State of Tamil Nadu vs V.V. Vanniaperumal and Co.

Bellie, J.—These two references to a Full Bench are by a Division Bench. The references occasioned because the Division Bench found it

difficult to agree with the point of law decided by an earlier Division Bench in K. Natarajan and Sons Vs. The State of Tamil Nadu, . The point

involved is whether when oil is sold in sealed tin containers the cost of tins can be deducted from the total turnover as package charges under rule

6(cc)(i) of the Tamil Nadu General Sales Tax Rules, 1959. In the two references the assessee V. V. Vanniaperumal and Co., is a dealer in gingelly

oil and oil-cake and purchases oil, as seen from the records, in barrels and in various sizes of polythene cases and also in 16 kg. sealed this. We

are now concerned with the oil purchased in tins. The company in turn sells the said 16 kg. tins to its customers but it charges in the bill separate

price for the oil contents and separate price for the tin container.

The assessing authority taxed on the total turnover rejecting the assessee''s plea that the price for the tin shall be taken as packing charges as it is

provided under rule 6(cc)(i) of the Tamil Nadu General Sales Tax Rules, 1959. But on appeal the Sales Tax Appellate Tribunal accepted the plea

of the assessee holding that the assessee''s claim is squarely covered by rule 6(cc)(i) and it granted deduction for the price of the tins charged

separately in the bills.

As against this order revisions were preferred by the State which came before the Division Bench consisting of Balasubramanyan, J., and

Padmanabhan, J. During arguments the State relied on the abovesaid Division Bench decision in K. Natarajan and Sons Vs. The State of Tamil

Nadu, . In that decision Ismail, J., as he then was and Sethuraman, J., had held that when oil is sold in sealed tins and even if oil contents is

separately priced and the tin container is separately priced the total price is exigible to tax and no deduction arises for the price charged for the tin

containers. They further held that the question of deduction for packing charges arises when the packing is done only subsequent to the sale of oil.

However they further held that the sale price of the oil shall be separately taxed and the sale price of the tin container shall be separately taxed at

the rates individually applicable to them.

In the reference cases Balasubramanyan, J., and Padmanabhan, J., found it very difficult to agree with the proposition of law laid down by the

earlier Bench that no deduction as package charges can be made for the tin container and deduction arises only when package is made subsequent

to the sale of the oil, and therefore they thought it proper to refer the matter to a Full Bench.

Rule 6(cc)(i) of the Tamil Nadu General Sales Tax Rules, 1959, is this :

The tax or taxes under sections 3, 4 or 5 shall be levied on the taxable turnover of the dealer. In determining the taxable turnover, the amounts

specified in the following clauses shall, subject to the conditions specified therein, be deducted from the total turnover of a dealer :-

(a) ................

(cc) all amounts falling under the head, charges for packing, that is to say, cost of packing materials and cost of labour,

(i) when charged for by the dealer separately without including such amounts in the price of the goods sold, in respect of the goods liable to tax at

the hands of the assessee; ...........

The rule appears to be in plain words that in determining the taxable turnover the charges for packing shall be deducted from the total turnover.

Mr. J. Kanakaraj, learned Additional Government Pleader, argues that the dealer-company purchases the oil in sealed tin containers and it sells the

same, as it is, to its customers and, therefore, no question of packing of oil by the dealer arises at all and hence there are no charges of packing as

contemplated in rule 6 and thus no question of deduction of packing charges arises. This is the argument that found acceptance with the Division

Bench in K. Natarajan and Sons Vs. The State of Tamil Nadu, .

To us too the submission of the learned Additional Government Pleader appears to be correct. What is sold is ""tin of oil"". Not oil alone. Therefore

the goods sold is ""tin of oil"". It may be called a composite goods. The bargain of sale is for this ""tin of oil"". Hence it follows that the price of the

goods, i.e., tin of oil is taxable and no question of price of the oil content alone being taxable arises. Thus while calculating the total turnover, the

total turnover price of the tins of oil sold has to be calculated. Thus it appears to us, when it is stated in K. Natarajan and Sons Vs. The State of

Tamil Nadu, that the packing charges subsequent to the sale alone is deductible, it is correct. For instance when small tins of oil are sold and they

are to be packed for delivery, then the expenditure of such packing is deductible.

