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Judgment
Veeraswami, J.—These are petitions for certiorari to quash certain orders of the assessing authority, which, for the years 1959-60 to 1961-
62, reopened assessments on the petitioner and brought to charge the value for each year of packing material, namely, gunny bags, used for
packing cement for each of the years. On the view that the value of packing material was deliberately undisclosed, penalties were also levied. It is
not necessary to mention the actual figures as nothing turns on them.
The assessing officer took the view that it is only cement that is covered by the requisition for supply under the Cement Control Order, 1956,
and the Cement Control Order, 1961, and not the packing material. As to the application of Rule 6(f)(ii) its view was that the Central Government
fixed the maximum price for packing materials every quarter leaving the actual rate to the discretion of the assessees and the State Trading
Corporation.
Cement Ltd. v. State of Orissa [1961] 12 S.T.C. 205 and New India Sugar Mills Ltd. v. Commissioner of Sales Tax [1963] 14 S.T.C. 316
laid down that if in a particular transaction there is no bargain but it was brought about by fiat of the law, no contract of sale can be spelt out. That
principle ought to apply for the supply of cement. In fact, it was on this basis the assessment orders for each of the years proceeded. But the
assessing authority considered that the requisition did not cover the supply of gunny bags. This view is assailed for the assessees while it is affirmed
for the State. The Cement Control Order, by Clause 3, directs producers of cement to sell to the State Trading Corporation of India (Pvt.) Ltd.
the entire quantity of cement held in stock by them on the date of commencement of the Order and also the entire quantity of cement which may be
produced by them during a period of two years from that date. The delivery of the cement shall be effected to such person or persons as may be
specified by the Corporation in that behalf from time to time. The price of cement is controlled under the Order and has been specified in the
schedule thereto. There is an explanation to Clause 6 relating to the controlled price, which clarifies that the price fixed in the schedule is exclusive
of the cost of packing or of containers, if any. The terms of the 1961 Order are materially similar. There were telegrams sent by the Union
Government to all State Governments by which they indicated that the packing charges for cement for the period mentioned would be the amount
specified therein. The telegrams also mention that the gunny bags to be used should be new ones. There was also a communication from the
Government of India in March, 1960, which says:
As the State Trading Corporation have decided that all cement should be packed in new DW heavy cess gunny bags only, packing charges of new
heavy cess gunny bags have, therefore, been calculated. On the basis explained in the preceding paragraph, the charges for packing one ton
cement in new DW heavy cess gunny bags work out to Rs. 12.09 for the next quarter. In pursuance of the powers conferred under Sub-section
(4) of Clause 6 of the Cement Control Order, 1958, the Government of India have accordingly fixed these charges for the next quarter beginning
from the 1st January, 1960 and ending on the 31st March, 1960.
A careful reading of the Cement Control Orders together with the telegrams and the communication would suggest that supply of gunny bags
was contemplated as part of the requisition of cement. It is in the very nature of things that cement, normally speaking, could be supplied only in
packed condition, that is, by putting it in gunny bags of suitable sizes and texture. It is true Clause 2 in the Cement Orders does not in so many
words say that gunny bags are bound to be supplied. But Clause 2 should be read with the rest of the provisions in the Orders. It is also true that
the price quoted in the schedule to the Orders is exclusive of the cost of packing or of containers. But Clause 4 clearly says that for the purpose of
the clause the Central Government may fix the maximum amounts payable in respect of packing or containers, and different maxima may be fixed
for different kinds of packing or containers. That also shows that it is within the contemplation of the Cement Control Orders that gunny bags when
necessary as containers or packing material would have to be supplied as the cement. In other words, in our opinion, reading the Cement Orders
as a whole, they include by necessary implication requisitioning of gunny bags as packing material or containers for or of cement. On that view, the
principle of Cement Ltd. v. State of Orissa [1961] 12 S.T.C. 205 and New India Sugar Mills Ltd. v. Commissioner of Sales Tax [1963] 14
S.T.C. 316, would be applicable to the supply of gunny bags.
In any case, we are clearly of the view that Rule 6(f)(ii) of the Turnover Rules, as it stood at the relevant years, would exclude the turnover
relating to packing materials from the taxable turnover for each of the years. That rule reads:
The tax or taxes u/s 3, 4 or 5s hall be levied on the taxable turnover of the dealer. In determining the taxable turnover, the amounts specified in
the following clauses shall, subject to the conditions specified therein, be deducted from the total turnover of a dealer.
(f) all amount falling under the following two heads, when specified and charged for by the dealer separately, without including them in the price of
the goods sold.
(i) ...
(ii) charges for packing and delivery and other such like services.
The language employed under the second head would undoubtedly include packing materials, not merely labour or service charges. The cases
which were decided before State of Madras v. Damodaran Chettiar & Co. [1966] 18 S.T.C. 451 proceeded on that basis. But in that decision,
on a construction of the scope of this rule, it was said :
In our opinion, the charges for packing and delivery mean charges-for labour expended in regard to packing and delivery. It does not take in the
cost of material supplied for the purpose of packing and delivering, the goods.
With great respect we are unable to share this view. We would have referred the question, therefore, to a fuller Bench but for certain, reasons
which will immediately follow. The Court in that case thought that the view taken received support from certain decided cases mentioned therein.
An examination of these cases will, show that none of them was directly concerned with an interpretation of the scope and effect of the language
employed by the specific rule. Each of them went upon the facts and in the light of them conclusions were arrived at. For instance, in certain cases
packing material may form a necessary part of the very goods supplied which could not be thought of without the packing. In others the charge of
packing materials might have been shown in the bills as part of the price, while in certain others, the charge would have been shown separately.
The decision as to whether the turnover relating to packing material should be excluded from the taxable turnover will turn on the particular facts.
Apart from that, in Razack & Co. v. State of Madras [1967] 19 S.T.C. 135, the Supreme Court had occasion to deal with a matter which had
relation to Rule 5(1)(g) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. That rule was more or less in terms similar to
Rule 6(f)(ii), namely, charges for packing and delivery and other such like services. The decision of the Supreme Court would appear to have
proceeded on the assumption that the rule included packing materials. Looking at the language itself, assuming that charges for packing include the
service charges, there is no reason to suppose that the charges do not include the cost of the packing material. It is also noteworthy that by the rule
as amended by the Government Order dated 9th March, 1964, the position was further clarified. As amended, the rule says that there shall be
excluded from the taxable turnover ""charges for packing, that is to say, cost of packing materials and cost of labour and other such like services"".
That, in our opinion, was precisely the scope of the earlier rule as it stood. On this view as well, the petitioner is entitled to succeed. In our opinion,
the turnover relating to the value of packing materials in the form of gunny bags for each of these years was not liable to tax. It follows that the levy
of penalty cannot be justified.
The petitions are allowed with costs, one set. Counsel''s fee fixed at Rs. 250 payable by the first respondent.