@JUDGMENTTAG-ORDER
Dixit, J.@mdashIn this reference under S. 13 of the Madhya Bharat Sales Tax Act, 1950, by the Commissioner of Sales Tax, the question that
arises for determination is of the liability of the assessee to pay sales tax on the value of Hessian cloth and iron hoops used in the baling process.
Messrs. Jaikishan Gopikishan are owners of a Cotton Ginning and Pressing Factory at Sanawad, They press cotton supplied by their clients and
deliver it to them in bales covered with gunny cloth and secured by iron hoops They charged an inclusive rate for both the gunny coverings, the iron
hoops and also for the pressing; For the year 1950-51, the sales tax authorities assessed the firm to sales tax on the value of hessian cloth and iron
hoops. The assessee claimed that the contract between him and his client was a contract Of labour and work; that when he delivered the bales of
pressed cotton wrapped in hessian cloth and fastened by iron hoops, there was no sale of the cloth and hoops within the meaning of Sales Tax
Act. This contention was rejected by the assessing authority. It, however, found favour with the appellate Judge in an appeal preferred by the
assessee. The assessing authority then went up in revision before the Commissioner Sales Tax. The learned Commissioner agreeing with the view
of the assessing authority held that ""the business of the factory being of rendering service of ginning and pressing of cotton bales only, any supply of
Loha-Patti and Bardana, the price of which has been included by the assessee in the pressing charges charged from his customers, is a sale as
defined under S. 2(o) of the Sales Tax Act''. The Commissioner has now made this reference at the instance of the assessee. He has submitted as
many as six questions for decision. But all of them overlap and the only question that emerges for consideration is whether the owner of a ginning
and pressing factory is liable to pay sales tax on the value of gunny cloth and iron hoops used in the baling process, when he charges his constituent
a consolidated rate for pressing as well as for the iron hoops and the hessian coverings.
2. The question has to be answered with reference to the definitions of �dealer� ""goods"" and ""sale"" given in the Act. Under S. 3(1) every
dealer is liable to pay tax on his taxable turnover subject to the provisions of the Act. Section 2(f) defines ""dealer"" as meaning any person or
association of persons carrying on the business of selling or supplying of goods whether for commission, remuneration or other wise. We are not
concerned with that part of the definition which includes in it a Hindu undivided family, society and club etc. ""Goods'''' have been defined by S.
2(g) as meaning of all kinds of movable property other than actionable claims, stocks, shares and securities, and includes electrical energy and all
materials, articles and commodities, whether or not to be used in construction, fitting out, improvement or repair of movable or immovable
property. Section 2(o) defines ""sale"" thus:--""Sale, with all its grammatical variations and cognate expressions means any transfer of property in
goods for cash or deferred payment or other valuable consideration including a transfer of property in goods made in course of execution of a
contract but does not include a mortgage, hypothecation, charge or pledge."" The material part of S. 2(q) which defines �turnover� is:-
Turnover means the aggregate amount for which goods are either sold or supplied for the payment received in respect of a contract by a dealer.
Taxable Turnover"" for a specified period has been defined by S. 2(p) as meaning that part of a dealer''s turnover for such period which remains
after making the deductions enumerated in clause (p). The combined effect of all these definitions is that every person who carries on the business
of transferring property in any kind of movable property including articles and commodities used in fitting out, improvement or repairs of movable
or immovable property to another for cash or deferred payment or other valuable consideration, is liable to pay sales-tax on the turnover. Now,
here, it is not disputed and in view of the wide scope of the word ''goods'' it cannot be disputed that hessian cloth and iron hoops are goods as
defined by Section 2(g), There is also no dispute that the assessee acquired property in these goods when he purchased them for using in the baling
process and that the property in the hessian cloth and the hoops was transferred to the customers when bales covered with hesseian cloth and
secured by iron hoops were delivered to them on payment of the consolidated charge. If then, as the Commissioner of Sales Tax has found that the
price charged by the firm covers both the labour involved in the pressing and baling and the value of the hessian cloth and iron hoops, the transfer
of property in the cloth and the hoops is clearly for consideration, that being so, the assessee is liable to pay tax on the value of the hessian cloth
and the hoops supplied by him to his customers.
