SUPREME COURT OF INDIA
Messrs Balkrishna Hatcheries
Vs
Clarification and Advance Ruling Authority
Civil Appeal No. 7623 of 2005 With Civil Appeal No. 7624 of 2005
(Ashok Bhan and Markandeya Katju, JJ)
11.09.2006
MARKANDEY KATJU, J.
CA.No. 7623/2005
This appeal has been filed against the impugned Judgment and Final Order of the
Karnataka High Court dated 16-1-2004 in STA No. 74 of 2003 under Section 24 (1)
of the Karnataka Sales Tax Act, 1957.
2. Heard Shri R.F. Nariman, learned Senior Counsel for the appellant and Shri
Sanjay R. Hegde, learned counsel for the respondent.
3. The appellant is engaged in poultry farming. It sells dressed chicken. The
term "dressed" with reference to chicken means chicken which is bled,
scalded, Defendant- feathered, Defendant-boned and freezed. The dressed chicken
is sold by the appellant in polythene bags. The polythene bags are closed
either by stapling or by crimping and fastening. Stapling is done by using
ordinary stapler. Crimping and fastening (by twisting an aluminium wire around
the crimped portion) is done by using a crimping machine. The name and address
of the appellant and the description of the contents are printed on the
polythene bag.
4. Entry 22 of the Fifth Schedule to the Karnataka Sales
Tax Act, 1957 (hereinafter referred to as "the Act") exempts
from tax "eggs and meat including flesh of poultry except when sold in
sealed containers." Correspondingly, Entry 8(viii) of Part F of Second
Schedule subjects "meat and dressed chicken sold in sealed
containers" to tax under Section 5(3) (a) of the Act, at 9% from 1-6-2003.
5. The appellant contends that only where a container is hermetically sealed,
that is, made airtight and watertight, can it be said to be a sealed container.
Alternatively, it is submitted that 'sealed container' is one where access to
the contents cannot be had without breaking the fastening on the container or
the container itself. The appellant alleges that the staple or crimp wire used
for closing the polythene bag in which it sells the dressed chicken, can be
removed by opening the two closed ends of the staple/ crimp wire, without
breaking them and without damaging the polythene bag which can be opened and
the dressed chicken can be taken out without tearing or damaging the plastic
bag. It is contended that stapling or crimping is done only to facilitate easy
carrying and to ensure that the dressed chicken does not slip out of the
plastic bag. Stapling or crimping does not make the polythene bag airtight or
watertight. According to the appellant, when goods are sold in a polythene bag
which is merely stapled or crimped and where the contents can be removed by
merely opening the staple/crimp wire without tearing the polythene bag and
without breaking the staple/crimp wire, the container cannot be considered to
be a sealed container.
6. Since the Department was expressing a view that the sale by appellant
attracted sales tax, the appellant made an application to the Authority for
Clarification and Advance Ruling under Section 4 of the Act. The said Authority
after hearing, passed an order dated 22-9-2003 holding that sale of 'dressed
chicken' in polythene bags closed by either stapling/crimping is covered under
Entry 8(viii) of Part-F of Second Schedule as it is 'sale of dressed chicken in
sealed containers'.
7. The aforesaid order of the Authority was challenged in the appeal under Sec.
24( 1) before the Karnataka High Court on which the impugned judgment was
given.
8. The short question in this case is whether dressed chicken when sold in a
polythene bag which is closed by a staple or closed by crimping and twisting an
aluminium wire around the crimp can be considered to be a sale in a sealed
container. If it is sale in a sealed container, it is not exempt from Sales Tax,
but if it is not, it is exempt.
9. The term 'sealed container' was considered by this Court in Commissioner of
Sales Tax, U.P. v. G.G. Industries[21 1968 STC 63. The question that
arose for consideration in that case was whether sale of confectionery
(chocolates, lollipops, etc.) packed in tins and card box and closed by the use
of cellophane paper amounted to sale in a sealed container. The Allahabad High
Court held that the sale was not in a sealed container, accepting the
contention of the assessee that the word "sealed" meant "bearing
the impression of a signet in wax etc. as evidence or guarantee of
authenticity, or fastened with a seal so close that access to the contents is
impossible without breaking the fastening". This Court did not agree. Reversing
the decision of the Allahabad High Court, this Court held thus:
"The learned counsel for the Appellant (Department) contends that the
expression 'sealed container' means a container which is so closed that access
(to the contents) is impossible without breaking the 'fastening'. This is one
of the meanings given to the word 'sealed' in the Shorter Oxford English
Dictionary. We are of the opinion that his contention must be accepted
There are four ways of selling confectionery : (1) in sealed tins;
(2) in sealed card boxes or bottles;
(3) in non-sealed card boxes or bottles; and (4) loose. According to the
learned counsel for the respondent the only category which does not enjoy the
exemption given by the notification is the first category, i.e., sale in sealed
tins. But it is difficult to appreciate why the authority issuing the
notification should distinguish between category one and category two. In the
case of a sealed tin it has to be cut; in the case of a sealed card box, the
covering has to be torn. A sealed tin may or may not be hermetically sealed.
Therefore, the fact that a sealed tin may be air tight and a sealed card box is
never really air tight does not assist us in deciding the point it seems to us
that this packet would fall within the expression 'sealed container' occurring
in notification".
