Holding

The Supreme Court held that the High Court erred in not determining the existence of an implied contract for the sale of bottles and remitted the matter for fresh consideration, allowing the appeal.

Summary

The appellant, Mis. Co‑operative Company Ltd., a manufacturer and seller of country liquor and IMFL, was assessed sales tax on amounts it levied as "bottling charges" for glass bottles used to pack country liquor. The Assessing Officer treated these charges as the price of bottles and included them in turnover under s.2(i) of the U.P. Trade Tax Act, 1948, relying on Entry 20 of the Schedule. The High Court held the charges formed part of turnover and were taxable, but the Supreme Court found that the High Court had not examined whether an implied contract for the sale of bottles existed, nor whether the assessee was a dealer in bottles. The Court held that the burden of proving an implied sale lies on the revenue and that the matter must be remitted to the High Court to determine the existence of such a contract. Consequently, the appeal was allowed, the impugned judgment set aside, and the case remitted for fresh consideration.

Issues considered

Whether bottling charges for country liquor constitute part of turnover liable to sales tax under s.2(i) of the U.P. Trade Tax Act, 1948.
Whether an implied contract for the sale of bottles exists when the seller levies bottling charges.
Whether the assessee is a dealer in bottles and thus liable under Entry 20 of the Schedule to the Act.
Whether Section 3AB amendment of the U.P. Trade Tax Act, 1948 is retrospective and applicable to the assessment year 1989‑90.
Whether the definition of turnover can be segmented for different tax rates in this context.
Who bears the burden of proof to establish an implied sale of containers.

Legislation cited

U.P. Excise Act
U.P. Trade Tax Act, 1948s. 2(i), s. 3AB

Subjects

sales taxturnoverbottling chargesimplied contractcontainersU.P. Trade Tax Actretrospective amendmentburden of proofexcise law

Judgment

A MIS. CO-OPERATIVE COMPANY LTD.
v.
~ --
COMMISSIONER OF TRADE TAX, U.P.

APRIL 24, 2007

B [S.8. SINHA AND MARKANDEY KA TJU, JJ.]

•
UP. Trade Tax Act, 1948:
•
s.2(i)-Bottles of country liquor-Levy of sale tax on-High Court
c opining that bottling charges are part of turnover and are liable to tax-
Challenge against-Held: No finding by High court that there was implied
transfer condition of sale in regard to sale of bottles nor as to whether the
charges recovered by assessee from its customer represent bottling charges
or price of bottles-Matter needs reconsideration and is remitted back to
D High Court.

Appellant- assessee had been carrying on the business of manufacture
and sale of India Made Foreign Liquor (IMFL) and country liquor. In respect
of the assessment year 1989-90, the books of accounts maintained by it were
' -
rejected by the Assessing Authority, on the premise that tax would be payable
E in respect of bottles being containers of the country liquor.

Appellate authority and Tribunal held that no sales tax could be imposed
on the bottling charges for country made liquor. The High Court opined that
bottling charges are part of turnover and are liable to tax.

F In appeal to this Court, appellant- assessee contended that sales tax is .... ..
not payable as they are not dealer in bottles; that there being no other
alternative, bottles are used as a cheap and convenient mode of transport and
sale of country m~de liquor; that the amounts of Rs.2.60, Rs.2.39 and Rs.
l.57 represent only the charges for P.P. caps, sales and filling charges, which
.•
are collected under the head of bottling charge and thus the same is a payment
G for the job work undertaken for packing the country made liquor; that neither
there is any sale of bottles nor any price charge; that there is no express or ~

implied agreement to sell bottles; that the purchasers were purchasing only
country made liquor and the appellant had only been selling the same and
that tax on bottling charges is sought to be recovered only from tax free country
H 476
CO-OPERATJVr )!\it..'. LTD.v. COMMNR.OFTRADETAX,U.P. 477

liquor, and in the course of sale of IMFL, the sale of bottle has not been held A
to be a separate sale and, thus, double standards adopted by the department is
not justified.

Respondent contended that as sale of bottles finds place in Entry 20 in
the Schedule appended to the Act, despite the fact that no sales tax is payable
on country liquor, the assessee would be liable therefor having regard to the B
definition of 'turnover' as contained in s. 2(i) of the Act.