3. The matter is plain enough. But Mr. Waghmare, learned counsel for the assesses, relying on Poppatlal Shah Vs. The State of Madras, , Sales
Tax Officer, The Sales Tax Officer, Pilibhit Vs. Budh Prakash Jai Prakash, and Cannan Dunkerely and Co. Ltd. Vs. State of Madras ( AIR 1954
Mad 1136 ) urged that the assessee-firm was not doing the business of selling or supplying any hessian cloth and iron hoops; that there was no
contract between the firm and its constituents as to the price of the gunny cloth and the iron hoops; that the contract between the parties was one
of work and labour; and that there was no sale of the cloth and the hoops which were an integral part of the baling process. I am unable to accede
to this contention. The decisions of the Supreme Court cited by the learned counsel do not at all support the contention that in a case such as this,
when an inclusive price is charged both for the labour involved in pressing and baling of cotton and for the hessian cloth and the hoops, there is no
sale of the cloth and the hoops unless the price of the cloth and the hoops is specifically agreed to between the parties, Those cases also do not
support the contention that a person cannot be said to be carrying on the business of selling or supplying any particular goods unless the business is
confined to the sale of those goods or is unconnected with any work and labour contract. In Poppatlal Shah Vs. The State of Madras, ) while
dealing with the meaning of the word ""sale"" as used in the Madras General Sales Tax Act, their Lordships of the Supreme Court pointed out that in
the definition of the word ""sale"" in Section 2(h) of the Madras Act stress was laid on the lament of transfer of property in a sale and no other. In
The Sales Tax Officer, Pilibhit Vs. Budh Prakash Jai Prakash, ), the Supreme Court considered the validity of certain provisions of U. P. Sales
Tax Act, 1948, in so far as it imposed a tax on forward contracts in connection with that question it was observed that a liability to be assessed to
sales tax can arise only if there is a completed sale under which price is paid or is payable and not when there is only an agreement to sell, which
can only result in a claim for damages. These cases do not in any way assist the assessee. The Madras case reported in AIR 1954 Mad 1130
(Gannan Dunkerly vs. State of Madras) was cited to support the contention that the contract between the assessee-firm and its clients pressing
cotton supplied by the clients and delivered to them in bales was only a work contract. In that case, Messrs, Gannan Dunkerly and Company,
entered into a building contract and purchased some materials which were used in the construction. One of the questions that was considered was
whether the materials supplied and made part of the building were sold by the assessee to the employer. The Madras High Court held that there
was no transaction of sale between the assessee and the employer and that the materials supplied became an integral past of the building
contracted by them under the contract. The Madras view was, however, not accepted by this Court in the case of Pandit Banarasi Das vs. State of
Madhya Pradesh and others (1955) 6 S.T.C. 93, where the learned Chief Justice made the following observations at pages 105-106:-
The Madras decision, with all due respect, seems to suggest that the expression ''sale of goods'' received its full and final meaning by 1935 through
legislation and decided cases. The cases cited there do not refer to taxation but deal with other matters. So also the statutes, That building
contracts are entire, that property in the building materials passes when they are part of immovable property and that payment is in a lump sum and
not separately for the materials, may be matters of consequence in some context. But there is always a sale if goods are transferred to another and
paid for by him. It cannot be gainsaid that there is payment for materials, though the payment is not made separately but as part of a larger amount.
Building materials are goods is clear from The Deputy Federal Commissioner Vs. Stronach (55 C.L.R. 305) and M.R. Hornibrook (Pvt.) Ltd. Vs.
Federal Commissioner of Taxation (62 C.L.R. 272) and certain other rulings in Australia. The Sales Tax (Assessment) Acts, 1930-36, lay the tax
on goods manufactured or imported into Australia granting exemptions for some building materials and these cases may not be fully apposite. But
there is a clear statement, that building materials can be treated as ""goods"" and the wide definition of that term in the Constitution Act, 1935,
renders the dictum easily applicable here. The Canadian Statutes also tax ''manufacture'' but the cases of tailors (e.g. The King Vs. Pedric & Palen
59 D.L.R. 315) are interesting, though again not quite appropriate.
We are here concerned with a taxing measure and the power to levy the tax can only be determined by a fair consideration of the ambit of the
entry by which the power is conferred. If the pith and substance of the Act come within that ambit, the power is there, otherwise not. If a building
contract was not split up into its component parts, that is to say, material and labour, in legislative practice relating to the ordinary regulation of sale
of goods, there is no warrant for holding that it could not be so split up even for purposes of taxation.
In Banarasidas''s case the supply of building material used in the execution of a building contract was held to be a sale of those materials even
though the payment for materials was not made separately but as part of a larger amount. Following the decision in Pandit Banarasidas Vs. The
State of Madhya Pradesh (1955) 6 S.T.C. 93, it must be held here also that the supply of hession cloth and iron hoops by the assessee-firm to its
clients was tantamount to the sale thereof, although the payment for these materials was not made separately but included in the charges for
processing and baling. The decision in Pandit Banarasidas Vs. State of Madhya Pradesh (1955) 6. S.T.C. 93 was followed in Babulal Vs. D.P.
