Breweries Limited Vs. State of Andhra Pradesh  INSC 241 (4 March 1997)
SUHAS C. SEN, SUJATA V. MANOHAR
case along with a number of other cases was heard by S.P. Bharucha and Faizan Uddin,
JJ. who passed the following order :- "During the course of the arguments,
the judgment of a bench of two learned judges in State of Maharashtra, Bombay & Ors. vs.
Biscuits Company Ltd. & Ors., 1995 Supp, (2) SCC 72, has been cited. Our
attention has also been drawn to the judgment of a bench of three learned
judges in Punjab Distilling Industries Limited vs. Commissioner of Income Tax, Simla,
1959 Supp. (1) SCR 683.
regard to these judgments, we think that these appeals require the
consideration of the larger bench. the larger bench may also take not of the
judgment dated 11th
September, 1996 in
C.A. Nos. 11864- 67 of 1996, Commissioner of Income Tax, Madurai vs. T.V. Sundaram Iyengar &
United Breweries (hereinafter referred to as 'UB') supplies at Hyderabad two brands of beer - (1) U.B.
Export Lager and (2) Sun Lager. The dispute between UB. and Andhra Pradesh
Sales Tax Authority was as regards the crates and bottles in which the beer was
supplied. The case of UB was that when beer was sold bottles and creates were
not sold to the customers. The sale price of UB Export Lager was Rs.
Sun Lager Rs. 43.75 per dozen. The supplies were made to selling agents who
deposited security of Rs. 4.80 for the bottles and Rs. 5.00 for the crates.
These deposits were returned to the selling agents when the bottles and the
crates were returned. This was the method or carrying on of the trade by the asessee
and two circulars were issued by the assessee to explain the scheme to their
customers. It was stated in the two circulars as to how payments for two brands
of the beer were to be made. Additionally, it was stated that the "vendees
to return bottles and crates and customers are assured of better supply, if the
scheme is adhered by the customers; otherwise the company expressed difficulty
in supplying the liquor" The scheme was explained to the taxing
authorities. the Commercial Tax Officer verified the scheme and held that the
customers did not always return the bottles and crates. The sale of bear included
sale of the crates and the bottles.
Commercial Tax Officer was also of the view that the bottles and crates were
higher in value than the amounts deposited as security. For these two reasons,
it was held that the scheme was not genuine. Therefore, the taxable turnover
had to be computed not only by taking into account the sale price but also the
value of the bottles.
case ultimately went up to the Tribunal. The Tribunal was of the view that
there was no bailment of the bottles and the crates and there was as
contractual obligation on the part of the customers to return the bottles and
the crates. The scheme, therefore, was not acceptable as genuine.
the case was taken up by UB to the High Court. Before High Court the contention
of the Revenue was hat the mere fact that bottles and creates in which beer was
sold could be returned did not mean that the customers had not purchased the
bottles and the crates and had not become owners thereof. The bottles and
crates were also vended to the customers along with the beer. The High Court
held that the ownership in the bottles and crates did not remain with the UP
when beer was sold. The customers purchased the bottles and the crates with the
contents of receptacles.
bottles and crates were returned to the extent shown by the assessee, in law,
there was a resale of bottles and crates to the assessee. The High Court
referred to the decision of this Court in the case of Punjab Distilling
Industries Ltd. v. Commissioner of Income Tax (A) (199) 35 STC 519, and pointed
out that Up did not have any right to the return of the bottles and crates no
was there any time- limit set for return of the bottles and crates. Therefore,
it was a clear case where bottle and crates were sold along with beer and had
to be included in the sale price.
has come up in appeal against this decision.
case of the appellant is that the Company carries on business of manufacture
and sale of beer. It sells beer to retailers and wholesale dealers throughout India. When the beer is sold the bottles
and crates are not sold to the customers. The assessee follows the trade
practice to sell the beer in bottles which are ultimately to be returned to the
assessee after the beer is consumed. To ensure such return a deposit is
collected from the customers. This deposit cannot be treated as sale proceeds
in any way. It has been emphasised that the assessee has issued circulars to
its customers making it clear that empty bottles and crates were not being
sold. The bottles were to be returned so that the process of the bottling beer
could continue smoothly and steady supply could be maintained. The system
followed by the assessee was that upon the return of the empty bottles, fresh
supplies would be made to the dealer.
