Telangana High Court
M/S.Desai Brothers Ltd. vs S.Rep.S.A.P.,S.T.A.T.Hyd. on 28 May, 2025
Author: T.Vinod Kumar
Bench: T.Vinod Kumar
THE HONOURABLE SRI JUSTICE T.VINOD KUMAR
AND
THE HONOURABLE SRI JUSTICE PULLA KARTHIK
TAX REVISION CASE No.203 OF 2002
ORDER:
(per the Hon’ble Sri Justice Pulla Karthik)
This Tax Revision Case is preferred against the order dated
17.08.2001 passed by the Sales Tax Appellate Tribunal, Andhra Pradesh,
(for brevity, ‘Tribunal’) in T.A.No.623 of 1997, wherein and whereby the
order dated 14.08.1997 passed by the Deputy Commissioner (CT),
Nizamabad Division, in R.R. No.6/97-98 has been partly set aside.
2. Facts of the case, that are necessary for the purpose of disposal of
the present case, are that petitioner herein is a Company registered under
the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter referred to as
the ‘Act’), engaged in the business of manufacture and sale of beedis. It
purchase beedi leaves, get them manufactured into beedis and sell the
resultant beedis. The beedis are first rolled and tied to a small string. 25
of such beedis are packed into ‘katta’. 20 of such ‘kattas’ are packed into
‘pudas’. 40 ‘pudas’ are packed in a cardboard box which is wrapped with
waterproof sheet and such cardboard boxes are in turn packed in gunnies
and sold in the market. While so, during the year 1993-94, the petitioner’s
final assessment was completed by the Commercial Tax Officer-III,
Nizamabad, levying the tax only on the last purchase of beedi leaves and
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certain miscellaneous sales, vide order, dated 18.02.1997. Thereafter, the
Deputy Commissioner (CT), Nizamabad Division, (for short, ‘DC’) issued
show-cause notice, dated 06.05.1997, proposing to levy tax on value of new
gunnies, new corrugated boxes, old cartons, label paper and other adhesive
materials purchased by the petitioner, by adding 20% profit thereon,
involving addition of estimated turnovers which are as follows:
a) First sales of gunnies - Rs.1,64,83,233/- b) First sales of corrugated boxes - Rs.1,90,12,366/- c) First sales of label paper - Rs.68,32,262/- d) Water proof rolls - Rs.5,21,109/-
To the said show cause notice, the petitioner submitted detailed objections,
dated 22.07.1997. The DC vide order dated 14.08.1997 rejected all the
contentions urged by the petitioner and confirmed the proposed revision on
modified turnovers after reducing closing stock. The turnovers, finally,
added by the DC are as follows:
a) Gunnies – Rs.1,32,10,500/- @ 7.7% – Rs.10,17,208/-
b) Corrugated boxes – Rs.1,54,56,720/- @ 7.7% – Rs.11,90,167/-
c) Label Paper – Rs. 53,75,905/- @ 9.9% – Rs. 5,32,215/-
d) Water proof rolls – Rs. 3,31,950/- @ 8.8% – Rs. 29,211/-
Aggrieved by the order of the DC, the petitioner filed an appeal before the
Tribunal vide T.A.No.623 of 1997 and the same was partly allowed by
allowing the claim of the petitioner to the extent of water proof rolls and
partly dismissed by dismissing the claim of the petitioner in respect of other
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packing material viz., Gunnies, Corrugated boxes, Label Paper, vide order
dated 17.08.2001. Questioning the same, the petitioner is before this
Court.
3) Heard Sri Karthik Ramana Puttamreddy, learned counsel,
representing Sri S.Dwaraknath, learned counsel for the petitioner, and Sri
K.Raji Reddy, learned Special Government Pleader for Commercial Taxes,
for the respondents.
