Supreme Court Dismisses State Appeals in Sales Tax Dispute over Cement Packing Charges. Supply of Gunny Bags to State Trading Corporation Not Taxable as Sale Because Price Was Wholly Controlled Under Clause 6(4) of Cement Control Order, 1958 and Rule 6(f) Exempted Packing Material Cost.

Case Note & Summary

Background: The appeals arose from sales tax assessments under the Madras General Sales Tax Act, 1959, concerning transactions involving supply of cement in gunny bags. The State of Tamil Nadu appealed against decisions of the Madras High Court which had ruled in favour of the assessees, namely the producers of cement and the selling agents of the State Trading Corporation. The dispute pertained to whether the price of gunny bags used for packing cement could be included in taxable turnover and whether packing charges were exempt under Rule 6(f) of the rules framed under the Madras General Sales Tax Act, 1959. Facts: Pursuant to the Cement Control Order, 1958, cement producers were required to supply cement to the State Trading Corporation or its agents in gunny bags. The Central Government fixed the packing charges for cement for various periods through orders dated March 26, 1959, June 24, 1959, December 26, 1959, and February 17, 1961. These orders specified the charges per ton for packing cement in new gunny bags. The assessing authorities sought to tax the supply of gunny bags as sales, arguing that the price of packing material was not exempt under Rule 6(f) as it stood before September 27, 1963. The assessees contended that the price of gunny bags was wholly controlled and therefore the supply could not be considered a sale, and that Rule 6(f) exempted the cost of packing material. The High Court accepted the assessees' contentions. Legal Issues: The core questions were (i) whether the supply of gunny bags by cement producers to the State Trading Corporation constituted a 'sale' under the Madras General Sales Tax Act, 1959, given that the price was controlled under Clause 6(4) of the Cement Control Order, 1958; (ii) whether the selling agents of the State Trading Corporation were liable to sales tax on the price of gunny bags in which they sold cement to consumers; and (iii) whether Rule 6(f)(ii) as it stood up to September 1963 exempted only service charges for packing or also the cost of packing material. Arguments: The State argued that under Clause 6(4) of the Cement Control Order, the Central Government could fix only the maximum price, not the actual price, leaving scope for bargaining between producers and the State Trading Corporation. It further contended that Rule 6(f) as it stood till September 1963 exempted only service charges for packing, not the cost of packing material, relying on State of Madras v. K. Damodaran Chettiar & Co. The State also sought to raise a new contention regarding retrospective amendments to the Central Sales Tax Act, 1969. The assessees, on the other hand, relied on New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar and Chittar Mal Narain Dass v. Commissioner of Sales Tax, U.P. to argue that when price is wholly controlled, no sale occurs. They also relied on The State of Madras, In re, which held that an identical rule exempted the price of packing material. Court's Analysis: The Supreme Court held that the Central Government had fixed the actual price of gunny bags, not merely a maximum price, and that its authority to do so was not challenged in the pleadings before the High Court. Consequently, the supply of gunny bags could not be treated as a sale, following the cited precedents. On the interpretation of Rule 6(f), the Court agreed with the earlier decision in The State of Madras, In re and held that 'charges for packing' included both the price of packing material and labour charges. The words 'and other such like services' referred to 'delivery' immediately preceding them. The subsequent amendments to Rule 6(f) merely clarified the original intention. The Court disapproved State of Madras v. K. Damodaran Chettiar & Co. and refused to entertain the new contention under the Central Sales Tax Act as it was not raised earlier. Decision: The Supreme Court dismissed all appeals with costs. It awarded only three sets of hearing fee: one set for the counsel appearing for the State Trading Corporation and its agents, one for the counsel appearing for Dalmia Cement Bharat Ltd., and one for the counsel appearing for Thiruvalargal India Cement Ltd.

Headnote

Issue of Consideration

Final Decision

Appeals dismissed with costs. Only three sets of hearing fee awarded: one set for counsel appearing for State Trading Corporation and its agents; one set for counsel appearing for Dalmia Cement Bharat Ltd.; one set for counsel appearing for Thiruvalargal India Cement Ltd.

Law Points