Allowing the appeal and remitting the matter to High Court, the Court

HELD: 1. Appellant is a dealer of country liquor. It also carries on
business in IMFL. Curiously, whereas in respect of IMFL, no sales tax has C
been levied on bottles, such a levy is sought to be made on bottles for sale of
country liquor. Business in country liquor is res extra commercium. It is
governed by the provisions of the U.P. Excise Act. Each stage of manufacture,
bottling, distribution and sale of country liquor is governed not only by the
provisions of the U.P. Excise Act and the rules framed thereunder, but also D
the terms and conditions of licence. [Para 8) (481-F, GJ

2.1. There is no finding by the High Court that there was an implied
condition of sale in regard to sale of bottles. The High Court did not deal with
the question as to whether the charges levied by appellant from its customers,
which admittedly stand apgroved by the Excise Authority, represent bottling E
charges or sale of bottles. (Para 14) (484-E, FI

2.2. A contract of sale of goods must be construed having regard to the
terms and conditions thereof. A person purchasing a property must know as
to what he has bargained for. The parties might not have bargained for the
,; 'r containers but only for the contents. In the absence of any stipulation made F
in the contract of sale for the purpose of levy of sales tax or otherwise, the
Revenue Authorities must arrive at a finding as to whether there had been
any implied condition of transfer, burden of proof wherefor would be on the
Revenue. Consideration of a part of goods may be held to be a condition
precedent for constituting a sale, but each case must be judged on its own G
facts. [Paras 15 and 16) (484-F, G; 485-A)

2.3. The High Court failed to take into consideration the fact that the
question as to whether there had been an implied contract for sale of bottles
and any amount has separately been charged, was required to be determined.
Each case is required to be determined on consideration of the relevant H
478 SUPREME COURT REPORTS (2007) 5 S.C.R.

A materials placed on record by the parties. [Para 17) [485-A, BJ
3.1. The Assessing Officer proceeded on the basis that the assessee
admitted to have levied charges for the bottles. It, however, failed to make a
distinction between 'bottling charges' and the 'price of bottles'. When the
excise articles are sold in a bottle, it must have a label containing the requisite
B informations as envisaged under the Excise Act and the Rules framed
thereunder or the terms and conditions of licence authorizing the dealer to
deal with in the commodity in question. The Assessing Officer did not proceed 4
on the basis that the price of bottles form a part of the turnover.
[Para 18) [485-B, CJ

C Commissioner of Sales Tax, Madhya Pradesh, Indore v. The Bhopal
Sugar Industries Ltd, 48 STC 45; Commissioner ofSales Tax, MP. v. Swadeshi
Cotton and Flour Mills Ltd. 46 STC 138 and Hyderabad Deccan Cigarette
Factory v. The State of Andhra Pradesh, 17 STC 624, referred to.

3.2. Definition of 'turnover', for the purpose of determining the question,
D is not very relevant. Interpretation clause must be construed having regard
to the purport and object of the Act it seeks to achieve. The 'turnover' may
contain several ingredients. One of the ingredients of the said term, however,
cannot be taken in isolation for the purpose of imposition of levy. Imposition
of tax would be on the total turnover, assuming that the prices of the bottles
E were to be included in the price of the country liquor, provided one is leviable.
If an exemption has been granted, it would be on sale of the articles in
deliverable form. There exists a serious dispute as to whether for the purpose
of levying sales tax, a part of the commodity which is sold as a composite whole
would come within the purview of the Act when sale of two different
commodities can be bifurcated for levy of tax. [Para 23) (488-B, C, DJ
F i ..
4. Containers of the principal commodity which is the subject matter of
the contract of sale may have to be taken into consideration for the purpose
of arriving at the total turnover, but even for that purpose there has to be an
element of ad idem of mind between the purchasers and seller. If by reason of
express controct or implied contract, the containers are also sold, indisputably
G the same would be exigible to tax, but it is difficult to accept that even in absence
of such a contract, sales tax would be Ieviable. [Para 24) [488-D, E, F)

