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Judgment
R. Jayasimha Babu, J.—The turnover of bottles containing intravenous fluids (I.V. fluids), manufactured and marketed by the assessee, is
included in the turnover relating to the fluids, by reason of Section 3(7) of the Tamil Nadu General Sales Tax Act, 1959, which, inter alia, provides
thus :
............where goods are sold or purchased together with the containers or packing materials the turnover of such goods shall include the price,
cost or value of such containers or packing materials, and the packing charges, whether such price, cost or value or packing charges, are charged
separately or not, and tax shall be levied thereon at the rate applicable to the goods contained or packed as if such containers or packing materials
were the parts of the goods sold or purchased.
This provision thus deems the container to be part of the contents for the purpose of determination of the total turnover and provides for the levy
of tax on the whole of such turnover at the rate at which the contents are to be subjected to tax.
The Supreme Court in the case of Premier Breweries Vs. State of Kerala, , held in relation to an identical provision in the Kerala General Sales
Tax Act, being Section 5(5) of that Act, thus :
........the packing materials as such are not being taxed under Sub-section (5) of Section 5 of the Act. The subject-matter of tax are the goods
packed in the containers. In calculating the turnover of the goods, packing materials will have to be taken into account. The packing materials will
be taxed at the same rate and at the same point as the goods contained in the packing materials. This is because the goods are sold packed in
containers and are charged accordingly. This is the rule of computation of the turnover of the goods.
The bottles in which the I.V. fluid, manufactured by the assessee, is packed and sold are bottles which the assessee had purchased from
unregistered dealers and, therefore, had not been subjected to tax at the time of such purchase. Had the dealers sold the bottles to the assessee as
registered dealers they would have been liable to pay tax on the first sale of the bottles, which in turn would be recovered from the buyer. The
bottles thus used by the assessee were bottles which on their first sale or purchase had not suffered tax, even though such goods were assessable
to tax under the provisions of the State Act. The assessee was, therefore, confronted with a demand for payment of purchase tax on the ground
that the assessee had used the bottles in or for the manufacture of the I.V. fluids and, therefore, Section 7-A(1)(a) was attracted. The Tribunal
having upheld that demand, the correctness of the Tribunal''s decision is under challenge before us.
Mr. G. Natarajan, learned Senior Counsel appearing for the assessee contended that Section 7-A, as held by the Supreme Court in the case of
State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191, was itself a charging section ; that it creates a liability against a dealer on his
purchase turnover with regard to goods the sale or purchase of which though generally liable to tax under the Act, have not due to circumstances
of particular sale, suffered tax u/s 3, 4 or 5 and which after the purchase have been dealt with by him in any of the modes indicated in Clauses (a),
(b) and (c) of Section 7-A(1). Learned counsel submitted that if the goods dealt with by the dealer had suffered tax on their sale or purchase prior
to the dealer using those goods, or if those goods are subsequently sold by the dealer such goods cannot be subjected to purchase tax u/s 7-A.
Learned counsel in this context also referred to the decision of the Constitution Bench of the apex Court in the case of Assistant Commissioner
(Intelligence) v. Nandanam Construction Company [1999] 115 STC 427. Learned counsel submitted relying on what is stated at para 10 of the
judgment that if the goods in respect of which purchase tax is sought to be recovered continued to be available of sale or purchase and are in fact
sold such goods cannot be brought to sale u/s 7-A.
The submissions made by counsel proceeded on the assumption that the sole object of Section 7-A is to ensure recovery of tax on the sale or
purchase of goods which tax is required to be paid but had not been paid to the State by reason of the circumstances in which the purchase was
made and one of the parties to the transaction is a registered dealer. Though that apparently was the original purpose of the provision, the
subsequent amendment to that section in the year 1987 by addition of the words used in Section 7-A(1)(a) and enlarging it further by a further
amendment with effect from November 6, 1997 would indicate that the object of the Legislature is not confined to mere recovery of tax, which
was not recovered by reason of the circumstances in which the purchase was made. After the amendment to Section 7-A(1)(a) recovery of
purchase tax is permissible even in cases where the goods which had not suffered tax, at the time of purchase are used by the dealer and are
subsequently disposed of by the dealer in circumstances where the value of the turnover relating to those goods is also subject to tax by deeming
the same as forming part of the turnover of other taxable goods.
It is no doubt true that the turnover of the bottles is, by reason of Section 3(7), deemed to be part of the turnover of the assessee relating to the
I.V. fluids and by reason of the inclusion of such turnover of the bottles in that turnover, the turnover relating to these bottles is also subjected to
tax. Such inclusion of the turnover relating to bottles, however, does not enable the assessee to get out of the net of Section 7-A as the bottles
were not sold as bottles but as part of a composite unit, viz., I.V. fluids packed in bottles.
Section 7-A(1)(a) refers to the consumption or use of goods in or for the manufacture of other goods. Having regard to the nature of the goods
and the need for a container in order to make those goods marketable, it must necessarily be held that the bottles used here were bottles used in or
for the manufacture of the I.V. fluids, having regard to the law laid down by the apex Court in the case of J.K. Cotton Spinning & Weaving Mills
Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 STC 563. As set out in the head note to that decision it was held therein that the expression ""in
the manufacture of goods"" in Sub-section 8(3)(b) of the Central Sales Tax Act, should normally encompass the entire process carried on by the
dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of
goods that, but for that process, manufacture or processing of goods would not be commercially expedient, goods required in the process would
fall within the expression ""in the manufacture of goods"".
In this case, it was not even the plea of the assessee that the fluids manufactured by it can be sold in the market without the aid of the bottles.
The bottling of the fluid was necessary to make it marketable. The bottles were clearly goods which were used in or for the manufacture of the
fluids.
The assessee by reason of this demand for purchase tax has not suffered any additional burden as any other manufacturer of I.V. fluids who
sells the fluids in bottles by purchasing bottles from another registered dealer on which sales tax was paid, would also still be required to include the
turnover of those bottles in the turnover of the I,V. fluids. Section 7-A, as submitted by the learned counsel, was intended to plug loss of revenue.
We were initially troubled when the facts of the case were presented before us as though the assessee was being burdened with tax twice over. A
closure examination of the case, however, demonstrated that no such additional burden is cast on the assessee. On the other hand, not levying the
tax would only amount to the assessee gaining an advantage, which the law did not intend to provide.
We, therefore, dismiss the writ petition.