had submitted figures to show that a substantial part of the bottles was
returned by the consumers. The attention of the Sales Tax Authority was also
drawn to the circular issued by the assessee to its customers to the following
effect:- "UNITED BREWERIES LIMITED, HYDERABAD, 24, Grant Road, P.B. 5104
Bangalore -1 Dear Sir, We are glad to inform you that our brewery at Hyderabad
commenced operating on October 18, 1971 and we are not in a position to render
the same service to you as we render the same service to you as we render to
our valued customers in Bangalore viz., delivery of out beer at you door fresh
from the Brewery every day.
brands can offer and their prices are as follows:
EXPORT LAGER Rate per dozen Rs. 33.88 Refundable deposit on bottles Rs. 4.80
Refundable deposit on crates Rs. 5.00 ------------- TOTAL per dozen Rs. 43.18
------------ SUN LAGER Rate per dozen Rs. 38.95 Refundable deposit on bottles Rs.
4.80 Refundable deposit on crates Rs. 5.00 ------------- TOTAL per dozen Rs.
48.75 ----------- Rebate for orders at a time of 40 dozen ad more of Sun Lager
only is Rs. 1.24 per dozen making the net price Rs. 47.50 per dozen.
should be booked at the office of Phipson & Co. Ltd. At 3-6-14/7, Himayathnagar,
Hyderabad- 29 Full payment should be made at the above rates at the time of
booking of orders. Cheques for UB Export Lager should be made in favour of
United Breweries Limited and cheques for Sun Lager should be made in favour of Phipson
& Co. Ltd.
will be made on the following working day after booking of the order. Empty
bottles and crates with customers will be taken back by our truck, the driver
of which will issue a receipt, against which our Brewery will issue a Credit
Note on production of which credit will be allowed for the deposit at the time
of booking of the next order. Please take back empty bottles from your
customers and pay them 40 paise per bottle. This will reduce the cost of the
beer and encourage them to by larger quantities from you.
open delivery will be given, there will be no question of leakages. Further, as
already stated above, the beer will be delivered to you fresh every day. Not
only will this simplify you business but you will build up a very good turnover
in beer just like very every one of our customers in Bangaloe. This arrangement
will be particularly of great advantage to you during the hor weather when
there is a large demand for beer. We hope you will easily visualize the
tremendous benefit Hyderabad and extend you kind patronage to
you mutual benefit." Four thins emerge from this circular set out herein-
(1) The refundable deposits were being collected on the bottles and the crates.
The appellant advised its customers to collect forty paise per bottle from the
consumers as deposit.
The customers were advised to collect the empty bottles from the consumers and
return them to the appellant.
The empty bottles and crates were to be taken back by the trucks of the
appellant, the drivers of which were authorised to issue a receipt for the
empties against which the appellant would issue credit notes. At the time of
the booking of the next consignment, the customers would get advantage of the
arrangement suggests a continuous process by which the appellant will sell beer
to its customers in bottles and crates and collect the sale price of beer and
also deposits for the crates and the bottles. The customers, in their turn,
will sell beer to the consumers and apart form the price of beer will recover
forty paise per bottle as deposit to ensure return of the bottles. The bottles
will ultimately be taken back by the appellant for which the trucks will be
sent and the credit notes will be given to the customers for return of the
empties. This scheme of recycling the bottles and crates will keep down the
costs and ultimately will have effect of reducing the price of beer and
encouraging the customers to by beer in larger quantities.
contention of Mr. Ganguli appearing for the respondent is that when beer was
sold in bottles and despatched in crates to the customers by UB, and out and
out sale of the bottles and the crates took place. The property in the bottles
and the crates passed to the customers. The customers had an option to retain
the bottles and use them as they liked. There was no contractual obligation to
return the bottles to UB within any specified period of time. when the bottles
were ultimately returned by the customers to UB, a resale of the bottles took
unable to uphold this contention having regard to the nature of the
transaction. The basic questions are:
was the intention of the parties? When the bottles and crates were supplied by
UB, did UB intend to make an out an out sale of the bottles and the crates
along with beer and did the customers purchase not only beer but also the
bottles and the crates from UB? the intention has to be fund out from the
conduct of the parties to the agreement and the manner in which the business
was being carried out.
