CHANDRA REDDY, C.J.

(1) THE point involved in this revision is whether the notification dated 13th December, 1957 (the contents of which will be set out presently)exempting certain goods would take in the packing materials and the containers of those goods.

(2) THE petitioner is a manufacturer of and dealer in cigarettes. He was being assessed to sales-tax on his turnover of the sale of cigarettes upto 13th December, 1957- On 13th December, 1957 tobacco and all its products were exempted from sales-tax, obviously for the reason that additional excise duty was levied on these goods, in addition to several others which need not be enumerated here. Subsequent to 13th December, 1957, cigarettes sold by the petitioner were not subjected to tax. However, the department sought to levy sales-tax on the packing material, packets, as also the dealwood boxes, in which cigarette cartons were packed for purposes of export to places outside Hyderabad. The petitioner objected to the levy of this tax on the ground that the exemption extended to these materials also. This objection did not prevail either with the department or the Sales-tax Appellate tribunal. In the result, he was directed to pay tax on these materials under section 14 (4) of the Andhra Pradesh General Sales-tax Act (hereinafter referred to as the act).

(3) THIS revision is directed against the decision of the Sales-tax Appellate Tribunal confirming that of the Assistant Commissioner of Commercial Taxes, who in his turn agreed with the Commercial Taxes Officer in regard to the interpretation of the notification in question. This view of the department and of the Appellate tribunal is impeached by Shri, Venkatappayya Sastry, learned Counsel for the petitioner on the contention that it is in conflict with the scheme of the Act as evidenced by the relevant statutory provisions.

(4) IT is urged by the learned Counsel for the petitioner that the petitioner is obliged to pack the cigarettes to put them in a deliverable state and without the packing materials and the packets, cigarettes cannot be sold as a marketable commodity. He maintains that this obligation is imposed on the manufacturer by section 36 (5)of the Indian Sale of Goods Act. Thus these materials have become an integral part of cigarettes which are products of tobacco and consequently, they could not be taxed apart from the cigarettes which are exempted under the notification. The learned Counsel also bases this contention of his on section 2 (s) of the Act which defines turnover , section 5 (3) and (4) and section 9 of the Act. The further argument advanced by Shri Venkatappayya. Sastry is that there was no separate agreement to sell the packets and the packing material. The contract for the sale of cigarettes was one and entire and as such it could not be analysed into component parts and the cost of material could not be separately subjected to sales-tax.

(5) ON the other hand, the stand taken by the learned Government Pleader is that the contract for the sale of cigarettes on the one hand, and packing material, packets, dealwood boxes containing the cigarette cartons on. the other, are divisible and that the latter can be brought to tax separately, as they do not enjoy the exemption contemplated by the notification dated the 13th December, 1957. The question for consideration is which of the two views is acceptable. That depends upon the proper interpretation of the relevant statutory provisions which will be adverted to immediately.