Commissioner of Taxes Assam v. Prabhat Marketing Co. Ltd., Gauhati,
AIR (1967) SC 602; Jamana Flour and Oil Mills (P) Ltd. v. State of Bihar,
H [1987) 3 SCC 404 and Mis. Chatta Sugar Company Ltd., Mathura v.
Commissioner a/Sales Tax, (1991) UPTC 341, referred to.
CO-OPERATIVE COMPANY LTD. v. COMMNR. OF TRADE TAX, U.P. 479

._,_ i S.1. A Notification was issued on or about 07.09.1981 by the State of A
Uttar Pradesh in exercise of its power conferred upon it under the proviso
appended to clause (e) of sub-section (1) ofs.3-A of the U.P. Sales Tax Act,
1948, in terms whereof glass bottles and phials, other than hand made glass
phials is exigible to tax @ 4% have been included in Entry 20 thereof.
[Para 7] [479-A]
B
S.2 Inclusion of bottles as a separate item in the notification dated
07.09.1981 is not relevant. Appellant is not a dealer of bottles. Had it been a
>
.. dealer of the bottles, he might have been exigible to sales tax in terms of the
said provision. Thus, without adverting to the question as to whether there
had been an implied sale, Entry 20 will have no role to play.
[Paras 26 and 27] [489-G]
c
6. A tax may be leviable at different rates. Definition of 'turnover' having
undergone an amendment and being expansive in nature, would it be
permissible to segregate it to make different commodities for the purpose of
imposition or tax 'It a higher rate, would, merit consideration. If the sale is in D
relation to two different commodities, it may be permissible to levy tax at
different rates, but, when the definition or 'turnover' includes a wide range of
subjects including the package. Only for the purpose, the concept of implied
contract of sale would assume significance. [Para 28) [490-A, BJ

7. The matter requires reconsideration by the High Court. The High E
Court must on the basis of the materials available on records arrive at a finding
as to whether there existed any implied contract for sale and/or whether in
effect and substance keeping in view the fixation of price of different materials
by the excise authorities in terms orthe U.P. Excise Act and/or rules framed
, , thereunder any separate charges have been levied for prices or the bottles
F
separately or not. (Para 30) (490-E, F]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2124 of2007.

From the Judgment and Order dated 07.02.2006 of the High Court of
Judicature at Allahabad in Trade Tax Revision No. 39 of 1996
G
K. Radhakrishnan, Charan Singh, Anil Sood and Rakesh K. Sharma for
the Appellant.

Dinesh Dwivedi, Arvind Verma, Kamlendra Mishra and Rajeev Dubey
for the Respondent. H
480 SUPREME COURT REPORTS (2007) 5 S.C.R.

A The Judgment of the Court was delivered by

S.B. SINHA, J. I. Leave granted.

2. Appellant is a co-operative society registered under the U.P. Co-
operative Societies Act. It carries on business of manufacture and sale of
B India Made Foreign Liquor (for short, 'IMFL') and country liquor.
3. In respect of the assessment year 1989-90, the books of accounts
maintained by it were rejected by the Assessing Authority, inter alia, on the
premise that tax would be payable in respect of bottles being containers of
the country liquor. An appeal was preferred thereagainst by Appellant before
C the Deputy Commissioner (Appeal) and by reason of an order dated 11.01.1994,
the said appeal was allowed in part holding that no sales tax could be imposed
on the bottling charges for country made liquor. A Second Appeal thereagainst
was preferred before the Trade Tax Tribunal by the Revenue, which was
dismissed. A Revision was preferred before the High Court against the said
D judgment of the Tribunal and by reason of the impugned judgment, the High
Court opined that bottling charges are part of the turnover and are liable to
tax.

4. Mr. K. Radhakrishnan, the learned Senior Counsel appearing on
behalf of Appellant, would submit that the High Court committed a serious
-
E error in passing the impugned judgment insofar as it failed to take into
consideration :

(I) The assessee is not a dealer in bottles as it does not carry on
any business therein.
(2) There being no other alternative, bottles are used as a cheap and
F cor.venient mode of transport and sale of country made liquor. < ~

(3) Amounts of Rs. 2.60, Rs. 2.30 and Rs. 1.57 represent only the
charges for P.P. caps, sales and filling charges, which are collected
under the head of bottling charge and, thus, the same is a
payment for the job work undertaken for packing the country
G made liquor.
(4) Neither there is any sale of bottles nor any price is charged
therefor.
(5) There is no express or implied agreement to sell bottles.
H (6) The department has not discharged its burden to prove that there
•
CO-OPERATIVE COMPANY LTD. v. COMMNR OF TRADE TAX, U.P. [S.B. SINHA, J.] 481

was an implied agreement to sell the bottles. A
(7) The purchasers were purchasing only country made liquor and
the appellant had only been selling the same.