19 of the Sale Good Act lays own that where there is a contract for sale of
specific or ascertained goods, the property in them is transferred to the buyer
at such time as the parties to the contract intend it to be transferred. For
the purpose of ascertaining the intention of the parties, regard shall be had
to transferred. For the purpose of ascertaining the intention of the parties,
regard shall be had to the terms of the contract, conduct of the parties and
the circumstances of the case, Section 20 to 24 contain rules for ascertaining
the intention of the parties as to the time at which the property in the good
is passed to the buyer. But these rules will apply only if a different
intention does not appear from the contract itself.
the memorandum issued by UB, it appears that UB was very anxious not to lose
the bottles and crates in which the beer was supplied. 40 paise was charged as
deposit and the customers were also advised to do likewise when they sold the
beer to the consumers. The whole intention was to get back the bottles from the
consumers through the customers. The scheme was that UB would regularly send
trucks with beer to the customers to supply beer and get back the empties.
These empties will be filled up again for further supplies. This recycling of
bottles will keep down the costs and this process will have the effect of
keeping down the price of the beer which in turn will increase the sales. This
does not appear to be a case where UB was selling beer i bottles and washing
off its hand thereafter.
wanted to use the empty bottles. It was anxious to get back the bottles and
that is why it not only charged 40 paise per bottle from customers but even
advised them to do likewise, and collect 40 paise as deposit per bottle of beer
from consumers to ensure that he bottles ultimately are returned to UB. Mr. Ganguli
invited our attention to Sections 23 and 24 of Sale of Goods Act. According to
him, this Court i the case of State of Maharashtra, Bombay and others V.
Britannia Biscuits Co, Ltd. and Others, 1995 Supp. (2) SCC 72, in a similar
transaction has held that supply of biscuits by the manufacturer to its
customers in returnable tines amounted to sale of goods. To come to this
conclusion, a Bench of tow judges of this Court took the view that the
principle underlaying Section 24 was that were the goods were delivered to the
buyer on terms similar to the delivery of goods on approval or "on sale or
return" basis, the property in the goods therein passed to the buyer, if
he did not signify his approval or acceptance and also did not return the goods
within the time prescribed therefor. The position of the purchaser, until the
returned the good within the prescribed period, was that of a bailee and on the
expiry of the said period, he becomes a purchaser. Where, however, the person
to whom the goods were delivered was under and obligation to return the goods,
there was no question of sale over coming into being and the person to whom the
goods were delivered remained a bailee. It was held in : the facts of the case
that the transaction therein was of the nature nearer to the situation
contemplated by Section 24 inasmuch as the tins were delivered to the buyer
with the stipulation that if the returned the tins in good condition with in
three months, he would get back the deposit made by him in that behalf. It
meant that after the expiry of the said period, he had no right to claim the
refund on return of goods. The transaction then became a sale. The Court
highlighted two features of the transaction. One was that the customer was
under no obligation to return the tins in which the biscuits had been supplied.
He had a right to return the tins were returned within three months in good
condition within three months. The supplier was under an obligation to refund
the deposit amount only if the tins were returned within three months in good
not clear how the Court came to the conclusion in the facts of that case that
the tins were sent to the buyers on sale or "on sale or return' basis or
any analogous condition. We are of the view that the principle of Section 24 or
any analogous principle cannot be applied to a case like this neither the beer
nor the bottles nor the crates were sent to the customers by UB for approval or
'on sale or return' basis or any other similar term. Section 24 of the Sale of
Goods Act is subject to the provisions of Section 19 which provides that the
property in specific or ascertained goods is passed to the buyer only at such
time as the parties to the contract intend it to be passed. The facts of this
case reveal that UB did not intend to sell the bottles or the crates to the
customers. There was no intention of an out and out sale to the customer. On
the contrary, the costumers were advised to sell the beer in bottles to the
consumers and collect a deposit of 40 paise per bottle so that the bottles can
be brought back from the consumers and returned to UB. The entire idea was to
use the bottles over and over again so that the business costs of UB could be
kept at a low level so that consumption of beer could be kept at a low level so
that consumption of beer would increase. It does not appear that any time limit
was fixed for return of bottles in this case. But even if such limit was fixed,
it is well settled that time is not of the essence of the contract unless the
parties specifically make it so. Section 11 of the Sale of Goods Act gives
statutory recognition to this principle. This aspect of the matter was also
overlooked in Britannia Biscuits Co. s case.
