Holding

The Tribunal was correct in finding an implied contract for the sale of gunny bags, treating them as a separate commodity taxable at 4%, and the Supreme Court upheld the validity of the higher tax rate.

Summary

Jamana Flour & Oil Mill Ltd., a registered dealer, sold wheat products packed in gunny bags during 1964-65. The Assessing Officer taxed the wheat products at 2% and the gunny bags at 4% under the Bihar Sales Tax Act, 1959, invoking the Roller Mills Wheat Products (Price Control) Order, 1964. The dealer argued that the price of the bags was included in an all‑inclusive rate and that no separate charge was made for the bags, seeking a uniform 2% rate. The Tribunal and the High Court held that there was an implied contract to sell the gunny bags, that the bags constitute a separate commodity, and that the higher 4% rate was applicable. The Supreme Court affirmed this view, stating that the Control Order contemplates a net weight inclusive of bag cost and permits a higher rate when cloth bags are used, thereby upholding the tax at 4% on the bag turnover. The appeal was dismissed.

Issues considered

Whether the direction to assess the turnover attributable to gunny bags at a higher rate of 4% under the Roller Mills Wheat Products (Price Control) Order, 1964, is legally valid.
Whether gunny bags constitute a separate commodity whose sale is taxable at a higher rate.
Whether an implied contract for the sale of packing material exists between the dealer and purchasers.

Legislation cited

Subjects

sales taxpacking materialgunny bagsimplied contractprice control ordertax rate differentiationBiharwheat products

Judgment

JAMANA FLOUR & OIL MILL (P) LTD.
A
v.
STATE OF BIHAR
--1
APRIL 16, 1987

[R.S. PATHAK, CJ. AND RANGANATH MISRA, J.] B

,.,._ Bihar Sales Tax Act, 1959 and Roller Mills Wheat Products (Price
Control) Order, ·1964--Wheat products sold in gunny-bags-Whether
gunny bags a different commodity and sale thereof assessable to higher
-1 rate of tax-Whether there was contract to sell packing material along
with the product-Question of fact depending on circumstances of each c
case.

For the year 1964-65, the assessee, a registered dealer, under the
-\ Bihar Sales Tax Act, 1959 returned a gross turnover of Rs.53,39,981
which was accepted by the Assessing Officer. He determined the taxable
turnover at Rs.52, 79,962 representing the sale of wheat products tax- D
able at 2%. He found that the dealer has sold gunny bags in which wheat
products had been packed and determined its turnover at Rs.1,37,150
and assessed the same at 4'h%.

_..
The First Appellate Authority on assessee's appeal held that the
Assessing Officer was not justified in adding back the price of container
E
in the gross turnover. What he should have done is,to tax a portion of
the taxable turnover at a different rate or out of the turnover taxable,
"' the price. of bags calculated at the rate of 70 paise per 100 kilogram
should have been deducted and taxed at the rate of 4'/zo/c. The remain-
'
). ing was to be taxed at the rate of 2%.
'
In. the revision before the Tribunal.the assessee contended that the F
-" demand of sales-tax payable at different rates on the calculated turn-
over of gunny bags was not at all warranted as no price had be_en
charged .for the containers. The Tribunal held that the lower Courts
were justified in levying tax at a different rate on the turnover on
account of sale of gunny bags in which the wheat products were sold and
directed that the Assessing Officer sh.ould ascertain from the accounts, G
the turnover on account of sale of gunny bags as container of wheat
--i products during the period under consideration and assess tax thereon
at the prescribed rate of 4'/z%. The balance turnover shall be assessed at
2%. In tb~ reference the High Court affirmed this view.

Dismissing the appeal, H
1047
I
1048 syPREME COURT REPORTS [1987] 2 S.C.R.