(8) Cost of packing material is very less and insignificant as compared
to the cost of country made liquor ::nd price of the goods is the
same with or without bottles. B
>
(9) Tax on bottling charges is sought to be recovered only from tax
free country liquor, and in the course of sale of IMFL, the sale
of bottle has not been held to be a separate sale and, thus,
double standards adopted by the department is not justified.

(10) Section 3AB inserted in the U.P. Trade Tax Act, 1948 (for short,
c
'the Act') on 01.08.1990, being clarificatory/declaratory has
retrospective effect.

5. The learned counsel has placed strong reliance on a decision of the
Allahabad High Court in Chhatta Sugar Company Ltd v. Commissioner, D
Trade Tax, U.P.. Lucknow, 124 STC 33, in support of the said contention.

6. Mr. Dinesh Dwivedi, the learned Senior Counsel appearing on behalf
of the respondent, on the other hand, would submit that as sale of bottles
finds place in Entry 20 in the Scheduled appended to the Act, despite the fact
that no sales tax is payable on country liquor, the assessee would be liable E
therefor having regard to the definition of 'turnover' as contained in Section
2(i) of the Act.

7. A notification was issued on or about 07 .09 .1981 by the State of Uttar
Pradesh in exercise of its power conferred upon it under the proviso appended
to clause (e) of sub-section (1) of Section 3-A of the U.P. Sales Tax Act, 1948, F
in terms whereof glass bottles and phials, other than hand made glass phials
is exigible to tax @ 4% have been included in Entry 20 thereof.

8. Appellant herein is a dealer of country liquor. It also carries on
business in IMFL. Curiously, whereas in respect of IMFL, no sales tax has G
been levied on bottles, such a levy is sought to be made on bottles for sale
of country liquor. Business in country liquor is res extra commercium. It is
governed by the provisions of the U.P. Excise Act. Each stage of manufacture,
bottling, distribution and sale of country liquor is governed not only by the
provisions of the U.P. Excise Act and the rules framed thereunder, but also
the terms and conditions of licence. H
482 SUPREME COURT REPORTS [2007] 5 S.C.R.

A 9. It is not in dispute that Appellant charged from his customers a sum
ofRs.2.60, 2.30 and Rs.1.57 under the heading "P.P. Caps, Seal and Filling'.
The question which arose for consideration was as to whether imposition of
such charge would amount to the charge of price of the bottles as contra-
distinguished from the bottling charges.

B IO. The Assessing Officer found the same to be exigible to sales tax,
despite noticing that there existed a dispute as to whether sale of bottles was
admitted or the charges levied were bottling charges, it proceeded to hold :

" ....Thus, it is clear that for this purpose the bottles purchased from
outside the province has been used. In view of the aforesaid, as far
c as the question of tax liability on the amount of aforesaid bottles is
concerned, as per the order of the Commissioner Excise the rates of
2.30, 2.20 and 2.10 which has been fixed for the bottles of750 M.L.
375 ML and 180 ML capacity is completely for the empty bottles for
the sale of country liquor. As far as the price of these empty bottles
D under these charges is concerned, the alleged labour charges with
regard to the use of caps cork and labelling at different rates is
negligible in comparison to the price of the bottles of the assessee
and how much amount with regard to this work is included in the said
rate of 2-30, 2.20 and 2.10 has not been mentioned in the aforesaid
order of the Excise Commissioner. In this way, the recovery of the
E amount by the assessee under the head of bottling charges is the sale
of cap and cork and labelled empty bottles in a separate contract
under the definition of Section 2-H of the Provincial Sales Tax Act. As
far as the question of two judgments referred by the assessee is
concerned, the facts of the aforesaid judgments were not relating to
F the bottling charges as the fact of this case. In the case of Mis
Gannon Dunkerley & Co., the Hon'ble Supreme Court has held that
to constitute sale, the existence of two parties, transfer of goods and
passing of consideration from purchaser to seller for this purpose is
necessary. These all facts are present in the case under consideration
and in view of the same the amount shown as the bottling charges,
G is the sale of label, cap & cork used on the bottle. Under the case
under consideration, the assessee has shown the price of the bottles
as bottling charges and has not admitted the sale of the bottles, while
amount recovered in the form of bottling charges is the clear cut sale
of bottles"
H
CO-OPERATIVE COMPANY LTD. v. COMMNR OF TRADE TAX, U.P. [S.B. SINHA, J.] 483
...... _}
11. The Appellate Authority, on the other hand, held : A
"It is clear on the basis of the aforesaid principles that the bottling
charges have not been taken due to the sale because in this case, the
cost of the packing material is very less than the price of the main
material and the appellant had no other business alternative that he
could sale and transport the liquor without packing materials and B
there was no relaxation in price for the purchaser of the liquor in case
of absence of the packing materials. Therefore, the sale of packing
... material could not be held as a separate sale agreement and in case
of sale no sales tax could be imposed on the bottling charges.

