Packing Materials Are Integral Part Of Cement Sales, Cannot Be Taxed Separately At Different Rates: Patna High Court
In a ruling on sales tax valuation under the Bihar Finance Act, 1981, the Patna High Court has held that packing materials used for cement, such as gunny bags and HDPE bags, form an integral part of cement sales and cannot be subjected to separate tax rates distinct from the cement itself. The Division Bench of Justice Bibek Chaudhuri and Justice Dr. Anshuman dismissed a...
In a ruling on sales tax valuation under the Bihar Finance Act, 1981, the Patna High Court has held that packing materials used for cement, such as gunny bags and HDPE bags, form an integral part of cement sales and cannot be subjected to separate tax rates distinct from the cement itself.
The Division Bench of Justice Bibek Chaudhuri and Justice Dr. Anshuman dismissed a batch of miscellaneous appeals filed by ACC Limited. The appeals pertained to multiple assessment years ranging from 1996-97 to 2000-01.
The assessee, engaged in the manufacture and sale of cement, had contended that cement and packing materials were distinct commodities and, therefore, liable to tax at separate rates as prescribed under Section 12 of the Bihar Finance Act, 1981 (11% for cement, 4% for gunny bags, and 7% for HDPE bags). The company argued that since invoices reflected separate values and tax payments for cement and packing materials, clubbing them together and taxing the entire turnover at 11% was contrary to law.
Rejecting the contention, the High Court examined the statutory definition of “sale price” under Section 2(u) of the Act and held that any amount charged for anything done in respect of goods at or before delivery must form part of the sale price and that “sale price” means the amount payable to a dealer as valuable consideration in respect of the sale or supply of goods.
The Court observed that cement was packed in gunny or HDPE bags either at the time of or prior to delivery, giving rise to an implied agreement that the packing material was sold along with the cement.
The Patna High Court Bench noted that no independent contract or factual material was placed on record to establish that packing materials were sold separately from cement. In the absence of such evidence, the packing material could not be treated as an independent commodity for the purpose of taxation.
Relying on the plain language of Section 2(u) of the Bihar Finance Act, 198, the Patna High Court held that the “goods” sold included cement along with its packing material, and therefore, the entire consideration was liable to tax at the rate applicable to cement. The Court clarified that the substantial question of law raised by the assessee did not arise in the facts of the case.
Accordingly, all the appeals by ACC Limited in this regard were dismissed, and the orders passed by the assessing, appellate, and revisional authorities were upheld.