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2007 Supreme(SC) 563
S.B. Sinha & Markandey Katju
M/s Co-operative Company Ltd PETITIONER
versus
Commissioner of Trade Tax, U.P RESPONDENT:
Appeal (civil) 2124 of 2007
Arising out of S.L.P. (Civil) No. 13194 of 2006
Decided on: 24/04/2007
The burden of proof to establish an implied contract for the sale of packing materials rests with the Revenue. Selling goods in packed form does not automatically constitute a sale of containers if they are used as a convenient transport mode and no separate price is charged for them.
Headnote:(A) U.P. Trade Tax Act, 1948 - Section 2(i) - Definition of turnover - Sale of packing materials - Whether bottling charges recovered for caps, seals, and filling constitute a sale of bottles exigible to sales tax - Burden of proof for implied contract - The Revenue must prove that there was an implied agreement to sell the containers; merely selling goods in packed form does not automatically imply a contract for the sale of packing materials if they are used as a convenient mode of transport without charging a separate price for them.
(B) U.P. Trade Tax Act, 1948 - Section 3AB - Nature of amendment - Whether clarificatory and retrospective - An amendment brought into force on a particular date cannot be contemplated to have retrospective operation prior to that date unless expressly stated.
Facts of the case:
A society manufacturing and selling liquor charged specific sums under the head of bottling charges for caps, seals, and filling. The revenue authority treated these charges as a sale of bottles and imposed sales tax. While lower authorities held these were job work charges, the High Court ruled they were part of the turnover as the product is not marketable without bottling.
Findings of Court:
The High Court failed to determine whether an implied contract for the sale of bottles existed or whether the charges recovered were specifically for the bottling process rather than the price of the bottles themselves.
Issues: (1) Whether charges for caps, seals, and filling constitute a sale of bottles for the purpose of turnover; (2) Whether the burden of proof for an implied sale of packing materials lies with the assessee or the Revenue; (3) Whether a specific amendment to the Trade Tax Act was retrospective.
Ratio Decidendi: A contract of sale must be construed from its terms and conditions. The burden to prove an implied agreement to sell containers rests on the Revenue. If containers are used merely as a cheap and convenient mode of transport and no price is charged for the container itself, no implied sale can be inferred. A clear distinction between 'bottling charges' and the 'price of bottles' must be maintained.
Result: Appeal allowed. Impugned judgment set aside. Matter remitted to the High Court for fresh consideration.
Legal Category Hierarchy
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tax law
-
sales tax
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valuation of turnover
- treatment of packing materials
- implied sale of containers
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valuation of turnover
-
sales tax
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practice and procedure
- burden of proof
JUDGMENT
S.B. SINHA, J :
Leave granted.
Appellant is a co-operative society registered under the U.P. Co- operative Societies Act. It carries on business of manufacture and sale of India Made Foreign Liquor (for short, 'IMFL') and country liquor.
In respect of the assessment year 1989-90, the books of accounts maintained by it were rejected by the Assessing Authority, inter alia, on the premise that tax would be payable in respect of bottles being containers of the country liquor. An appeal was preferred there against by Appellant before the Deputy Commissioner (Appeal) and by reason of an order dated 11.01.1994, the said appeal was allowed in part holding that no sales tax could be imposed on the bottling charges for country made liquor. A Second Appeal there against was preferred before the Trade Tax Tribunal by the Revenue, which was dismissed. A Revision was preferred before the High Court against the said judgment of the Tribunal and by reason of the impugned judgment, the High Court opined that bottling charges are part of the turnover and are liable to tax.
Mr. K. Radhakrishnan, the learned Senior Counsel appearing on behalf of Appellant, would submit that the High Court committed a serious error in passing the impugned judgment insofar as it failed to take into consideration :
1)The assessee is not a dealer in bottles as it does not carry on any business therein.
2)There being no other alternative, bottles are used as a cheap and convenient mode of transport and sale of country made liquor.
3)Amounts of Rs. 2.60, Rs. 2.30 and Rs. 1.57 represent only the charges for P.P. caps, sales and filling charges, which are collected under the head of bottling charge and, thus, the same is a payment for the job work undertaken for packing the country made liquor.
4)Neither there is any sale of bottles nor any price is charged therefor.
5)There is no express or implied agreement to sell bottles.
6)The department has not discharged its burden to prove that there was an implied agreement to sell the bottles.
7)The purchasers were purchasing only country made liquor and the appellant had only been selling the same.
8)Cost of packing material is very less and insignificant as compared to the cost of country made liquor and price of the goods is the same with or without bottles.
9)Tax on bottling charges is sought to be recovered only from tax free country liquor, and in the course of sale of IMFL, the sale of bottle has not been held to be a separate sale and, thus, double standards adopted by the department is not justified.
10)Section 3AB inserted in the U.P. Trade Tax Act, 1948 (for short, 'the Act') on 01.08.1990, being clarificatory/declaratory has retrospective effect. The learned counsel has placed strong reliance on a decision of the Allahabad High Court in Chhatta Sugar Company Ltd. v. Commissioner, Trade Tax, U.P., Lucknow [124 STC 33], in support of the said contention. Mr. Dinesh Dwivedi, the learned Senior Counsel appearing on behalf of the respondent, on the other hand, would submit that as sale of bottles finds place in Entry 20 in the Scheduled appended to the Act, despite the fact that no sales tax is payable on country liquor, the assessee would be liable therefor having regard to the definition of 'turnover' as contained in Section 2(i) of the Act. A notification was issued on or about 07.09.1981 by the State of Uttar Pradesh in exercise of its power conferred upon it under the proviso appended to clause (e) of sub-section (1) of Section 3-A of the U.P. Sales Tax Act, 1948, in terms whereof glass bottles and phials, other than hand made glass phials is exigible to tax @ 4% have been included in Entry 20 thereof.
Appellant herein is a dealer of country liquor. It also carries on business in IMFL. Curiously, whereas in respect of IMFL, no sales tax has been levied on bottles, such a levy is sought to be made on bottles for sale of country liquor. Business in countr