It is also pertinent to mention here that the sale of foreign liquor c
and the sale of bottles have not been held ~o be a separate sale and
the same rate has been imposed over the same. The double standard
adopted by the Tax Assessment Officer in the same case shall not be
held justifiable."

12. The Trade Tax Tribunal opined : D

"As regards the bottling charges, we are of the opinion that the
assessee is neither a dealer in bottles nor does any business of
bottles. The bottles have been used by the assessee only as a cheap
and convenient mode of transport, since there was no commercial
alternative available, the amount of2.60, 2.30, 1.57 only represents the
E
charge for P.P. Caps, seals, labels. and filling charges and not for
bottles and this charge has been collected under the head of bottling
charges and the same does not represent any cost of the bottles, label
~
etc. It was merely a payment for the job work undertaken for packing
'r the liquor, since no price was charged for bottles, there can be no sal.e F
of bottles as was held by the Hon'ble Court in the case of State of
Madras v. Ganon Dunkerley & Co. Ltd, (1958) STC 383 S.C.

The Hon'ble Supreme Court and the various High Courts have
repeatedly held that it is the onus of the department to prove that an
implied agreement to sell existed and how the price has been charged G
for the packing material. The assessee was required to prove negative.
This burden has not been discharged successfully by the department.
Therefore, the assessment to tax on this point was totally illegal. The
inference of alleged implied sale is baseless since firstly no price for
bottles is charged and whatever was the cost of bottles, it goes into
H
484 SUPREME COURT REPORTS [2007] 5 S.C.R.

A the overheads of and is debited to the profit and loss account.
Moreover, the packing material, which is used by the assessee is a
bare minimum necessary as the assessee has no other commercial
alternative."

13. Differing with the findings of fact arrived at by the Appellate Authority
B as also the Tribunal, the High Court, in exercise of its revisional jurisdiction,
however, in its judgment which is being impugned before us proceeded on
the basis that in view of the definition of 'turnover' as contained in Section
2(i) of the Act, and also the fact that the liquor could not be sold without >
packing, a contract of sale of bottles would be presumed, holding :

c "The aforesaid two decisions of the Apex Court clearly hold that
in case where the goods are sold in packed fonn, there is implied
contract for sale of material even if the price are separately charged
for. It has been further held that the packing charges charged for the
packing material and for labour charges etc. falls within the purview
D of "any sums charged for anything done by the dealer in respect of
the goods at the time of or before the delivery thereof' and thus, it
is the part of turnover. Bottling of liquor is an integral part of the
process of manufacturing. Liquor becomes marketable only after
bottling. Liquor can not be sold without packing. Thus, the packing
charges are liable to be included in the turnover and liable to tax. I
E do not agree that bottling charges is a delivery charges."

14. There is no finding by the High Court that there was an implied
condition of sale in regard to sale of bottles. The High Court while arriving
at the said finding did not deal with the question as to whether the charges
levied by Appellant from its customers, which admittedly stand approved by
F the Excise Authority, represent bottling charges or sale of bottles.

15. A contract of sale of goods must be construed having regard to the
tenns and conditions thereof. A person purchasing a property must know as
to what he had bargained for. The parties might not have bargained for the
G containers but might have bargained only for the contents.