A HELD: 1. The Control Order contemplates a net weight which
means that the. weight of the bag is included in the price to be charged
by the dealer. Under the explanation when packing is done in cloth·
bags, a higher rate is admissible. The scheme clearly suggests that the
price .of gunny-bags is inclusive and where cloth-bag Is used, a higher
B price over and above what has been provided for ordinary containers is
permitted. [l051C-DJ

Commissioner of Taxes v. Prabhat Marketing Company Ltd., 19
STC 84, referred to.

2. The Tribunal rightly came to the conclusion that there was
C implied agreement of sale of the gunny-bags. Admittedly, gunny bags
are a different commodity and sale thereof is assessable to tax at_M1>%.
It is not disputed that appellant bought gunny-bags for packing wheat
products for the purpose of sale. [lOSlCJ

' :I~ The question as to whether there was an agreement to sell
D packing material is a pure question of fact depending upon the circum·
stances found in each c;.ase. [lOSlG-H]

·4. · The. Tribunal and. the High Court in the instant case, have
recorded a clear fmding that there was an implied contract for sale of t-
the gunny bags with the products contained therein. [IOSlH]
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 103
of 1975.

From the Judgment and Order dated 19.4.1974 of the Patna High
Court in Taxation Case No. 21of1970.
F
S.K. Dhingra and K.B. Rohtagi for the Appellants.

D.N. Goburdhan and D. Goburdhan for the Respondents.

The Judgment of the Court was delivered by
G
RANGANATH MISRA, J. This appeal is by special leave. Chal-
lenge herein is to the decision of the Patna High Court rendered on a
reference under Section 33(1) of the Bihar Sales Tax Act, 1959. The
following. question was referred to the High Court for its opinion, by
H the.Commercial Taxes Tribunal of Bihar:-
JAMANA FLOUR v. STATE (MISRA, J.) 1049

"Whether in the facts and circumstances of the case, the A
direction of the Tribunal to ascertain the price of the con-
-i tainers (gunny bags) of wheat. products sold for an all-
inclusive price under the provisions of the Roller Mills
Wheat Products (Price Control) Order, 1964, for taxing the
same at a higher rate of 4'12 % is legally valid?
B
For the year 1964-65, the assessee, a registered dealer ;under the Bihar
·~ Sales Tax Act returned a gross turnover of Rs.53,39,981 which was
accepted by the assessing officer. He determined the taxable turnover
;.. at Rs.52,79,962 representing sale of wheat products taxable at 2 per
cent. He found that the dealer had sold gunny bags in which wheat
products had been packed and determined its turnover at Rs.1,37, 150 c
and assessed the same at 4'h % .
~
The First Appellate Authority on assessee's appeal held:

"The learned Assessing Officer was not justified in adding
back the price of container in the gross turnover. What he D
should have done is to tax a portion of the taxable turnover
at a different rate. or in other words out of the turnover
taxable under. the Bihar Sales Tax Act, the price of bags
_..,. calculated @ Rs.0.70 paise per hundred kilogram should
have been deducted and taxed @ 1/2%. The remaining was
to be taxed@2%. E

The dealer filed a Revision before the Tribunal a.nd contended

~
that the demand of sales-tax payable at different rates on the calcu-
lated turnover of gunny bags was not at all warranted as no price had
been charged for the containers. The Tribunal found:-
..,I, F
"(l) The dealer transferred the property in the gunny
bags, the packing material, to the purchasers for price.

(2) The price of the gunny bags was included in the con-
solidated rates of price charged by the dealer.
G
,.-1 (3) There was an implied agreement for the sale of gunny
bags between the dealer and the different purchasers to
whom the wheat products were supplied.

(4) The transfer of gunny bags was impliedly covered by
H
the contract of sale with regard to the wheat products.
1050 SUPREME COURT REPORTS [1987] 2 S.C.R.

A On these findings the Tribunal held:-"

·"We hold that the learned lower courts were justified in
levying tax at a different rate on the turnover on account of
sale of gunny bags in which the wheat products were sold."
B
It further found:-.