May be the seller has separately charged for the oil content and separately charged for the tin container. But this is immaterial. He may do so for

his own convenience with a view to claim deduction as packing charges for a part of the sale price. We have to only see, whatever the seller does,

what is the goods sold and what is the price of it. Here it may be relevant to note the contents of explanation (2)(ii) to section 2(r) of the Act. It

reads :

the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of, or

before the delivery thereof;

In Commissioner of Sales Tax, U.P. Vs. M/s. Rai Bharat Das and Bros., , the Supreme Court dealt with a similar question, i.e., seller charging

separately for the container, and the Supreme Court did not favour the contention that because the container is separately charged the price of the

container is liable to be deducted. In that case there was a contract for packing silica sand in gunny bags and packing charges had been realised on

the basis of metric tonnes though the packing charges were separately shown and were added up with the price of silica. The question arose

whether u/s 2(h) of the Central Sales Tax Act, 1956, packing charges is also liable to be taxed. Section 2(h) of the Central Sales Tax Act, 1956,

reads as follows :

''sale price'' means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to

the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of

or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charges.

The Supreme Court held that,

the sales tax could be charged in respect of packing charges received from purchasers of silica sand. In view of the definition of section 2(h) of the

Act, anything which was an integral part included any sum charged for anything done by the dealer in respect of the goods, may form part but

anything supplied separately pursuant to a separate order, directions or specifications to the purchaser, could not form part of the sale price of the

gunny bags. This was done in order to putting them in deliverable state and incidental to the same.

Though section 2(h) of the Central Sales Tax Act, 1956, is not similar to rule 6(cc)(i) of the Tamil Nadu General Sales Tax Rules, from what the

Supreme Court has stated, it could be seen that the intention of the legislature when it enacted rule 6(cc)(i) could not be that when oil is sold in

sealed tins the oil content alone is liable to tax.

The Karnataka High Court [See Premier Breweries Ltd. v. State of Karnataka [1984] 56 STC 14. had an occasion to interpret a similar provision

with reference to freight and handling charges, viz., rule 6(4)(f) and (ff) of the Karnataka Sales Tax Rules, 1957, and held that,

freight and handling charges, if they become part of the price for which the goods are sold, then they are not liable to be excluded under rule 6(4)

(f) and (ff) of the Karnataka Sales Tax Rules, 1957. If, on the other hand, they are incurred as incidents of sale or incurred after the sale, then rule

6(4)(f) and (ff) would come to the relief of the assessee.

Thus considering the matter we come to the conclusion that, as held in K. Natarajan and Sons Vs. The State of Tamil Nadu, , the price of the tin

container is not deductible as packing charges.

But we do not agree with the other finding in that judgment referred to earlier that the sale price of the oil shall be separately taxed and the sale

price of the tin should be separately taxed at the rates applicable to each of them. As we said above only tin of oil is sold. There is no intention for

sale or purchase of tin. The intention is to purchase of oil which of course is in tin. Therefore, whatever is the price paid, it must be taken to be the

price of the oil. May be if more oil is sold and delivered in a container brought by the purchaser the price may be lesser than the oil sold in tin

container, but nevertheless, when oil is sold in tin, the price that is paid is the price of the oil. Therefore, total turnover of the price has to be taxed

and there is no question of taxing separately for the price of oil and price of tin at different rates.

Accordingly with these findings on the question of law arising in the matter, we set aside the order of the Appellate Tribunal and restore the

order passed by the Appellate Assistant Commissioner. The references are thus disposed of. There will be no order as to costs.

Petition allowed.