4) Learned counsel for the petitioner has contended that the provision
of packing material is integrated with sale of beedis which is exempt from
tax and there is no express or implied sale of packing material. Learned
counsel has also contended that the value of packing material used by the
petitioner during the year is about Rs.2.68 crores as against total sale of
beedis worth Rs.110.71 crores. Thus, the value of the packing material is
mere 2.16% of the turnover of beedis. As per Section 6-C of the Act,
packing material is liable to be taxed at the rate applicable to the contents
and as the rate applicable to the contents (i.e. beedis in the present case) is
‘nil’, there cannot be levy of any tax for the packing material. Learned
counsel has relied on the decision of the Hon’ble Supreme Court in
Hyderabad Deccan Cigarette Factory v. State of A.P. 1 to contend that
packing material cannot be taxed if it did not form part of the bargain
between the parties but only used as a convenient and cheap vehicle of
transport. Learned counsel has further contended that there is no actual
1 (1966) 17 STC 324 (SC)
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sale of packing material and if there is a sale by fiction, Section 6-C of the
Act will apply and as the beedis are not taxable, the packing material
cannot be subjected to tax. Learned counsel has also placed reliance on
the decision of the Hon’ble Apex Court in Associated Cement Companies
Ltd., v. Government of Andhra Pradesh 2 and the decision of a Division
Bench of this Court in Orient Cement V. The Commissioner of
Commercial Taxes, A.P. 3 in support of his submissions.
5) Per contra, the learned Special Standing Counsel appearing for the
respondents contended that the DC has rightly revised the assessment
orders of the Commercial Tax Officer (CTO) – III, Nizamabad, in
Sl.No.9170/93-94, dated 18.02.1997. The DC was justified in revising the
assessment orders on the ground that the value of packing material i.e.,
gunnies, corrugated boxes and other material, running into crores of
rupees in this case, cannot be termed as cheap or insignificant material
and therefore prayed to dismiss the revision case. In support of his
contentions, learned Special Standing Counsel has relied on the decision of
the Hon’ble Apex Court in Raj Sheel and others V. State of Andhra
Pradesh and others 4.
6) This Court has taken note of the submissions made by the respective
parties and perused the material on record.
2 (2006) 1 SCC 597
3 MANU/AP/0446/2015
4 (1989) 3 SCC 262
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7) A perusal of the order passed by the DC reveals that for rejecting the
case of the petitioner, the DC has relied on the judgment of the Hon’ble
Supreme Court in Raj Sheel‘s Case (referred supra) and the decisions of
the Andhra Pradesh Sales Tax Appellate Tribunal in United Breweries
Limited v. State of Andhra Pradesh 5 and Ashoka Biscuits v. State of
Andhra Pradesh 6. But, it is pertinent to note that the DC has failed to
appreciate that the biscuits and beedis are not capable of comparison. In
the nature of petitioner’s business, beedis are ordered in numbers and
truck loads and not by number of bags or cartons. On the other hand, in
the case of biscuits, the transactions mostly take place by way of weight
and are referred in terms of number of cartons/tins. Therefore, the reliance
placed by the DC on the above referred judgments is misplaced.
8) As regards the insignificant value of the packing material used by the
petitioner vis-a-vis the total turnover of beedis, the DC adopted the
reasoning that the packing material by itself is of significant value and is
also capable of reuse. The said observation of the DC is contrary to the law
laid down by the Hon’ble Supreme Court in Raj Sheel‘s case (referred
supra) inasmuch as he did not examine whether packing material formed
part of the bargain between the buyer and seller or whether it was only
convenient and cheap vehicle for transporting and delivering the goods.
The DC failed to appreciate that the beedis which are sold in numbers and
truck loads cannot be loosely scattered since they are fragile and also be
5 11-APSTJ-P.49
6 10-APSTJ-P.119
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protected from weather. Further, the DC failed to appreciate the nature of
case that the sale of delicate and fragile beedis is not possible unless the
petitioner uses gunnies/cartons.