Dube other (1955) 6. S.T.C. 255 where the asses who ran a yarn shop and a during factory customers but that they were utilized for dyeing yarn
brought by the customers, for which a price was charged without there being a separate price of the dye-stuffs. This argument was rejected
following the decision in the case of Banarasidas and it was observed that if the contract of dyeing yarn involves therein the transfer of property in
dye-stuff and the price there of is included in the price paid for the finished work, there is no reason why the law cannot isolate the transaction of
sale involved from other matters and tax its The instant case is much stronger. In Babulal''s case, the yarn, the dye-stuff and the chemicals became
inseparably integrated. But here, there is no such integration even. When the bales are wrapped, in gunny covering and made secure by iron hoops,
it cannot be said that the hessian cloth and the hoops got so inextricably mixed up with cotton or with labour and work involved in the baling
process that they lose their identity. The hessian and the iron hoops though necessary and convenient for the preservation and the delivery of the
cotton bales, remain extraneous and separate marketable materials. Learned counsel for the assessee referred to Nimar Cotton Press vs. Saks Tax
Officer, Khandwa (A.I.R. 1956 Nag 27). In that case also the assessee was the owner of a cotton press. But he recovered from his clients only
the pressing charges. It was observed that if the assessee received remuneration merely for the pressing of bales he could not be said to be
carrying on any business of selling and supplying goods and was not a dealer. The question whether the hessian and from hoops used for packing
the bales can be said to have been sold by the assessee when they are supplied by him, was left undecided with the observation that:-
If they are supplied by the owner of cotton, then there is no transfer of ownership of hessian and iron hoops from the petitioner to its client. But if
this material, which is indispensable of turning out a pressed cotton bale, is supplied by the petitioner, a question may well arise whether there is
any sale of this material.
While not saying that the assessee did not transfer the property in the hessian and the hoops to his constituents, Mr. Waghmare, learned counsel
for the assessee, suggested that the price paid by the assessee for the purchase of those materials was a part of establishment charges. Even if the
value of the hessian and the iron hoops is treated as a part of the establishment charges, it would still be included in the consolidated price charged
by the assessee for the hessian, the hoops and the pressing. The consolidated rate must have been fixed after taking into account establishment
charges. It is difficult to believe that in fixing that rate the assessee excluded establishment Charges altogether or that though the establishment
charges in respect of other items were taken into account, the value of the hessian and iron hoops as establishment charges was left out The price
charged by the assessee thus being an inclusive price for both the baling and pressing processes and for the hessian and the hoops it must be held
that there was a sale of the hessian and the hoops when the property therein was transferred to the customers of the assessee firm.
4. Of the other cases cited to us, a case almost identical on its facts with the present case is B.V. Hanumantha Rao vs. The State of Andhra (1956)
7 S.T.C. 486. That was a case where the assessee carried on the business of baling and pressing palmyra fibre and used in that process gunny
cloth and iron hoops. He was assessed to sales tax on the value of Hessian and iron hoops. It was contended by the assessee that the transactions
did not involve any sale of goods; that the contracts entered into by him with his constituents were works contracts and that the gunny cloth and
iron hoops became an integral part of the product entrusted to him for baling and pressing. The assessee entered into three kinds of transactions: (i)
where he charged an inclusive rate for both the gunny coverings and also the pressing process, (ii) where the gunny cloth and the hoops were
supplied by the customers and rebate was granted by the assessee, and (iii) where the price of the goods and the cost of labour involved were
separately shown. It was held by the learned Judges of the Andhra High Court that the packing materials were goods and that in the course of
carrying on business of baling and pressing fibre, the assessee transferred the property in the goods and, therefore, he was rightly assessed to
sales-tax. It was further observed that in all the three types of transactions entered into by the assessee a charge for the gunny cloth and the hoops
was made, A similar question was considered by the Andhra High Court in A, S. Krishna and Co. Ltd. vs. The State of Andhra (1956 7 S.T.C.
26). In that case the assessee was the owner of a plant for retrying raw tobacco. The tobacco given by the customers was ridded by him and
delivered to them packed with certain packing materials. The assessee collected from each customer a consolidated charge for retrying as well as
packing. The question arose as to whether the assessee was liable to pay sales tax on the turnover of the packing material. It was held that the
packing material was extraneous marketable material used to preserve dried tobacco from contamination or loss; that they were goods; and that
when the property in those goods was transferred to the customer for consideration, there was a sale in regard to them and the turnover in respect
of the transaction was, therefore, liable to sales tax. The decisions in Varasuki & Co. vs. The Province of Madras (1950) 2 S.T.C.; Mohanlal
Jogani Rice and Atta Mills vs. State of Assam (1953) 4 S.T.C. 129; Indian Leaf Tobacco Development Co. Ltd vs. State of Madras (1954), 5
S.T.C. 354, are also to the same effect In all these cases the question of the liability of the assessee to pay sales tax on the value of the packing
materia when the contents were exempt from sales-tax, was considered and it was held that the assessee was liable to pay sales-tax when he
charged the customer for the packing material in the sale price of the exempted goods. There is thus considerable authority to support the view that
the assessee in the present case is liable to pay sales tax for the hessian and the iron hoops used by him in the baling process.
5. For the foregoing reasons, I would answer all the questions referred to for decision by saying that the owner of a ginning and pressing factory
carrying on the business of baling and pressing cotton supplied by the customers and of delivering the pressed cotton in the form of bales covered
with hessian cloth and secured by iron hoops, and making a consolidated charge for pressing as well as packing, was a dealer within the meaning
of the Madhya Bharat Sales Tax Act; that the hessian cloth and iron hoops used in the baling process were goods and that there was a sale in
regard to them when the assessee transferred the property in those goods; and that the assessee was, therefore, liable to sales-tax on the value of
the hessian cloth and iron hoops used by him in the baling process. There will be no order as to costs.
Samvastar J.
6. I agree.