16. In absence of any stipulation made in the contract of sale for the
purpose of levy of sales tax or otherwise, the Revenue Authorities must arrive
at a finding as to whether there had been any implied condition of transfer,
burden of proof wherefor would be on the Revenue. Consideration of a part
H of goods may be held to be a condition precedent for constituting a sale, but
CO-OPERATIVE COMPANY LTD. v. COMMNR. OF TRADE TAX, U.P. [S.B. SINHA, J.] 485

therefor each case must be judged on its own facts. A
17. The High Court, in our opinion, failed to take into consideration the
fact that the question as to whether there had been an implied contract for
sale of bottles and any amount has separately been charged therefor was
required to be determined. Each case is required to be determined on
consideration of the relevant materials placed on record by the parties. B
18. The Assessing Officer proceeded on the basis that the assessee
admitted to have levied charged for the bottles. It, however, failed to make
a distinction between 'bottling charges' and the 'price of bottles'. When the
excise articles are sold in a bottle, it must have a label containing the requisite C
informations as envisaged under the Excise Act and the Rules framed
thereunder or the terms and conditions of licence authorising the dealer to
deal with in the commodity in question. The Assessing Officer did not
proceed on the basis that the price of bottles form a part of the turnover as
contended by Mr. Dwivedi.
D
19. The question came up for consideration before different High Courts.
We may notice only a few of them.

20. In Commissioner of Sales Tax, Madhya Pradesh, Indore v. The
Bhopal Sugar Industries Ltd., 48 STC 45, Division Bench comprising ofG.P.
Singh and U.N. Bhachawat, J., (as the learned Judges then were) opined : E
"7. Sales tax on gunny bags can be imposed only on the basis
that the assessee sold the bags to the purchasers of sugar. There was
no express agreement for sale of gunny bags. The Tribunal has stated
that there was no evidence to show even an implied agreement for
sale of gunny bags. The learned Government Advocate, who appeared F
for the department, however, submitted that the other facts stated by
the Tribunal lead to the inference that there was an implied sale of
gunny bags. It is this argument which we have to examine. The
property in the gunny bags no doubt passed to the purchasers of
sugar and the gunny bags did not become useless in the hands of G
the purchasers. But from this alone it is not possible to hold that there
was an implied sale of gunny bags. When goods packed in containers
are sold, the property in the containers no doubt is transferred to the
purchaser. But before holding that there was an implied sale of
containers, one has to exclude the possibility that the containers were
used by the dealer as a convenient and cheap mode of transporting H
486 SUPREME COURT REPORTS [2007] 5 S.C.R.

A the goods to the purchaser without charging any price for them. It has
also to be kept in mind that the burden of proof that there was an
implied sale of packing material or container is on the department and
the assessee is not required to prove the negative. Viewed on these
principles, in our opinion, the facts do not warrant the conclusion of
implied sale of gunny bags. It is not practicable for a manufacturer of
B sugar like the assessee to sell sugar in loose and the assessee has
to use some form of packing material for transporting the sugar sold
by it to the purchaser. Indeed, the mode of packing sugar in gunny
bags was prescribed under the Control Order which was binding on
the assessee. The assessee did not charge any separate price for
c gunny bags. The price of 100 kgs. of sugar packed in gunny bag was
fixed under the Control Order and it is this price which the assessee
charged from the purchasers. May be, that in fixing the price of 100
kgs. sugar packed in gunny bag, the Government took into account
the price of the packing material just as it must have taken into
account manufacturing cost and other incidental charges and expenses
D of the producer. But from this alone, it cannot be said that the assessee
charged the price of gunny bags from the purchasers or that there was
an implied sale of gunny bags to the purchasers. The Sugar Control
Order authorises the Government to fix the ex factory price of sugar
and not the price of gunny bags. The price fixed by the Control Order
E and charged by the assessee was the price of sugar. The cost of
gunny bag is insignificant as compared to the cost of sugar packed
in it. Having regard to all these circumstances, in our opinion, it is not
possible to infer that there was any implied sale of gunny bags."