(6) ORIGINALLY, cigarettes were taxed under Entry 24, Schedule II, at 8 np. in the rupee. While so, the Central Government thought of levying additional excise duty on certain categories of goods. In order to obviate hardship, the Andhra Pradesh Government promulgated the notification exempting the goods which were subjected to additional excise duty, amongst which were tobacco and its products. As the controversy revolves round this notification it is convenient to set it out here. "in exercise of the powers conferred by sub-section (1) of section 9 of the Andhra Pradesh General sales-tax Act, 1957 (Andhra Pradesh Act VI of 1957) (hereinafter referred to as the said Act) the governor of Andhra Pradesh hereby exempts from the tax payable under the said Act, with effect on and from the 14th December, 1957, the sale or purchase of any of the goods appended hereto. " the Proviso with the conditions annexed thereto is not relevant for the purposes of this enquiry and can therefore be omitted without inconvenience. "appendix. (1) All varieties of textiles, viz. , cotton, woollen or silken including rayon art silk or nylon, whether manufactured by handloom, powerloom or otherwise ; (2) Sugar ; and (3) Tobacco and all its products. . . . . . " the other portions of the notification are unnecessary for our present purpose. We will now turn-to the provisions of the Act, as also the material rules made thereunder. Section 2 (s) which defines " turnover " and which is the cornerstone of the contention of the Counsel for the petitioner, says :" Turnover means the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charged) as the consideration for the sale or purchase of goods (whether such consideration be cash, deferred payment or any other thing of value) including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name, or object thereof. "founded on this provision is the argument of Shri Venkatappayya Sastry that as tax is payable on the total turnover, by reason of section 5 of the Act, the exemption would cover the whole of the turnover and there is no scope for taxing the various elements composing the turnover. Section 5 (3) (a) which is called in aid by the learned Counsel recites :" (3) Notwithstanding anything contained in sub-section (1), the tax under this Act shall be levied- (a) in the case of the goods mentioned in the Second Schedule, at the rates and only at the point of the sale specified as applicable thereto effected in the State by the dealer selling them, on this turnover of sales in each year relating to such goods irrespective of the quantum of turnover. "another part of section 5 which is relied on, on behalf of the petitioner is subsection (4) which postulates :" (4) For the purpose of this section and the other provisions of this Act, the turnover on which a, dealer shall be liable to pay tax, shall be determined after making such deductions from his total turnover, and in such manner as may be prescribed. "the manner in which deductions can be made out of the turnover is prescribed under rule 6 of the A. P. General Sales-tax Rules. It is clauses (e) and (g) of that rule that have a bearing" on this revision petition. These sub-rules are as follows :-" (e) all amounts for which goods exempted by a notification under section S (1) are sold or purchased, as the case may be, provided that the terms and conditions, if any, for the exemption in the notification are complied with ; (g) all amounts falling under the following two heads, when specified and charged for by the: dealer separately, without including them in the price of the goods sold : (i) freight ; (ii) charges for packing and delivery and other such like services ". Before dealing with the contention based on these provisions, we may also look at section 36 (5) of the Indian Sale of Goods Act, which provides that unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state shall be borne by the seller. We may at once state that this provision is not of any help to us in the determination of the question as to whether the expenses incurred for putting the goods into a deliverable state could fall within the ambit of the notification.

(7) WE will now go back to the provisions of the Act. It is true that turnover comprehends all services in relation to the sale of the goods coming within the purview of the Act. Does it mean that the whole of the turnover attracts the notification referred to above The submission of Shri Venkatappaya Sastry is that, the notification should be so interpreted, since the services could not be separately shown and disassociated from the turnover. Says the learned Counsel that when the cost of services goes into the price structure, they cannot be separately treated and it is not within the powers of the department to subject them to tax separately. He further argues that there is no separate contract for sale of these materials and it is merged in the contract for the sale of cigarettes. Support is also sought for this stand from rule 6 (e) and (g) which has already been extracted.

(8) NO doubt this argument possesses the virtue of possibility. But a careful consideration of the various statutory provisions could only lead to the inference that the packing materials, the packets and other containers and goods necessarily to be used for exporting them outside the State, cannot have the benefit of the exemption. There would be force in the argument of the learned Counsel for the petitioner if the turnover as such is exempted under the notification. But a glance at the terms of the notification read along with section 9 of the Act, which enables the State Government to grant exemption, will dispel any such impression. At this juncture we have to notice section 9 of the Act which recites :"9 (1) The State Government may, by notification in the Andhra Pradesh Gazette, make an exemption, or reduction in rate, in respect of any tax payable under this Act- (i) on the sale or purchase of any specified class of goods, at all points or at any specified point or points in the series of sales or purchases by successive dealers ; or ""we are not concerned with clause (ii) of sub-section (i) or with sub-section (2). The language of the notification is in accord with the terms of section 9 and exempts only tobacco and its products. If the packing material and the packet form an integral part of the cigarettes as such, the exemption might cover these materials also. But we must confess to a difficulty in predicating that these materials are components of the cigarettes. It is one thing to say that they are necessary to make them marketable or presentable, but it is altogether a different thing to" postulate that they form part of cigarettes. They are not like the paper in which the tobacco is wrapped. They have individual existence and have separate significance. It is the case of the learned Counsel for the petitioner that these things constitute what are called the services in relation to the sale of goods. If so it is difficult to accept the proposition that the materials in question are part and parcel of the tobacco product. The very definition of turnover makes a distinction between the goods sold and services reflected by the expression " including any sums charged by the dealer for anything done in respect of the goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name or object thereof. "

