Packing Materials Form Part of Sale Price u/s 2(u) of Bihar Finance Act: Patna HC Upholds Unified 11% Sales Tax on Cement, Dismisses ACC’s Appeals

In a recent judgment, the Patna High Court dismissed five miscellaneous appeals filed by ACC Limited, upholding the Commercial Taxes Tribunal’s decision that cement and its packing materials cannot be taxed separately under the Bihar Finance Act, 1981.

The appeals concerned assessment years ranging from 1996–97 to 2000–01, involving disputed tax demands aggregating several crores of rupees.

ACC Limited argued that cement and packing materials, specifically gunny bags and HDPE bags, are distinct commodities, each attracting different rates of Sales tax under Section 12 of the Bihar Finance Act.

The company contended that cement was taxable at 11%, while gunny bags and HDPE bags attracted 4% and 7% respectively. According to the appellant, it consistently paid tax at these prescribed rates and maintained that no adverse material was ever found during inspections or scrutiny of its books of account.

ACC further submitted that the Assessing Authority erred in disallowing trade discounts and in treating packing materials as part of the consolidated sale price of cement, thereby artificially inflating the gross turnover.

To support its position, ACC relied on several Supreme Court precedents. In Mathuram Agrawal v. State of Madhya Pradesh, the Court held that taxation statutes must be interpreted strictly based on their plain language. In Govind Saran Ganga Saran v. CST, the Supreme Court reiterated that when statutory language is clear, external aids such as the Statement of Objects and Reasons cannot be invoked.

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ACC also cited Raj Steel v. State of Andhra Pradesh, where the Court held that the taxability of packing materials depends on the intention of the parties and whether the packing is sold independently or merely supplied incidentally.

The State of Bihar argued that the statutory definition of “sale price” under Section 2(u) of the Bihar Finance Act is decisive. The provision defines “sale price” as the amount payable to a dealer as valuable consideration for the sale or supply of goods and expressly includes any amount charged for anything done in respect of the goods at or before delivery.

The State contended that packing cement in bags is an integral part of making the goods deliverable and therefore forms part of the sale price. Relying on Commissioner of Sales Tax v. Rai Bharat Das & Bros., the State submitted that packing charges can be included in the sale price unless the packing material is supplied under a separate contract or pursuant to a distinct order, conditions not satisfied in ACC’s case.

The Division Bench of Justice Dr Anshuman and Justice Bibek Chaudhuri agreed with the State’s position. It was observed that ACC had not produced any contract, invoice pattern, or documentary evidence to show that packing materials were sold independently of cement.

The Court noted that packing was done at or before delivery, making it an inseparable component of the sale transaction. Consequently, the statutory definition of “sale price” under Section 2(u) applied in full, and the value of packing materials had to be included in the taxable turnover of cement.

The Court further held that the precedents cited by ACC did not assist its case, as they merely reiterated principles of statutory interpretation rather than altering the clear meaning of Section 2(u). Since the appellant failed to establish any factual basis for separate taxation, no substantial question of law arose.

Concluding that the authorities below had correctly applied the law, the High Court dismissed all five appeals and affirmed the consolidated tax treatment of cement and packing materials.

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