Diamond Cements (Unit of Mysore Cement Ltd.) vs State of Haryana and Others

A.L. Bahri, J.—Vide this judgment three writ petitions (Nos. 3072, 3431 and 3432 of 1993) are being disposed of as the petitioner in these three writ petitions is the same and the facts identical. These three writ petitions pertain to assessment years 1988-89, 1989-90 and 1990-91. The judgment is prepared in Civil Writ Petition No. 3072 of 1993, relating to the assessment year 1988-89.

The petitioner is running business of sale of cement in the State of Haryana at its offices at Faridabad and Rohtak. The petitioner-company is manufacturing two types of cement popularly known as `O.P.C.'' and `P.P.C.'' The manufacturing unit is at Damoh, in the State of Madhya Pradesh. The petitioner being a dealer registered under the Haryana General Sales Tax Act (hereinafter referred to the ''the Act'') filed quarterly returns. Assessment order was passed on March 9, 1993, by the Assessing Authority-cum-Excise and Taxation Officer, Faridabad (West), Annexure P-l. Thereafter a show-cause notice was issued to the petitioner on February 2,1993, Annexure P-2. The petitioner replied the same vide Annexure P-3. The petitioner, before the assessment order was passed, submitted written arguments and the copy of which was produced with the writ petition Annexure P-4. In order to explain the position copy of delivery challan Annexure P-5 and bill Annexure P-6 were produced. The writ petition was filed challenging the impugned order dated 9.3.1993 Annexure-P7. When the matter came up before the Motion Bench it was represented that the omission of Clause - VII of proviso to Section 15(i) of the Act charging of sales tax on jute bags at the rate of 12% was not permissible under the law. On notice of motion having been issued, on behalf of the respondents reply has been filed by the Excise and Taxation Officer concerned, inter-alia asserting that while selling the cement contained in the gunny bags consolidated price was charged on which sales tax at the rate of 12% was rightly assessed. The petitioner could not bifurcate transaction in two parts of sale of cement and the other of sale of jute bags. Alternative remedies of appeals and revision were available under the provisions of the Act and the writ petition was not maintainable. On merits it is further pleaded that omission of Clause (vii) of proviso to Section 15 will not make any difference in law. The item chargeable to sales tax would be cement, i.e. cement bags. The petitioner filed replication to the written statement reiterating the stand taken up in the writ petition and further stated that the sale of jute bags and cement were governed by different items. In item No. 8 of notification dated 30.12.1987 on sale of cement the rate of sales tax is to be 12 paisa in a rupee, whereas on the sale of jute bags it is to be 4 paisa in a rupee in item No. ''O''.

We have heard the learned counsel for the parties.

Mr. Mohan Jain, learned counsel for the petitioner, has pressed into service two points; Firstly, it has been argued that infact the sale was completed at Faridabad on delivery of the goods. The Assessment Authority was not justified in including the handling charges and freight charges in the turnover, holding that as per agreement the sale was to be completed on delivery of cement bags at the place of the dealer in different towns in the State of Haryana. This question depends upon the proof of facts. If it is held that the sale was completed at Faridabad, obviously, the freight charges and handling charges are not to be added in the turnover. If the sale was completed at the destination station where the goods were to be supplied obviously such charges were to be included in the turnover. The petitioner is left to seek the remedy in this regard before the Appellate Authority as such a question of disputed facts cannot be determined in these writ petitions.

The other point argued by the counsel is mixed question of law and fact and it relates to the effect of repeal of clause (vii) of proviso to Section 15 of the Act. u/s 6 of the Act, every dealer whose turnover exceeds the taxable quantum is liable to pay tax on all sales and purposes. The rates of tax are provided in sub-section (1) of Section 15, which reads as under:-

"15. Rate of tax.

(1) Subject to the provisions of this Act, there shall be levied on the taxable turnover of a dealer a tax, at such rates, not exceeding:-

(a) twenty paise in a rupee in the case of liquor (foreign liquor and Indian made foreign liquor) specified at serial number 25 of Schedule A and (twelve paise) in a rupee in the case of other goods specified therein; and (b) (eight paise) in rupee in the case of other goods;

as the State Government may, by notification, direct."

The aforesaid provision contained different proviso. Proviso (vii) reads as under:-

"(vii) In the case of sale of goods packed in jute bags, the value of such bags, whether charged separately or not, shall be charged at the rate at which such goods are taxable."

Proviso (vii) as reproduced above, was omitted from the principal Act by Haryana Act 13 of 1988 which came into force on April 11, 1988. Thus, for the assessment year in question it is to be taken that Clause (vii) as reproduced above did not exist in the principal act. It was on account of proviso (vii) that value of the goods as well as of the bags in which goods were packed, were to be clubbed and was chargeable to sales tax at the rate at which such goods were taxable. There is no dispute that the sale of cement was subjected to tax at the rate of 12 paise in a rupee, prior to repeal aforesaid. The contention of Shri Mohan Jain Advocate for the petitioner is that after the omission of proviso (vii) aforesaid, the rate of tax to be charged is provided in Section 15(1) of the Act, i.e. as per notification of the State Government on different goods at different rates. In the absence of any such notification, tax to be charged on goods was to be 8 paise in a rupee u/s 15(1)(b). The. notification of the Haryana Government fixing rate of tax on different articles was issued on December 30, 1987, which remained applicable and as per item ''O'' the rate applicable on the sale of jute bags is 4 paise in a rupees and or the sale of cement as per item No. 8 of the notification, the sales tax chargeable is at the rate of 12 paise in a rupee. It. is not disputed that value of the gunny bags used as convenient mode of delivery of cement, is exigible to tax. The only dispute is with regard to the rate of tax. Shri Mohan Jain Advocate for the petitioner has argued that, on the value of the gunny bags tax is leviable as per item ''O'' of the notification, i.e. 4% and not 12% treating value of the gunny bags as value of the cement. In support of this contention, he has placed reliance on the decision of the Supreme Court in Jamna flour and Oil Mill (P) Ltd. v. State of Bihar 65 S.T.C. 462. The said case related to the sale of wheat products in gunny bags. The sale price was fixed under the Roller Mills Wheat Products (Price Control) Order, 1964. The provisions thereof contemplated a net weight which included the weight of the bag, the price to be charged by the dealer. When the matter was before the High Court, a direction was given to the Tribunal to separately ascertain the price of the gunny bags from the all-inclusive price and the Tax charged of the gunny bags at the higher rate of 4-1/2 per cent and with respect to food articles it was to be charged at the rate of 2 per cent. The Supreme Court upheld the decision of the High Court and observed as under:-