(9) THIS concept is emphasised by section 5 (4) and rule 6 which is made pursuant to the power conferred by section 5 (4). By and under sub-rule (g) all amounts falling under the heads freight and charges for packing and delivery and other such like services, can be deducted from turnover. It is, therefore, clear that the dealer is entitled to exclude the charges for packing and other like services from the turn-over. This indicates that they are separate items which though included in the definition of turnover can be deducted. In such a situation, it cannot be concluded that the charges for packing and delivering the goods are inseparable and cannot be disassociated from the price of cigarettes for purposes of tax under the Act. The fact that the petitioner had not chosen to treat this item separately but included in the price of cigarettes would not make any difference in regard to the taxability of the services referred to above.

(10) IT is true that there is no express contract to sell the packing materials and the packets separately, but such a contract is implicit in the contract for the sale of goods. When the contract is for the sale of goods as packed, the property in all the goods passes to the buyer. When the agreement is to sell the principal goods as packed, the agreement to sell the principal goods as also the goods used for packing and putting them in a deliverable state, should be readily inferred. It should be remembered that the seller does not agree to part with the packing material, the packets and containers free of cost. In fixing the price he takes into account the cost of all these materials and they ultimately enter the calculation of the price. That being so, we cannot accede to the argument that the cost of these services has not entered the fixation of the price of the goods.

(11) ANOTHER argument presented by Shri Venkatappayya Sastry is that, since the notification is the outcome of the decision of the Central Government to levy additional excise duty on cigarettes and that the duty is imposed on the price of cigarettes as packed, the exemption should be construed as comprehending the services as well. In other words, the learned Counsel invites us to hold that this exemption is co-extensive with the levy of the additional excise duty. For one thing, the notification which levies additional excise duty is not before us. Even other wise, we have to be guided by the language of the notification in question. We have already stated that the notification exempts only tobacco and tobacco products, and there is no scope for the conclusion that the term tobacco and tobacco products embraces the packing material and the card-board used for the packets or the dealwood boxes used as containers for the cigarette cartons. Moreover, it is a well-recognised canon of statues that exemptions should be strictly construed. So, unless the language of the exemption is wide enough to cover the packing material and the packets, etc. , we are constrained to restrict the exemption only to the goods specified in the exemption.

(12) INDISPUTABLY, these packing materials and packets are goods within the connotation of section 2 (A) of the Act and the purpose of the Act is to impose tax on all goods other than those exempted. Any person claiming exemption should show that the particular class is within the specified list. This view of ours gains support from decided cases. The leading case on the subject is Varasuki and Co. v. The Province of Madras, (1951) 2 S. T. C. 1. The controversy there related to a notification issued by the Government of composite State of Madras, which is worded similar to the-one- which we are called upon to consider. The dealer in salt, which was an exempted commodity under that-notification, contended that the bags which contained the salt-were not liable to sales-tax, since salt was incapable of being sold without being packed in gunny bags and as such the gunny bags must be exempted from sales-tax. A Division Bench of the Madras High Court, before whom the matter came up ultimately in the form of an appeal, negatived it in the view that any exemption of an article must be strictly construed and confined to the exemption itself and not extended and if salt was exempted, but not the gunny bags in which it is packed and sold, ,then the gunny bags could not claim exemption. The learned Judges observed that: that was a matter more for moving the Government to exempt the gunny bags in which salt was packed.

(13) IN the same trend of thought is a judgment of the same High Court in Indian leaf Tobacco Development Co. , Ltd. v. The State of Madras (now Andhra), (1954) 5 S. T. G. 354. This case dealt with the packing materials, in which tobacco was packed. The learned Judges who heard the appeal decided that the sums representing the estimated value of packing materials in which tobacco was consigned. to. purchasers outside the State of Madras, could not be exempted under section 4 of, the Madras General Sales-tax Act and rule 5 (1) (g) of the Turnover and Assessment Rules, analogous to rule 6 (1) (g)of the Rules framed under the Act.

