Decided on May 27,1967



- (1.)THIS is a reference from the Single Bench constituted by Shri R. N. Madhok, Member of this Board, to this larger Bench to decide the question of law whether gunny bags in which sugar is sold by the assessee company, that is, the Mewar Sugar Mills Limited, Udaipur, are liable to sales tax or not.
(2.)BRIEFLY, the facts of the case are that the Mewar Sugar Mills are the manufacturers of sugar. They sell sugar in gunny bags. The sale of sugar is exempted from the sales-tax for the reason that a separate excise duty under a Central Act is charged on the manufacture of sugar. After the sugar was exempted from sales tax the Sales Tax Officer assessed the company on the turnover of the gunny bags in which the sugar was supplied for the period 1957 to 1960. The Deputy Commissioner, in appeal, upheld the order of the assessing authority. Aggrieved by that order, a revision petition was filed in the Board of Revenue. The case was argued before the Single Member who constituted the Bench. It was the contention before him that in a decision of this Board in Sales Tax Revision No. 127/61 (Chittorgarh) decided on 10-9+1962 it has already been held that an assessee was not liable to sales tax on the gunny bags in which the sugar was sold. The Government Advocate on the other hand, contended that in the decision of the Hyderabad High Court in the case of Nizam Factory Limited versus the Commissioner of Sales Tax Hyderabad, a similar point arose and it was held by their Lordships of the High Court that the gunny bags in which the sugar was sold were not so inseparably integrated with sugar that they had lost their identity, and therefore the tax was leviable on the turnover of the gunny bags. The single Member was thus persuaded to follow the ruling of the Hyderabad High Court, and not that of this Board in which no case law had been discussed. As he could not pass an order differing from the view taken by the Division Bench of this Board, he had no alternative but to refer this case to this larger Bench.
A preliminary objection was raised on behalf of the learned Advocate of the Mewar Sugar Mills that in view of the decision of the Revenue Board in the Division Bench, the reference under sec. 11 of the Rajasthan Land Revenue Act by the Single Bench to the larger Bench was incompetent. As far as the point of law was concerned, the ruling of the Board given in the Division Bench was well settled. Merely a persuasive authority of other High Court cannot be allowed to create doubts in the minds of the Members. If the Member was not satisfied with the decision of the Division Bench, the case could have been referred to the High Court separately. The doctrine of precedent, the counsel urged, binds one Bench of the court to follow the previous precedent of the same Bench. The second contention of the counsel of the Mewar Sugar Mills was that the assessee as manufacturer of sugar was bound to supply sugar in prescribed types of gunny bags under the Sugar Control Order passed by the Government of India. There was no agreement by the assessee to sell the gunny bags along with the sugar to other persons. The supply of gunny bags was merely ancillary to the norm of trade of sugar, and thus no sale of gunny bags has taken place. In order to constitute a sale, express or implied agreement for the transfer of property for a consideration qua property is necessary before a sale takes place. The ruling cited by the learned Member of the single Bench A. I. R. 1956 Hyderabad page 194 does not apply to this case because the obligations of the Sugar Control Order were not taken into consideration by the above ruling. The learned Government Advocate, on the other hand, replied by saying that numerous authorities could be cited to show that when an article is sold with gunny bags and where the price of the bags has been charged also, it has been held by the various High Courts that the sale of the gunny bags takes place and the articles sold are leviable with sales tax. He cited A. 1 R. 1956 Hyderabad page 194 to show that where sugar is sold with gunny bags, the later was held taxable. In A. I. R. 1961 Kerala 236, it was held that where, the food grain were sold with gunny bags for which a charge was made, it was held that the gunny bags were taxable. Similarly in A. I. R. 1951 Madras page 354, gunny bags in which salt was sold were held to be liable to the payment of sales tax. In A. I. R. 1952 Assam page 42, rice was sold with gunny bags, but the latter was held taxable. In S. T. C. 1960 page 342 gunny bags were held taxable in which vegetables were sold, and finally in S. T. C. 1962 page 209 Madhya Pradesh, it was held that where kerosene was sold in tins the sales of the latter were held taxable.

We have carefully considered the rulings cited by the counsel from both sides and the arguments advanced. The law on the subject whether a particular article is held taxable to sales tax depends upon the nature of the contract between the vendor and the vendee. If the parties agree that the title in the goods should be transferred to the purchaser for a consideration, then the sale takes place, and if the goods fall in the category under the Sales Tax Act for which tax is payable, they are bound to be taxed. In the parent ruling by the Supreme Court in the case of State of Madras vs. Gannon Dunkerely and Co. Ltd. , it has been laid down that in a building contract sale of building material does not take place until the building is completed according to the specification prescribed, and at that time the building material ceases to be moveable and the title in the material does not pass to the owner as moveable but as immoveable, and no sale of building material has taken place. In such cases, the law is clear that no sale of building material or other materials which form part of the building takes place because they cease to be moveable at the time when the property is transferred. In order to constitute sale the property must be moveable goods. Then there are goods in which the contract is divisible, that is, one part of the contract consists of the work and labour supplied by a person, and the other part consists of the supply of materials along with labour. In 1961 S. T. G. page 330 cited by the learned advocate for the Mewar Sugar Mills, a matter came up for consideration whether in a contract of pressing of cotton and packing with hussian cloth and iron hoops, the sale of the iron hoops and hussian cloth takes place or not. This was a contract for work, labour and materials. It was held in this case of Mewar Cotton Works vs. The Sales Tax Officer Khandewa that the contract in such cases was really divisible into two parts one for labour and work viz. the pressing of the Cotton and the other of packing the compressed cotton which is partly of material and partly of labour. In the packing part of the contract the substance of the agreement was not a skill or labour but it was the material. It has been held in this case that in the absence of an express agreement for the sale of packing material, the sale of material was implied and the property in the material passed qua material on a consideration of the additional price for the pressing charges. Similarly in 1961 S. T. G. page 278, it was a case of a contract of bleaching and dyeing of unbleached yarn and cloth sold in packing material, it was held that in view of the profit motive for the services rendered by the Contractor for delivering the goods with packing material, there would be an inference that the packing material was sold to the person supplying the goods. It is not necessary in such cases that the dealer should deal specifically in the articles of packing. In this case of Mewar Sugar Mills, there is no doubt that a Sugar Control Order imposed all sorts of obligations for the sale of sugar in specified gunny bags and of certain weight, yet the main contract of the assessee for the sale of sugar consists in supplying of sugar with gunny bags the price of which goods was no doubt included in the turnover of the assessee. No person would supply free of charge a commodity which has some value. There would be an implied agreement in this case that along with sugar, the gunny bags were sold for value to other persons by the assessee. A case may happen, where an article is sold in ordinary paper bags of practically little value ; then it cannot be inferred that the sale of material between the parties was also contemplated. It usually happens when one buys goods in a shop where they are delivered to customers in ordinary paper wrappers. In such cases it can be presumed that no sale of the packing material has taken place. But looking to the trend of the cases cited by the learned Government Advocate, it has been the consistent view of the various High Courts that in the case of goods delivered in gunny bags the latter were considered as sold along with the commodity, and the assessee was held liable to the payment of sales tax. The contract of sale in these cases is therefore implied.

We are therefore of the opinion that the reference made by the learned single Member be answered in the terms, that the delivery of sugar made by the assessee company is with gunny bags and the sale of latter commodity is implied in it, and remand this case back to the learned single Member to decide it in accordance with the above answer. .

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