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1961 Supreme(AP) 65
Andhra Pradesh High Court
Judges : ANANTA NARAYANA AYYAR, P.CHANDRA REDDY, P.SATYANARAYANA RAJU
Guntur Tobaccos Ltd., Guntur - Appellant
Versus
Government Of A.P. - Respondent
Decided On : 04-21-61
A contract for the supply of materials and contribution of labour is not a sale unless there is an agreement to sell the materials as such and property in them passes as movables.
Headnote:
SALES TAX - Turnover - Packing materials used in the process of redrying tobacco - Whether liable to be included in the taxable turnover of the assessee - Held, no.
Fact of the Case:
The assessee, a private limited company, was engaged in the business of redrying raw tobacco. The process involved passing the tobacco leaf through a series of chambers in a re-conditioning plant, which regulated heat and humidity. The tobacco leaf was then packed in waterproof packing material and stored for a period to maintain the required moisture content. The assessee charged an inclusive rate for redrying and packing the tobacco entrusted to them by their constituents.
Finding of the Court:
The court held that the packing of re-dried tobacco and its storage for the requisite period was an integral part of the re-drying process, and that the contract between the assessee and their constituents was one, entire, and indivisible. Therefore, it was not within the competence of the Assessing Authorities to impose the tax on the supply of the materials used in the contracts treating them as sales.
Issues: Whether the price of the packing materials used for redrying tobacco is liable to be included in the taxable turnover of the assessee.
Ratio Decidendi: The court relied on the principle laid down by the Supreme Court in State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. (1958-9 S.T.C. 353 : AIR 1958 SC 560) that where the contract is one, entire, and indivisible, it is not within the competence of the State Legislature to impose a tax on the supply of the materials used in such a contract treating it as a sale.
Final Decision: The court allowed the revision cases and directed the refund of the taxes collected to the petitioners.
( 1 ) THESE Tax Revision Cases have been referred for the decision of the Full Bench by Mohamed Ahmed Ansari, J. (as he then was), and Jaganmohan Reddy, J.
( 2 ) THE question for decision in these cases is whether the price of the materials used for packing re-dried tobacco is liable to be included in the taxable turnover of the assessees.
( 3 ) THE petitioners, who are hereinafter refer red to as "the assessees", are a private limited company registered under the provisions of the Indian Companies Act, having their place of business in Guntur town. They have a plant for redrying raw tobacco, which is a process designed to create suitable conditions for the proper manuring of the leaf,
( 4 ) FOR a proper appreciation of the contentions raised before us, it is necessary to understand the nature and purpose of what is, in common parlance, known as the redrying process. After the grading and stripping operations are over, the leaf is reconditioned or redried. For the purpose all the leading exporters and cigarette manufacturers use the re-ordering or re-conditioning plant. This plant consists of a series of three chambers in each of which the heat and humidity are regulated. The tobacco leaf is passed through each chamber under the action of steam and strong air current. The significance of the re-conditioning process lies in the fact that it re-dries the leaves to uniform moisture, besides helping to kill tie insects and germs that may be present m the leaf by the high temperature maintained in the first chamber of the machine. The tobacco leaf as it comes out of the plant is in a soft and pliable condition and contains 10 to 12 per cent of moisture. Immediately afterwards the leaf is packed either in bales, cases ct hogsheads. In order to ensure that the moisture content is kept at the required level of 10 to 12 per cent, the tobacco leaf as it emerges from the redrying machine is packed in water-proof packing material and stored for the requisite period.
( 5 ) THE assessees purchase the required materials employed in the packing process and deliver the bales to their customers. It is common ground that the assessees charge an inclusive rate for re-drying and packing the tobacco entrusted to them by their constituents.
( 6 ) ON behalf of the assessees, it is contended that packing is an integral part of the re-drying process and, therefore, the contract between the parties is one of work and labour, and that no sale is involved in the transaction. It is, however, argued by the learned Government Pleader that the price of the packing materials is liable to be included in the taxable turnover of the assessees as the property in those materials is transferred to the customers for a price and the transaction, so far as the transfer of the packing materials is concerned, is clearly one of sale.
( 7 ) IT will be convenient at this stage to refer to the relevant provisions of the statute. Under Section 53 of the Andhra State Act (XXX of 1953), the laws in force in the territories in the State of Andhra prior to its constitution, are to continue to be in force even thereafter, and one of those laws is the Madras General Sales Tax Act (Madras Act IX of 1939) (hereinafter referred to as the Madras Act ). The preamble to the Act states that it is expedient to provide for the levy of a general tax on the sale of goods. Section 2 (h) defines sale as meaning every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration. Section 2 (i) defines turnover as the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration. Section 3 is the charging section and provides that every dealer shall pay for each year a tax on his total turnover for such year.
( 8 ) IN the definition of Turnover in Section 2 (i), the following Explanation is added;"subject to