(14) TO a like effect is a judgment of the erstwhile Hyderabad High Court in Nizam. Sugar Factory Ltd. v. Commissioner of Sales-tax, Hyderabad, (1957) 8 S. T. C. 61 : A. I. R. 1956 Hyd. 194. It was held there that the gunnies in which sugar was packed, were not within the contemplation of the exemption within the scope of which fell the sugar, as it could not be said that the gunny bags were so inseparably integrated with sugar that they had lost their identity or become part of the exempted goods. . . The same principle is enunciated by the Madras High Court in United Bleachers, Ltd. v. The State of Madras, (1960) 11 S. T. C. 278. The question that fell to be considered there was whether the price of packing materials utilised by the assesssee in his business of bleaching and dyeing could be subjected to sales-tax. This was answered in the negative. But in discussing the taxability of these materials, they had to consider the distinction between the contract of sale of goods as packed and contract for services. In the latter category of contracts, the materials used in the performance of this contract could not attract tax liability since there was no agreement for the sale of the materials used in the process of rendering the services, although the property in the goods utilised in the. performance of the contract passed to the other party along with the services. But when the contract was one of sale of goods as packed, the agreement to sell the packing material could be readily implied having regard to the nature of the contract. The learned Judges stated :"but where the main contract was merely one of service, the fact that in the performance of such service packing materials are used and charged for, would not lead to a necessary inference that a sale of the materials was intended. In such a case the onus would be on the taxing authority to prove that there was an agreement to sell the packing materials and a sale by the passing of property therein. "

(15) SO, the essential distinction between the two types of contracts has been well brought out by the learned Judges in that case. In support of their conclusion, reliance was placed on Varasukhi and Co. v. Province of Madras. To a like effect is the judgment of the same Division Bench in Chidambartt nadar Sons and Co. v. State of Madras, (1960) 11 S. T. C. 321 This time the learned Judges were concerned with an agreement to purchase cotton to be delivered by the seller to the buyers. It was laid down that the contract to pay for and purchase the packing materials could be implied and the turnover relating to the packing materials would be liable to sales tax.

(16) YET another case (Nagarathinam and Bros. v. The State of Madras, (1960) 11 S. T. C. 342 dealt with by the same learned Judges was a case of vegetables packed in. gunny bags. They held that the assessee could not claim exemption in regard to gunny bags and they were rightly assessed to tax by the department. There is thus abundant authority to vouch the proposition indicated above. We have now to see whether these decisions are in conflict with State of Madras v. Gannon Dunkerley and Co. , (Madras), Ltd. , (1958) 2 M. L. J. (S. C.) 66 : (1958) 2 An. W. R. (S. C.) 66 : (1958) S. C. J. 696 : (1959) S. C. R. 379 : A. I. R. 1958 S. G. 560 : (1958) 9 S. T. C, 353. The question that posed itself before their lordships of the Supreme Court was whether in a building contract there was an element of sale of the materials used in the. building. The answer was given against the department on the ground that there was no agreement for the sale of materials used in the contracts, though the property in the materials passes to the other party, and the contract for the building being one and whole, there was no sale of materials as such. The rationale of this decision is contained in a passage occurring on page 384 :"if in a works contract there is no sale of materials as defined in the Sale of Goods Act, and if an action is not maintainable for the value of those materials as for price of goods sold and delivered, as held in the above authorities, then even a disintegration of the building contract cannot yield any sale such as can. be taxed under Entry 48".

(17) JUSTICE Venkatarama Aiyar, who spoke for the Court, relied on Reid v. Macbeth and Gray, L. R. (1904) A. C. 223. in support of the above decision. The facts in the English case were that, a firm of ship-builders who had agreed to build a ship was adjudged bankrupt. On the date of the bankruptcy, there was lying at railway stations some iron and steel plates which were intended to be fixed in the ship. A claim was put forward to these articles both by the assignee in bankruptcy and the ship-owner for whose benefit the ship was agreed to be built by the ship-builder. This dispute was resolved by the house of Lords in favour of the assignee in bankruptcy on the ground that the contract between the ship-builder and the ship-owner was for the purchase of a completed ship and not for the sale of component parts of the ship and consequently the contract passed no title to the articles in question. The following observations of Lord Davey were quoted by the learned Judge :"there is only one contract-a contract for the purchase of the ship. There is no contract for the sale or purchase of these materials separatim; and unless you can find a contract for the sale of these chattels within the meaning of the Sale of Goods Act, it appears to us that the sections of that Act have no application whatever to the case. "

