The main legal point established is that the sales tax on packing materials sold along with goods is determined based on the separate sale and payment for the packing materials, as evidenced by the contract between the parties.

ORDER

1. This matter is taken up by video conferencing mode.

2. While admitting this revision petition on 5th February 2007, the following question of law was framed by this Court:

"Whether in the fact and circumstances of the case, gunny bags sold along with rice to Food Corporation of India is exigible to tax @4% or @8% as held by the Tribunal?

3. The background facts are that the Petitioner is a registered dealer under the Orissa Sales Tax Act, 1947 (OST Act). It owns a rice mill and it is carrying on the business of purchasing paddy and converting it into rice. In terms of the Government guidelines, the Petitioner was required to procure paddy at a specified rate and sell a specified percentage thereof to the Food Corporation of India (FCI) as levy rice. In terms of the contract with the FCI, the Petitioner was required to sell the levy rice with its container i.e. gunny bags. The Petitioner accordingly paid sales tax at the rate prescribed under Section 5 (1) of the OST Act.

4. The question that arose for consideration before the Sales Tax Officer (STO) for the assessment year in question i.e. 1990-91 was whether in respect of 24,442 Nos. of 'empty new gunny bags' which had been utilized by the dealer while supplying rice to the FCI, sales tax had to be paid at the rate applicable to rice or at the rate applicable to 'jute products'? Relying on the decision of the Supreme Court in Raj Sheel v. State of Andhra Pradesh [1989] 3 SCR 305 which involved the interpretation of Section 6-C of the Andhra Pradesh General Sales Tax Act, the STO concluded that since the FCI had paid separately towards the price of empty new gunny bags, the sales tax in respect of said sale had to be at the rate applicable to 'jute product'.

5. On this issue, the Petitioner-assessee succeeded in its appeal before the Assistant Commissioner of Sales Tax (ACST), Sambalpur Range, who by an order dated 19th January 1995, held that the rate at which sales tax had to be levied and collected on the sale of the aforementioned jute bag could not be separate from that applicable to the sale of rice itself.

6. Aggrieved by the above decision of the ACST, the Department went in appeal before the Tribunal which allowed it by the impugned order dated 27th September, 2006.

7. Ms. Kajal Sahoo, learned counsel appearing for the Petitioner, seeks to place reliance on the decisions in State of Orissa v. Habib Rahimtullah & Co [1982] 51 STC 403 (Ori); Premium Breweries v. State of Kerala [1998] 108 STC 599 (SC); Seven Seas Distillery v. State of Kerala [1991] 82 STC 71 (Ker) and Mcdowel & Co. v. State of Kerala [1995] 97 STC 479 (Ker) to urge that when the goods are sold in containers or sold after being packed in packing materials, the containers and the packing materials will have to be taxed at the same rate as the goods themselves.

8. Indeed the ratio of the above decisions supports the contention of learned counsel for the Petitioner. In fact in Premium Breweries v. State of Kerala (supra), the Supreme Court did consider its earlier decision in Raj Sheel v. State of Andhra Pradesh (supra). Nevertheless, the facts of the case in Premium Breweries v. State of Kerala (supra) were such that the ratio of Raj Sheel v. State of Andhra Pradesh (supra) was found to be not applicable. The distinguishing factor, which was noticed by the Supreme Court in Raj Sheel v. State of Andhra Pradesh (supra) is whether the packing material has been separately billed and paid for.

9. An added feature as far as the present case is concerned is that packing material was in fact sold as "new unused gunny bags" and separately paid for by the FCI. In Raj Sheel v. State of Andhra Pradesh (supra), the Supreme Court has observed as under:

"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 c