21. Yet again in Commissioner of Sales Tax, MP. v. Swadeshi Cotton
F and Flour Mills Ltd 46 STC 138], Sohani, J., (as His Lordship then was)
stated the law thus :

"4. Having heard the learned counsel for the parties, we have
come to the conclusion that this reference must be answered in favour
of the assessee and against the department. As regards the grievance
G that the Board had not given any clear findings, all that we can say
is that no such grievance can be made in view of the question referred >
to us. That question is based on the assumption that there was
material before the Board for giving a finding and that finding was
accordingly given by the Board that there was no implied sale of the
packing materials. In point of fact, the question referred to this Court
H
CO-OPERATIVE COMPANY LTD. v. COMMNR.OFTRADETAX, U.P. [S.B. SINHA,J.] 487

is a question of fact. The burden was on the department to prove that A
there was an implied sale of the packing materials. In the instant case,
it was not disputed that there was no express agreement for the sale
of the packing materials. The assessing authorities had not found that
price was separately charged for the packing material. The contention
advanced on behalf of the assessee before the Board that the price B
charged by the assessee for the cloth was either on the basis of
meterage or on the basis of weightage was impliedly upheld by the
learned Member as he relied upon the decision reported in Binod
Mills Co. Ltd. v. Commissioner of Sales Tax, (1971) M.P.L.J. 1009,
where a similar finding had been given. It must, therefore, be held that
the Board had found that the burden to prove that there was sale of C
the packing material was not discharged by the department. In our
opinion, therefore, the Board rightly relied upon the decision reported
in Binod Mills Co. Ltd. v. Commissioner ofSales Tax, (1971) M.P.L.J.
I 009 for coming .to the conclusion that there was no implied sale by
the assessee of the packing materials."
D
22. This Court in Hyderabad Deccan Cigarette Factory v. The State of
Andhra Pradesh, 17 STC 624, observed :

"This passage indicates that the Tribunal rejected the contentidn
on the ground that the value of the packing materials must have been
taken into consideration in fixing the price of the cigarettes. But that E.
reasoning does not answer the contention that howsoever the price
was fixed, the cigarettes were sold, whether packed in cardboards or
wooden boxes, in or outside the State of Andhra Pradesh, at the same
rate. The High Court also held that though there was no express
contract to sell the packing materials and the packets separately, such F
a contract was implicit in the contract for the sale of the goods. This
implied agreement was based on the fact that the packet cigarettes
were sold at a price and on the surmise that in fixing the price the
assessee might have taken into consideration the cost of all the
materials used in the packing. The High Court also ignored the aforesaid
contention of the assessee. It also did not consider the relevant G
material to come to the conclusion that the assessee agreed to sell the
packing materials to the customers.
A perusal of the orders of the various authorities and the High
Court shows that a simple question of fact has been sidetracked by
copious citations. Whether there was an agreement to sell the packing H
A
488 SUPREME COURT REPORTS [2007] 5 S.C.R.

materials is a pure question of fact and that question cannot be
decided on fictions or surmises. That is what has happened in this
case. The Commercial Tax Officer invoked a fiction; the Assistant
--
Commissioner of Commercial Taxes relied upon the doctrine of"fmished
product", the Appellate Tribunal relied upon surmises; and the High
Court on the principle of implied agreement... ... "
B
23. Definition of 'turnover', in our opinion, for the purpose of determining
the question, is not very relevant. Interpretation clause must be construed
having regard to the purport and object of the Act it seeks to achieve. The
term 'turnover' may contain several ingredients. One of the ingredients of the
C said term, however, cannot be taken in isolation for the purpose of imposition
of levy. Imposition of tax would be on the total turnover, assuming that the
prices of the bottles were to be included in the price of the country liquor,
provided one is leviable. If an exemption has been granted, it would be on
sale of the articles in a deliverable form. There exi~ts a serious dispute as to
whether for the purpose of levying sales tax, a part of the commodity which
D is sold as a composite whole would come within the purview of the Act when
sale of two different commodities can be bifurcated for levy of tax.

