the  High  Court said,  constituted  the sale price of the  bottles  although described  as a deposit. In M/s Jamana Flour & Oil Mill  (P) Ltd. v. State of Bihar, AIR 1987 SC 1207 this Court affirmed the finding that there was an implied agreement of the  sale of gunny bags. It said:               "Admittedly gunny bags are a different commod-               ity and sale thereof is assessable to tax at 4               1/2  %. It is not disputed that the  appellant               bought  gunny bags for packing wheat  products               for  the  purpose of sale. The  control  order               contemplates a net weight which means that the               weight of the bag is included in the price  to               be  charged by the dealer. Under the  Explana-               tion  when  packing is done in  cloth-bags,  a               higher rate is admissible. The scheme  clearly               suggests  that  the  price of  gunny  bags  is               inclusive  and  where  cloth-bag  is  used,  a               higher  price  over and above  what  has  been               provided    for   ordinary    containers    is               permitted."     It  is, therefore, perfectly plain that the issue as  to whether the packing material has been sold or merely  trans- ferred without consideration depends on the contract between the  parties. The fact that the packing is of  insignificant value  in  relation to the value of the contents  may  imply that  there was no intention to sell the packing, but  where any packing material is of significant value it may imply an intention to sell the packing material. In a case where  the packing material is an independent commodity and the packing material as well as the contents are sold independently, the packing material is liable to tax on its own footing. Wheth- er  a transaction for sale of packing material is  an  inde- pendent  transaction will depend upon several factors,  some of them being:    1.  The  packing material is a commodity having  its  own identity and is separately classified in the Schedule;

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   2.  There  is no change, chemical or  physical,  in  the packing  either  at the time of packing or at  the  time  of using the content; 314   3.  The packing is capable of being reused after the  con- tents have been consumed;   4.  The packing is used for convenience of  transport  and the quantity of the goods as such is not dependent on  pack- ing; 5.  The mere fact that the consideration for the packing  is merged with the consideration for the product would not make the  sale of packing an integrated part of the sale  of  the product. In  one case, Punjab Distilling Industries Ltd. v. The  Com- missioner of Income Tax, Simla, [1959] Supp. 1 SCR 683 where the  bottles  were  sold by the assessee  under  a  buy-back scheme,  the security deposit for the return of the  bottles was  held to be merely in the nature of an incentive to  the buyer to return the bottles.     Turning to s. 6C of the Act, it seems to envisage a case where it is the goods which are sold and there is no  actual sale of the packing material. The section provides by  legal fiction  that the packing material shall be deemed  to  have been  sold  along with the goods. In other  words,  although there is no sale of the packing material, it will be  deemed that  there is such a sale. In that event, the  section  de- clares, the tax will be leviable on such deemed sale of  the packing  material at the rate of tax applicable to the  sale of the goods themselves. It is difficult to comprehend the need  for such a provision. It can at best be regarded as  a provision  by  way  of clarification of  an  existing  legal situation.  If the transaction is one of sale of  the  goods only,  clearly all that can be taxed in fact is the sale  of the  goods, and the rate to be applied must be read  in  the case of such goods. It may be that the price of the goods is determined  upon  a  consideration  of  several  components, including the value of the packing material, but nonetheless the  price  is  the price of the goods. It is  not  open  to anyone  to  say that the value of the  different  components which have entered into a determination of the price of  the goods  should be analysed and separated, in order that  dif- ferent  rates  of  tax should be applied  according  to  the character of the component (for example, packing  material). What s. 6C intends to lay down is that even upon such analy- sis  the rate of tax to be applied to the component will  be the  rate applied to the goods themselves. And that  is  for the  simple reason that it is the price of the  goods  alone which constitutes the transaction between the dealer and the purchaser. No matter what may be the component which  enters into  such price, the parties understand between  them  that the  purchaser is paying the price of the goods. Section  6C merely clarifies and explains that 315 the components which have entered into determining the price of  the  goods cannot be treated separately from  the  goods themselves,  and  that no account was in fact taken  of  the packing  material when the transaction took place, and  that if  such  account must be taken then the same rate  must  be applied  to  the packing material as is  applicable  to  the goods themselves. We find it difficult to accept the conten- tion of the appellants that a rate applicable to the packing material  in the Schedule should be applied to the  sale  of such  packing material in a case under s. 6C, when  in  fact there was no such sale of packing material and it is only by legal fiction, and for a limited purpose, that such sale can

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be contemplated. In the circumstances, no question arises of s.  6C being constitutionally discriminatory, and  therefore invalid.     In  the appeals before us, we find that the  High  Court has  proceeded on the assumption that the  transactions  are covered by trade practice and having regard to the nature of the goods it has inferred that what is charged is the  price of  the bottled beer or of cement packed in gunny bags,  and reference  has  also  been made to the Excise  Law  and  the Cement  Control Order requiring that the liquor or  the  ce- ment,  as  the case may be, must be sold in  bottles  or  in gunny bags respectively. We are constrained to observe  that no attempt has been made by the tax authorities to ascertain the facts of each case and to determine what were the actual ingredients  of the contract and the intention of  the  par- ties. Assumptions have been made when what was required  was a  detailed investigation into the facts. We have  indicated earlier the several possibilities which are open in cases of this  kind, and how the ultimate conclusion can  be  vitally affected by the tests to be applied. Because of the lack  of adequate and clear factual material, the High Court also was compelled to proceed on the basis of generalised  statements and broad assumptions. We are unable, in the  circumstances, to hold that the cases can be regarded as disposed of final- ly. It is regrettable but the cases must go back for  proper findings on facts to be ascertained on fuller investigation.     In  the  circumstances,  the appeals  are  allowed,  the impugned judgment and order of the High Court in the several cases  are set aside and the cases are remanded to the  High Court for further consideration and disposal in the light of the  observations made by us. In the case of the writ  peti- tions  before  us, the assessing authority  will  allow  the dealer to show cause and thereafter upon evidence led before it determine the matter. There is no order as to costs. R.S.S.                                               Appeals allowed. 316