No Sales Tax On HDPE Bags Used To Pack Cement When Sold Separately: Bombay High Court

Justices M.S. Sonak and Jitendra Jain were addressing the issue of whether there is an express and independent contract on the sale of HDPE bags in which cement is packed.

“HDPE bags used to pack the cement were a distinct commodity with its own identity and were classified separately. There was no chemical or physical change in the packing either at the time of packing or at the time of use of the contents. The packing is capable of being reused after the contents have been consumed; there was evidence of reuse or resale, which was not challenged by the revenue. The HDPE bags were used to pack the cement for ease of transportation and convenience…….,” opined the bench.

In this case, the respondent/assessee [M/s Associated Cement Company Limited (ACCL)] is a manufacturer of cement.

The Assessing Authority held that ACCL had not affected the separate activity of reselling of packing material but had used the entire packing material in the process of manufacture of cement. On this ground, the Assessing Authority disallowed the ACCL's claim of resales.

ACCL appealed against the order to the Deputy Commissioner of Sales Tax (Appeals), Mumbai. The Appeal was allowed, and the ACCL was granted refund on account of the claim of resale of the HDPE bags in which the manufactured cement was sold.

The Deputy Commissioner's (Appeals) order was revised by the Additional Commissioner of Sales Tax. The relief granted by the Deputy Commissioner (Appeals) on account of the resale claim concerning HDPE bags was withdrawn.

Certain other benefits given by the First Appellate Authority were also withdrawn, and consequently, a demand was made against ACCL.

Aggrieved by the revisional order, ACCL filed an appeal before the Tribunal which was allowed. The Tribunal held that ACCL to be entitled to a resale claim of HDPE bags.

The department argued that cement cannot be sold without appropriate packing material. No separate charge was made for the HDPE bags, which are the packing material. There was no separate sale, either expressed or implied, of the packing material.

The assessee submitted that the Tribunal has correctly concluded that there was an express and independent contract for the sale of HDPE bags in which ACCL sold the cement.

The bench referred to the case of Raj Sheel and Ors. v. State of Andhra Pradesh and Ors., where Supreme Court held that “……….a transaction of sale may consist of a sale of the product and a separate sale of the container housing the product with respective sale considerations for the product and the container separately; or it may consist of a sale of the product and a sale of the container but both sales being conceived of as integrated components of a single sale transaction; or, what may yet be a third case, it may consist of a sale of the product with the transfer of the container without any sale consideration therefor………..”

The bench agreed with the Tribunal that there was an independent and separate contract for the sale of HDPE bags in which the cement was sold.

The bench opined that once it is held that there was an independent and separate sale of the HDPE bags in which the cement was sold, there is no question of levying any sales tax at the same rate as that levied on cement.

In view of the above, the bench dismissed the application and answered in favour of assessee/respondent.

Case Title: The Commissioner of Sales Tax v. M/s. Associated Cement Company Limited

Case Number: SALES TAX REFERENCE NO. 20 OF 2010

Counsel for Applicant/Department: Jyoti Chavan, Addl. G.P. a/w Himanshu Takke, A.G.P.

Counsel for Respondent/Assessee: P. C. Joshi a/w Piyush Shah

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