10. This Court in The Martand Dairy & Farm v. The Union of Indian and
others[. held:
"Sealed container" merely means a container which is "so closed
that access 'to the contents' is impossible without breaking the
fastening". The expression 'seal' in this context does not involve an
affixture of the seal of the seller such as impressing a signet in wax, etc.,
as evidence or guarantee of authenticity. An article may be regarded as put in
sealed containers if it closed securely in any vessel or container by any kind
of fastening or covering that must be broken before access can be obtained to
what is packed inside"
11. In Commissioner of Sales Tax v. National Chikki Mart[39 1977 STC 447,
the Bombay High Court following the decision in G.G. Industries (supra) held:
"To determine whether a container is sealed or not, it is not relevant to
consider whether to break the covering any instrument or knife is needed or
whether it could be done with bare hands or fingers. What is really to be
considered is whether the contents of the container could be got at or whether
access could be had to them without in any manner breaking any portion of the
cover. It is not necessary for a container to be a sealed container that to get
access to it contents the container or cover has to be broken by removing the
fastening although it would be the most common method of opening a sealed
container. All that is necessary for a container to be a sealed container is
that access cannot be had to its contents without breaking the fastening or
some portion of the container."
12. In Nanjundeswara Mart v. State of Karnataka[84 1992 STC 534, a
Division Bench of Karnataka High Court considered whether sale of Instant Idli
Mix, Instant Vada Mix, Instant Gulab Jamoon Mix packed in polythene bags
stitched at the openings were taxable as food packed in sealed containers. The
Karnataka High Court by applying the definition laid down by this Court in G.G.
Industries (supra) that container which is "so closed that access (to the
contents) is impossible without breaking the fastening is a sealed container,
" held that as the bag in which the goods were sold stitched at the
openings, and as it was impossible to have access to the contents without
breaking the fastening, the goods were to be considered as sold in sealed
containers.
13. On the other hand, learned counsel for the appellant placed strong reliance
on the decision of the Delhi High Court in Commissioner of Sales Tax, Delhi v.
Pop Corn[49 1982 STC 336, wherein the decision in G.G. Industries (supra)
was distinguished. The Delhi High Court considered the question whether Pop
Corn sold in loosely stapled polythene bags can be considered as sale in sealed
containers. Distinguishing the decision in G.G. Industries (supra), the Delhi
High Court observed thus:
"In the present case, the finding of the Financial Commissioner is that
the stapling was loose. A polythene bag containing pop corns loosely stapled
was produced before us an example of the type of stapling that had been done by
this dealer during the relevant period. Mr. Chawla, for the Commissioner of
Sales Tax, does not dispute this sample, but submits that normally a person
would break the stapling even in such a case in order to extract the pop corn
easily.
Mr. Chawla may be correct and it is probable that a person greedily anxious to
get at the contents would break the staples to do so, yet it is possible to get
at the pop corn without breaking the staples.
As such, in the facts and circumstances of this case, we feel that the stapled
polythene bags are not sealed containers, especially as the Supreme Court in
G.G. Industries (SC)] held that access should be impossible without
breaking the fastening".
14. From a reading of the aforesaid decisions it appears that the law is well
settled that the container is considered to be a sealed container if it is
closed in a manner that it is not possible to access the contents or remove the
contents without breaking either the container or the fastening if it is
closed.
15. The Karnataka High Court in para 9 of the impugned judgment has observed:
"Breaking the container or breaking the fastening' does not necessarily
mean cutting or breaking the container or the fastening to pieces. 'Breaking'
refers to parting, dividing, tearing, rupturing or severing, either wholly or
partially, by applying a strain or force. For Example, a staple which is
'fastening' on the container is 'broken' not only when it is severed or cut
into pieces, but even when the two closed ends are 'opened' or 'parted' and it
is pulled out. Similarly if a crimped bag is closed by twisting an aluminium
wire or by putting an elastic band over the crimped portion, the removal of
such fastening would amount to breaking the fastening. Anything done to the
fastening which has the effect of undoing the fastening will be" breaking
the fastening'
16. We regret we are unable to agree with the view taken by the High Court. In
our opinion, undoing cannot amount to breaking. When a staple is applied, the
wire can be removed by straightening the two bent ends without breaking the
wire or tearing the paper. Hence, we cannot agree that undoing the fastening
amounts to breaking the fastening.
17. If the view of the Karnataka High Court is accepted then logically it will
have to be accepted that every container will be a sealed container if it is
closed in any manner. Such a view obviously cannot be countenanced.
18. In our opinion in cases of both stapling and crimping the staples and pins
can be removed by the customer without breaking anything. Hence, in view of the
decision of this Court in Commissioner of Sales Tax, U.P. v. G.G. Industries
(supra), it has to be held that the chicken in question is not sold in sealed
containers.
We, therefore, agree with the decision taken by the Delhi High Court in
Commissioner of Sales Tax, Delhi v. Pop Corn (supra).
19. For the reasons given above, this appeal is allowed. Impugned judgment of
the Karnataka High Court as well as the order of the Authority for
Clarification and Advance Ruling dated 22-9-2003 under Section 4 of the Act are
set aside and it is held that the 'dressed chicken' in question are exempt from
Sales Tax as they are not sold in sealed containers. No costs.
20. This appeal has been filed against the impugned judgment of the Karnataka
High Court dated 7-1-2005 in STA No. 12/2004 under Section 24(1) of the Karnataka Sales Tax Act, 1957.
21. Heard learned counsel for the parties.
22. The facts of this case are similar to the facts in C.A.No. 7623/2005 which
we have allowed hereinabove. The only difference is that in the present case,
the 'dressed chicken' in polythene bags is closed by a rubber band, whereas,
'dressed chicken' in polythene bags in C.A. No. 7623/2005 was closed by
stapling or crimping.
23. For the reasons given in C.A. No. 7623/2005, this appeal is allowed. The
impugned judgment of the Karnataka High Court dated 7-1-2005 as well as the
order of the Authority for Clarification & Advance Ruling dated 5-3-2004
are set aside and it is held that the 'dressed chicken' in question are exempt
from sales tax as they are not sold in sealed containers. No costs.