Packing Counts as Sale: HC Affirms Resale Claim on HDPE Bags based on Separate Pricing and Audit Proof 

Packing Counts as Sale: HC Affirms Resale Claim on HDPE Bags based on Separate Pricing and Audit Proof 

For 1991-92, the Assessing Officer disallowed the resale claim on HDPE bags used for packing cement, treating them as consumed in manufacture. While the first appellate authority granted relief of Rs. 11.39 lakh, the Additional Commissioner (ACIT) later withdrew it in revision, creating a demand of Rs. 1.81 crore.

On appeal, a Special Bench of the Tribunal set aside the revisional order in October 2002 and upheld the assessee’s entitlement to a resale claim on HDPE bags.
In Reference Application No. 02/ 2003, the Tribunal referred to the High Court whether Section 15A of the Bombay Sales Tax Act is a charging provision and whether there existed an independent contract for the sale of HDPE bags.

Central Issue: Whether there was an express and independent contract for sale of HDPE bags in which cement was sold and, if necessary, whether Section 15A of the Bombay Sales Tax Act, 1959 is a charging provision or merely declares the rate.

HC’s Decision: The Court examined the Tribunal’s factual findings and the material on record and found no perversity or insufficiency in those findings. Applying the principles in Raj Sheel, the High Court held that the material, separate invoicing of packing charges, purchase of HDPE bags from registered dealers, resale claims confined to HDPE bags, independent monthly pricing and price behavior of bags vis-à-vis cement, purchaser awareness, institutional specifications, accounting treatment as traded goods, and audit certification, supported the conclusion that HDPE bags were sold independently of the cement. Therefore, the Court answered the second question against the Revenue and in favour of the assessee.

Thereafter, the Court treated the first question on the character of Section 15A as academic and left it unanswered. Sales Tax Reference Nos. 51/ 2010 and 22/ 2011 (same issue for other years) were disposed of on the same terms.

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