RAMANUJAM, J.

The dispute in this case relates to a turnover of Rs. 2, 43, 651, the value of gunnies supplied by the assessees to the Food Corporation of India. The assessees are dealers and manufacturers of wheat products and they also own flour mills. During the assessment year 1965-66, they returned a taxable turnover of Rs. 2, 96, 798, 85. The assessing authority after a check of their accounts, found that they had supplied gunnies to the Food Corporation of India to the total value of Rs. 2, 43, 651 and that this turnover had been omitted to be shown in the return submitted by them. The assessing authority after considering the objections files by the assessees proceeded to treat the said turnover of Rs. 2, 43, 651 as a taxable turnover, being the value of the gunnies said to have been sold by the assessees to the Food Corporation of India. The inclusion of the said turnover was questioned by the assessees by filing an appeal before the Appellate Assistant Commissioner, who, however, sustained the addition. Thereafter, the assessees took the matter in appeal before the Tribunal.

The Tribunal, after considering the various clauses of the agreement entered into by the assessees with the Food Corporation of India found that there was in fact no agreement for sale of old or new gunnies as such and that, therefore, the turnover in dispute could not be taxed as a sales turn-over in the hands of the assessees. In this view, the Tribunal deleted the addition of Rs. 2, 43, 651 made by the assessing authority to the turnover returned by the assessees. Aggrieved against the order of the Tribunal, the State is before us.

It is pointed out by the learned Government Pleader that in respect of both old and new gunnies the view taken by the Tribunal cannot be legally sustained. It is urged that as regards the old gunnies, there is first a sale from the Food Corporation of India to the assessees and, thereafter, a resale by the assessees to the Food Corporation of India when the wheat products are delivered to the Food Corporation of India in a packed condition. As regards the new gunnies, he contends that the assessees have purchased the same from out-of-State dealers after issuing C forms declarations to the effect that the gunnies are intended for resale and that when they actually transferred the property in the new gunny bags to the Food Corporation of India in the course of supply of wheat products, the assessees should be taken to have sold the new gunny bags which they had purchased specifically for the purpose of resale.For appreciating the above contentions advanced on behalf of the State, it is necessary to consider the terms of the contract which the assessees have entered into with the Food Corporation of India. The relevant contract between the Food Corporation of India and the assessees provides that the corporation is to supply wheat packed in gunny bags to the assessees for converting the same into maida, sooji, atta and bran and that the assessees, after such conversion, should deliver to the corporation the said wheat products marked and packed according to the existing standard packings. The services to be rendered by the assessees are taking delivery of the wheat bags from the corporation, cleaning, washing, drying, grinding the wheat supplied, and converting it into various products and delivering them to the corporation packed according to the existing standard packings. In the course of execution of the said works contract, the assessees have received wheat in gunny bags and, after manufacturing the specified wheat products, delivered them to the corporation duly packed in gunny bags. For rendering such services, the assessees have been paid a flat rate per ton. The assessees have used the old gunny bags in which wheat was supplied to them for packing the wheat products wherever it is possible, and in cases where old gunny bags could not be used, they have used new gunny bags. The value of such old and new