"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 popcorn without breaking the staples."
York speaks of `an empty eagle' set `to guard the chicken from a hungry kite', in King Henry VI. To eagle-eyed taxmen, hapless assessees may probably look like chicken. "So the poor chicken should be sure of death," as would respond Queen Margaret to York.
Well, this is a story about a tax fight that went all the way to the apex court, over dead chicken. Or, more exactly, dressed chicken. The word `dressed' with reference to chicken means chicken which is bled, scalded, de-feathered, de-boned and frozen, explains the text of the Supreme Court verdict dated September 11, in Balkrishna Hatcheries vs Clarification and Advance Ruling Authority.
Balkrishna sold the dressed chicken in polythene bags that were closed by stapling or crimping and fastening. For stapling, the company used `ordinary stapler'. And, using a crimping machine, crimping was done by twisting an aluminium wire around the crimped portion. The bags carried the name and address of the company and a description of the contents.
In dispute were two entries in the Karnataka Sales Tax Act, 1957, viz. 22 and 8. The first exempts from tax "eggs and meat including flesh of poultry except when sold in sealed containers." And the second, that is Entry 8, speaks of a 9 per cent tax on "meat and dressed chicken sold in sealed containers". You don't have to be a rocket-scientist to discover that the assessee, Balkrishna, claimed that its products came under Entry 22, and so were exempt, even as the taxman read Entry 8 with great interest.
How did Balkrishna defend its turf? It said that only where "a container is hermetically sealed, that is, made airtight and watertight," it could be called a sealed container. Again, to access the contents of a `sealed container' one had to break the fastening on the container or the container itself, said the company.
In contrast, staple or crimp wire used for closing the polythene bag, in which the company sold 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. One can take the dressed chicken out of the bag without tearing or damaging the plastic bag, pointed out Balkrishna. "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," it explained.
Seal of Authority
The matter went to the Authority for Clarification and Advance Ruling. The Authority heard the arguments and passed an order in September 2003 that sale of `dressed chicken' in polythene bags closed by either stapling/crimping came under Entry 8, as `sale of dressed chicken in sealed containers'. Unrelenting, Balkrishna challenged the order before the Karnataka High Court, where too the judgment went in the taxman's favour. Aggrieved, the company took the issue before the Supreme Court.
"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," observed Justices Ashok Bhan and Markandey Katju of the apex court, after hearing the arguments of R. F. Nariman for Balkrishna, and Sanjay R. Hegde for the Authority.
A confectionery precedent
The court cited a four-decade-old case, Commissioner of Sales Tax, UP vs G.G. Industries, to explain the meaning of `sealed container'. There, the question 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 apex court had said then that in the case of a sealed tin, it had to be cut, and that in the case of a sealed card box, the covering had to be torn. And that a sealed tin may or may not be hermetically sealed.
In The Martand Dairy & Farm vs The Union of India (1975), the court had held that sealed container merely meant a container which is so closed that access `to the contents' is impossible without breaking the fastening. Two years later, when the Bombay High Court had to decide the case Commissioner of Sales Tax vs National Chikki Mart, the following clarification came forth from the judges: "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."
The Karnataka High Court too applied the G.G. Industries logic when deciding in 1992 Nanjundeswara Mart vs State of Karnataka. There, the question was `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.' Containers were "so closed that access (to the contents) is impossible without breaking the fastening is a sealed container," it was held, and so the goods were to be considered as sold in sealed containers, said the court.
Popcorn in a pack
Balkrishna's counsel placed `strong reliance' on a 1982 decision of the Delhi High Court in Commissioner of Sales Tax, Delhi vs Pop Corn. There, the subject matter was popcorn `sold in loosely stapled polythene bags'. The Department's counsel had argued that normally a person would break the stapling to extract popcorn easily.
But the court reasoned: "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 popcorn without breaking the staples." Thus, distinguishing the decision in G.G. Industries, the Delhi High Court said that the stapled polythene bags were not sealed containers.
So, what happened to the case of dressed chicken? The Karnataka High Court had said that breaking the container or the fastening did not necessarily mean cutting or breaking the container or fastening to pieces.
"`Breaking' refers to parting, dividing, tearing, rupturing or severing, either wholly or partially, by applying a strain or force," the High Court had said.
"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'," the High Court had explained.
But the apex court could not agree with such a view. "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," it said.
"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." Undoing the fastening does not amount to breaking the fastening, explained the apex court. "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."
Thus, though fate was sealed for the chicken that marched into Balkrishna's machine, the verdict should have stitched a smile on the assessee's face. For, this was a case where the taxman was dressed to kill, counting the chicken before they hatched.
"How did the chicken cross over to Aayakar Bhavan?"
"By filling up a form?"
"No, it flew away!"