(18) NEXTLY, his Lordship referred to the case of Love v. Norman Wright (Builders)Ltd. , L. R. (1944) 1 K. B. 484. cited on behalf of the State as militating against the contention put forward on behalf of the assessee. In the cited case, the defendants had agreed with the secretary of State to supply black-out curtains and curtain rails and fix them in a. number of police stations. In their turn, the defendants had entered into a contract with the plaintiffs that they should prepare those curtains and rails and erect them. The question that presented itself in that case was whether the sub-contract was one for sale of goods or for work and services. Goddard, L. J. , decided that it was one for sale of goods. That State of Madras v. Gannon Dunkerley, was not intended to cover a case of sale of goods could be gathered from a passage as page 387 :"to avoid misconception, it must be stated that the above conclusion has reference to work contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at page 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell from the agreement to do work and render service and to impose a tax thereon cannot be questioned and will stand untouched by the present judgment. "

(19) IT is plain that his Lordship had drawn a distinction between the two categories of contracts and stated that if the circumstances of the contract permitted inference of there being two contracts, though it was a single instrument embodying them, the department could separate them and impose tax on the material. In our opinion, the case on hand falls within the latter part of the passage. So, this pronouncement of the Supreme Court does not render any help to the appellant. Nor can he derive any support from a Full Bench decision of this Court in the Guntur Tobaccos Ltd. , Guntur v. The Government of Andhra (now Andhra Pradesh), (1961) 2 An. W. R. 37 : (1961) 12 S. T. C. 668 : A. I. R. 1961 A. P. 520 (F. B.). The question that fell for consideration there was whether the water proof material used for packing redried tobacco could be subjected to sales-tax. The answer was in the negative, since the contract was one and indivisible. It was remarked that it was not within the competence of the State Legislature to impose a tax on the supply of materials used in such a contract treating it as a sale. It should be borne in mind that in that case the contract was one merely for services, namely, redrying the raw tobacco and the packing material was used incidentally for redrying the tobacco.

(20) THIS Full Bench decision overruled Krishna and Co. , Ltd. v. The State of Andhra, (1956)An. W. R. 11 : A. I. R. 1957 A. P. 706 : (1956) 7 S. T. C. 26 (F. B.). and hanumantha Rao v. State of Andhra, (1956) 7 S. T. C. 486. both of which ruled that packing material used in the performance of contract for services could form the subject of tax. It should be mentioned here that the Full Bench did not differ from the case of Varasukhi and co. , (1951) 2 S. T. C. 1. or the case of I. L. T. D. Co. , (1954) 5 S. T. C. 354. or the case of Mizam Sugar Factory Ltd. , (1957) 8 S. T. C. 61 : A. I. R. 1956 Hyd. 194. It is worthy of note that the case of United Bleachers Ltd. v. The State of Madras, (1960) 11 S. T. C. 278. which has disapproved of the cases of Krishna and Co. v. State of Andhra and Hanumantha Rao v. State of Andhra, was cited with approval in the case of Cantor Tobaccos Ltd. v. Government of Andhra. The mere fact that in Krishna and Co. , Ltd. v. State of Andhra, reliance is placed on Varasukhi and Co. v. State of Madras* does not imply that the latter was also overruled by the Full Bench. On the other hand, as we have already stated, the case of United Bleachers Ltd. v. State of Madras, which specifically dealt with these two cases and which disagreed with the view taken in them and pointed out the distinction between the two categories of contracts was noticed with approval.

(21) WE are, therefore, not inclined to share the view of Shri Venkatappayya Sastry that the decisions beginning from Varasukhi and Co. v. The Province of Madras, are opposed either to State of Madras v. Gannon Dunkerley and Co. , (1958) S. C. J. 696 : (1958) 2 M. L. J. (S. C.) 66 : (1958) 2 an. W. R. (S. C.) 66 : A. I. R. 1958 S. C. 560 : (1959) S. C. R. 379 : (1958) 9 S. T. G. 353. or The Guntur Tobaccos Ltd. v. The Government of Andhra. For these reasons, we feel that no exception could be taken to the order under revision.

(22) IN the result, we dismiss the revision case with costs. Advocates fee Rs. 100. Revision dismissed.