9) Further, the Hon’ble Supreme Court in Raj Sheel‘s case (referred
supra) held that Section 6-C of the Act is valid where a dealer sells goods
without independent bargain for packing material cannot claim separate
treatment by merely declaring the components in the sale bill. But, the DC
has proceeded on the basis that the price fixed for beedis is inclusive of
packing material, without therebeing any evidence on record. The DC did
not examine any sale invoices or correspondence with the buyers to
ascertain whether packing material forms a part of the bargain between the
petitioner and the buyers and proceeded on notions. Thus, the DC has
clearly proceeded on surmises and conjectures and did not adjudicate the
issue as a question of fact in terms of the decisions of the Hon’ble Supreme
Court in Hyderabad Deccan Cigarette Factory case (referred supra)
and also in Raj Sheel‘s Case (referred supra).
10) Further, in appeal, the Tribunal has deleted the disputed turnover
relating to waterproof rolls to the tune of Rs.53,77,905/- holding it to be
primary packing and dismissed the appeal insofar as other packing
material is concerned holding them to be secondary packing. The Tribunal
referring to certain decided cases relating to sales of liquor and their
packing material, applied the test of secondary packing and held that craft
paper, corrugated boxes and gunnies having independent existence are
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used as secondary packing. But, the Tribunal failed to decide the question
of fact as to whether there is sale of packing material or not with specific
reference to facts of the case and nature of goods involved in the petitioner’s
case. The Tribunal also erred in applying the judgments relating to liquor
bottles without adjudicating the issue on specific facts of the case of the
petitioner.
11) The Hon’ble Supreme Court, in Raj Sheel‘s Case (referred supra)
justified three types of transactions:
“7. ……….. 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. That the problem almost always requires factual
investigation into the nature and ingredients of the transaction has
been repeatedly emphasized by this Court.
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 consideration or the product and the
container separately; or it may consist of a sale of the product and a
sale of the contained 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 thereof. The question in
every case will be a question of fact as to what the nature and
ingredients of the sale.”
12) Further, the Hon’ble Apex Court has also culled out some guidelines
to determine whether the particular transaction is an integrated and
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composite sale of a separate sale of container and contents and observed as
under:
“9. It is therefore, perfectly plain that the issue as to whether
the packing material has been sold or merely transferred 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 is an independent commodity and the packing materials
as well as the contents are sold independently, the packing material
is liable to tax on its own footing. Whether a transaction for sale of
packing material is an independent 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;
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;
3. The packing is capable of being reused after the contents
have been consumed;
4. The packing is used for convenience of transport and the
quantity of the goods as such is not dependent on packing;
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.”
13) Further, the Hon’ble Apex Court while referring to Section 6-C of the
Act further observed:
“10. Turning to Section 6-C 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
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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 of tax applicable to the sale of the goods themselves. It is difficult to
comprehend the need for such a provision. It can be best regarded as a
provision by way of clarification of the 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 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 different rates of tax should be applied according
to the character of the component (for example, packing material). What
section 6-C intends to lay down is that even upon such 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. 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 6-C merely clarifies and explains
that 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 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
Section 6-C, 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 be
contemplated. In the circumstances, no question arises of Section 6-C
being constitutionally discriminatory, and therefore invalid.”
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14) In view of the above settled proposition of law coupled with the
provision of Section 6-C of the Act, we are of the view that since the tax
leviable on the sale of goods i.e. beedis, itself is ‘Nil’, the tax leviable on the
packing material also should be ‘Nil’.
15) Insofar as the decision of the Apex Court in Raj Sheel‘s Case
(referred supra) is concerned, the said decision has no avail to the
respondent in view of the fact that, in the case on hand, the packing
material is of insignificant value in relation to the value of the contents.
16) For the afore-mentioned reasons, this Tax Revision Case is allowed,
the order dated 17.08.2011 passed by the Sales Tax Appellate Tribunal,
Andhra Pradesh, in T.A.No.623 of 1997, is hereby set aside insofar as
dismissing the claim of the petitioner in respect of packing material viz.,
Gunnies, Corrugated boxes, Label Paper, and so also, the order dated
14.08.1997 passed by the Deputy Commissioner (CT), Nizamabad Division,
in R.R. No.6/97-98 is set aside in toto.
17) Miscellaneous applications, if any, pending in this case, shall stand
closed. No costs.
______________________
T. VINOD KUMAR, J
______________________
PULLA KARTHIK, J
Date : 28.05.2025
GSP/sur