24. Containers of the principal commodity which is the subject matter
of the contract of sale may have to be taken into consideration for the
purpose of arriving at the total turnover, but even for that purpose there has
E to be an element of ad idem of mind between the purchaser and seller. If by
reason of express contract or implied contract, the containers are also sold,
indisputably the same would be exigible to tax, as has been held in
Commissioner of Taxes Assam v. Prabhat Marketing Co. Ltd., Gauhati, AIR
(1967) SC 602, but it is difficult to accept the contention of Mr. Dwivedi that
F even in absence of such a contract, sales tax would be leviable. Reliance has
been placed by Mr. Dwivedi on Jamana Four and Oil Mills (P) Ltd. v. State
ofBihar, [1987] 3 SCC 404, wherein this Court was not dealing with a situation
of the present nature. It was held :

"3. The dealer filed a revision before the Tribunal and contended
G that the demand of Sales Tax payable at different rates on the calculated
turnover of gunny bags was not at all warranted as no price had been
charged for the containers. The Tribunal found:

(I) The dealer transferred the property in the gunny bags, the packing
material, to the purchasers for price.
H
CO-OPERATIVE COMPANY LTD. v. COMMNR. OFTRADE TAX, U.P. [S.B. SINHA, J.] 489

(2) The price of the gunny bags was included in the consolidated A
rates of price charged by the dealer.

(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.
B
(4) The transfer of gunny bags was impliedly covered by the contract
of sale with regard to the wheat products.

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 C
which the wheat products were sold.

It further found:

The learned Deputy Commissioner has given a direction for
determination of the turnover on account of sale of gunny bags. On D
being asked the applicant accepted that the accounts maintained by
him would reveal the exact 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 E
should ascertain from the accounts, the turnover on account of sale
of gunny bags as container of wheat products during the period
under consideration and assess tax thereon at the prescribed rate of
4 112per cent The balance turnover shall be assessed at 2 per cent."

F
25. Reliance has also been placed by Mr. Dwivedi on Mis Chhatta
Sugar Company Ltd., Mathura v. Commissioner of Sales Tax, (1991) UPTC
341, wherein a learned Single Judge of the Allahabad High Court, without any
discussion, opined that the containers would also be taxed.

26. Inclusion of bottles as a separate item in the notification dated G
07.09.1981, in our opinion, is not relevant. Appellant is not a dealer of bottles.
Had it been a dealer of the bottles, he might have been exigible to sale3 tax
in terms of the said provision.

27. Thus, without adverting to the question as to whether there had
been an implied sale, Entry 20 will have no role to play. H
490 SUPREME COURT REPORTS [2007) 5 S.C.R.

A 28. We may also consider the matter from another angle. A tax may be )~·

leviable at different rates. Definition of 'turnover' having undergone an
amendment and being expansive in nature, would it be permissible to segregate
it to make different commodities for the purpose of imposition of tax at a
higher rate, would, in our opinion, merit consideration. We are not oblivious
of the fact that if the sale is in relation, to two different commodities, it may
B be permissible to levy tax at different rates, but not when the definition of
'turnover' includes a wide range of subjects including the package. Only for
the purpose, the concept of implied contract of sale would assume significance. ',_
~
29. We, however, are not impressed with the arguments of Mr.
c Radhakrishnan that Section 3AB of the Act introduced in the statute by
reason of the U.P. Trade Tax Tax (Amendment) Act, 1991 is clarificatory in
nature. The said amendment came into force with effect from 25.04.1990. The
assessment year, as noticed hereinbefore, is 01.04.1989 to 31.03.1990. The Act
having been brought into force from a particular date, no retrospective operation
thereof can be contemplated prior thereto. The said provision furthermore
D contains a substantive provision which is itself a pointer to the fact that for
the earlier period packing materials would not be exempted merely because
main commodity is exempted from tax, but albeit subject to the condition that
there was an agreement to sell in respect thereof. The amendment sought to
deal with a matter which created som.! problem in implementation of the Act.
E 30. We, therefore, are of the opinion that the matter requires
reconsideration by the High Court. The High Court must on the basis of the
materials available on records arrive at a finding as to whether there existed
any implied contract for sale and/or whether in effect and substance keeping
in view the fixation of price of different materials by the excise authorities in
F terms of the U.P. Excise Act and/or rules framed thereunder any separate ...
1
charges have been levied for prices of the bottles separately or not.

31. For the reasons aforementioned, the impugned judgment cannot be
sustained, which is set aside accordingly. The appeal is allowed. The matter
is remitted to the High Court for its consideration afresh. No costs.
G
D.G. Appeal allowed.
.
~