"In our view, the Tribunal rightly came to the conclusion that there was implied agreement of sale of gunny bags. Admittedly, gunny bags are a different commodity and sale thereof is assessable to tax at 4-1/2 per cent. It is not disputed that, 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 explanation 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."

Reference was made to the earlier decision in Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh 17 S.T.C. 624 wherein it was observed as under:-

"In a case of this description what the sales tax authorities had to do was to ask and answer the question whether the parties, having regard to the circumstances of the case, intended to sell or buy the packing materials or whether the subject-matter of the contracts of sale was only an exempted article (here exigible to tax at radical rate), and packing materials did not form part of the bargain at all, but were used by the sellers as a convenient and cheap vehicle of transport."

On the other hand, Mr. Arun Nehra, Additional Advocate General, Haryana, has relied upon the decision of the Supreme Court in Raj Sheel and Ors. v. State of Andhra Pradesh and Ors. 74 S.T.C. 379. While making reference to Section 6-C of the Andhra Pradesh General Sales Tax, 1957, it was observed as under:-

"Section 6-C of the Andhra Pradesh General Sales Tax Act, 1957, only envisages 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 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 declares, the Tax will be leviable on such deemed sale of the packing material at the rate applicable to the sale of the goods themselves. There was no need for such a provision, and 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 goods only, Clearly all that can be taxed in fact is the sale of the goods, and the rate to be applied must be the rate 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 none the less 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 different rates of tax should be applied according to the component (for example, packing material). What Section 6-C intends to lay down is that even upon analysis 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."

The contention of Mr. Arun Nehra, learned Additional Advocate General, Haryana, is that in view of the ratio of the decision aforesaid it was immaterial if proviso (vii) to sub Section 15(1) of the Act was omitted. The transaction of sale continued to remain one that is sale of cement. Jute bags were merely used as convenient mode of delivery of cement. Before this question is further discussed, another passage of Raj Sheel''s judgment be also noticed which is under:-

"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 consideration 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 a third case, it may consist of a sale of the product with the transfer of the container without any sale consideration therefor. 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 one ingredient only to the exclusion of the others and deduce from it the character of the transaction."

It was further observed as under :-

"In every case, the assessing authority is obliged to ascertain the true nature and character of the transaction upon a consideration of all the facts and circumstances pertaining to the transaction. The problem always requires factual investigation into the nature and ingredients of the transaction."

The other case relied upon on the subject is of the Hon''ble Supreme Court in Commissioner of Sales Tax U.P. v. Rai Bharat Das and Bros. 71 S.T.C. 277. That was a case of sale of sand packed in sound gunny bags at the request of the buyer. Packing charges which were charged by the seller were held to be the part of the sale price. The Tribunal found that there was a implied agreement for sending silica in gunny bags, that packing was done at the request of the buyer and that it was a convenient mode of delivery. The Tribunal held that packing charges where the part of the sale price. The High Court held that the packing charges could not be included in the sale price. While reversing the decision of the High Court, the Hon''ble Supreme Court held as under:-

"In view of the findings recorded by the Tribunal that there was a contract for packing the silica sand in sound gunny bags, the packing charges realised by the respondent was an integral part of the sale price falling within "any sum charged for anything done by the dealer in respect of the goods" as contemplated by section 2(h) of the Central Sales Tax Act, 1956, and were exigible to sales tax under the Act."

On behalf of the State, the decision of Gujarat High Court in Bengal Electric Lamp Works Ltd. v. State of Gujarat 03 S.T.C. 309 is also pressed into service. That was a case of fluorescent lamps. A finding was recorded by the authorities that the purchaser had no option to purchase the goods loose and it was in that case of two different sales, one of lamps and other of packing material. The packing material, it was held, was liable to be charged at the same rate as goods were sold.

Thus the question for consideration is as to whether the transaction of sale of cement in dispute is composite one i.e. sale of cement bags or sale of cement and bags. If on facts it is held that it is a case of sale of cement bags, obviously sales tax is to be charged on the price of cement at the rate of 12% on the price of cement as well as of bags. It would be immaterial in such a case if the dealer shows sale of cement and bags separately in the bill. If on the other hand, it is found that in fact it was a sale of cement as well as sale of bags, sales tax would be charged on the sale of cement at the rate of 12% of the price of cement and 4% on the price of bags. It is for the authorities under the Statute to decide such questions of fact on the material produced and the intention of the parties in completing the transaction of sale. Once such intention is established, it would be immaterial if the same was intended to be covered up.

The effect of repeal of proviso (vii) of Section 15 of the Haryana General Sales Tax Act would be that if the articles sold, or intended to be sold, were two separately, i.e. cement as well as bags, the same would be charged to sale tax at the rate of 12% and 4% respectively. Thus holding as above, the petitioner is relegated to the remedy of appeal under the Act.

All the three writ petitions stand disposed of as above.