"The learned Deputy Commissioner has given a
direction for determination of the turnover on account of
sale of gunny bags. On being asked the applicant accepted
that the accounts maintained by him would reveal the exact
c number of gunny· bags used in the transaction of sale under
consideration as also the price of the same. Hence we
direct in modification of the orders passed by the learned
Deputy Commissioner in this behalf that the learned
Assessing Officer should ascertain from the.accounts, the
turnover on account of sale of gunny bags as container of ·
D
wheat products during the period under consideration and
assess tax thereon at the prescribed rate of 4¥{%. Th'e ba-
lance turnover shall be assessed at 2%"

Relial)ce was placed on the provisions of clause (3} of the Roller
Mills Wheat Products (Price Control) Order, 1964. That clause
E provides:-

"3. Maximum ex-mill prices of wheat products.

"No owner or other, person in charge of a roller mill shall
sell, or offer for sale, ex-mill any of the wheat products
F
specified in column 1 of the Schedule II to this Order-

(a) .............................................. .'

(b) In the State of Maharashtra (excluding Greater
Bombay) and in any other State (not being a State specified
G sub-clause (a), to which this Order applies, at a price ex-
ceeding the price specified against the clause 3 thereof.

Explanation:-The prices referred to in this clause are:

(i) Exclusive of:
H
JAMANA FLOUR v. STATE [MISRA, 1.) 1051

(a) ............................................... " A

(b) ................................. ............. ."
'

(ii) for net weight (inclusive of the cost of the bag), but
where wheat products are sold in cloth bags in quantities of B
40 kgs. net, 20 kgs. net and 10 kgs. net, a sum of 70 np. 37
np. and 19 np. respectively, towards the cost of the cloth
bag may be charged in addition to the said prices."

In our view, the Tribunal rightly came to the conclusion that
there was implied agreement of sale of the gunny bags. Admittedly
gunny bags are a different commodity and sale thereof is assessable to C
tax at 4'h % . It is not disputed that appellant bought gunny bags for
packing wheat products for the purpose of safe. The Control Order
contemplates a net weight which means that the weight of the bag is
included in the price to be charged by the dealer. Under the explana-
tion when packing is done in cloth-bags, a higher rate is admissible. D
The scheme clearly suggests that the price of gunny bags is inclusive
and where cloth-bag is· used, a higher price over and above what has
been provided for ordinary containers is permitted.

This Court in Commissioner of Taxes v. Prabhat Marketing Com-
panyLtd., 19 STC 84 has held:-
E
"In Hyderabad Deccan Cigarette Factory v. The State of
Andhra Pradesh, (17 STC 624) it was held by this Court
that in a case of this description what the Safes-tax
Authorities had to do was to ask and answer the question
whether the parties, having regard to the circumstances of F
the case, intended to sell or buy the packing materials or
· whether the subject-matter of the contracts of sale was only
an.exempted article (here exigible to tax at redical rate),
and packing materials did not form pa~t of the bargain at
all, but were used by the sellers as a convenient and cheap
vehicle of transport. " G
In that decision it was further pointed out that the question as to
whether there was an agreement to sell packing material was a pure
question of fact depending upon the circumstances found in each case.
The Tribunal and the High Court have recorded a clear finding that
there was an implied contract for saie of the gunny bags along with the H
products contained therein.
1052 SUPREME COURT REPORTS [ 1987] 2 s. c.n..
A In this Court, the assessee filed an affidavit and produced a com-
munication purporting to be of the Regional Director (Food), Enstern
Region, Government of India, dated July 23, 1957. This not being the
part of the record and the affidavit having been filed at a belated stage
has got to be rejected.
B
There is no scope to dispute the assessability of sales-tax on the
turnover of gunny bags. This appeal fails and is dismissed. Patties are
directed to bear their own costs.

A.P.J. Appeal dismissed.
~-

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