regard to the facts of this case, we are of the view that an out and out sale
of the bottles did not take place when beer was supplied in bottles by UB to
its customers against the deposits which had to be refunded when the bottles
were returned. Having regard to the scheme and the nature of the transactions,
we are of the view that the High Court was in error in holding that when beer
was sold in bottles, not only beer but also the bottles were sold and the price
of beer along with the deposits became exigible to sales tax.
regard that the every fact that UB had right to forfeit the deposits on the
failure of customer to return the bottles indicates that the customer to return
the bottles indicates that the bottles were sold. The deposits were nothing but
price of the goods which was returnable when the bottles were resold.
unable to uphold this contention. Whether the bottles and the crates were sold
along with the beer or not will depend upon the intention of the parties. we
have set out the terms and conditions under which the beer was sold and it does
not appear from these terms and conditions that UB intended to sell crates and
bottles to the customers. On contrary it was very anxious to get back these
crates and bottles in order to use them again for further supplies. The fact
that UB advised customers to charge similar deposits from consumers and get
back the bottles from them goes to show that an out and out sale of the bottles
had not taken place. By taking the deposits UB merely ensured the return of the
bottles and the crates. A deposit of forty paise per bottle was taken to ensure
return of the bottles. In our view, the deposit amount which was liable to be
forfeited on failure of the return of bottle was in the nature of liquidated
damages recoverable by the supplier under Section 74 of the Contract Act. An
overall view has to be taken of the dealings and transactions between the
manufacture of dealing and transactions between the manufacturer of the beer,
its customers and the consumers. The intention of UB does not appear to have
been to sel the beer bottles. Not was there any intention of the retailers to
sell the bottles to the consumers. On the contrary, by the terms and conditions
of the agreement UB was trying to ensure that the bottles in which the beer was
supplied to the consumer through their customer were brought back to it so that
they could be used again for fresh supply of beer at a cheap rate.
reliance was placed by Mr. Ganguli on the decision of this Court in the case of
Punjab Distilling Industries Ltd. v. The commissioner of Income Tax, Simla.,
1959 Supp (1) SCR 683. That case was decided under the Income Tax Act, 1922.
There the appellant distiller of country liquor carried o the business of
selling liquor to licensed wholesalers. Due to shortage of bottles during the
war-time, a buy-back scheme was evolved by the Government whereunder the
distiller would charge a wholesaler a price for the bottles in which liquor was
supplied at a rate fixed out the Government, which he was bound to repay to the
wholesaler on his returning the bottles. In addition to this, the distiller
took a further sum from the wholesalers described as security deposit for the
return of the bottle.
the price of the bottles, these moneys were also repaid as an when the entire
sum was refunded only when 90 per cent of the bottles covered by it had been
returned. The distiller was assessed to income tax on the balance on the
amounts of these additional sums left after the refunds were made. This Court
held that the some paid to the appellant and described as "security
deposit" were trading receipts and, therefore, were assessable to tax.
These amounts were paid as an integral part of the commercial transaction of
the sale of liquor in bottles and represented an extra price charged for the
bottles. They were not security deposits as there was nothing to secure there
being no right to the return of the bottles.
principle laid down in that case has to be understood having regard to the
special facts of that case.
buy-back scheme was devised by the Government due to scarcity of bottles. Under
this scheme, a distiller on a sale of liquor became entitled to charge to
wholesaler a price for the bottles in which the liquor was supplied at rates
fixed by the government. Therefore not only a sale of liquid took place but
under "buy-back" scheme, the bottles were also sold. the price at
which the bottles were to be sold were fixed by the Government. The supplier
was bound to repay the wholesaler the price as and when the bottles were
returned. Therefore, there could not be any doubt that under the
"Buy-back" Scheme the bottles were being sold in the first instance
and bought back lager on. This was scheme devised by the Government. The
parties had no option to do business in any other way. Since the bottles had to
be sold in the first instance and brought back thereafter, any additional
deposit could not be anything but an additional consideration for sale of the
case cannot be treated as a authority for proposition that whenever liquor is
supplied in bottles to a consumer, the container is also sold along with
of Income Tax, Madurai v. M/s. T.V. Sundram Iyengar & Sons Ltd., (1996) 6
Scale 757, is a case under Income tax Act. The question in that case was
whether unclaimed sundry credit balances lying with the assessee could be
treated as trading receipt. The amounts were left lying with the assessee and
the claims of the customers had become barred by limitation. The assessee
transferred the unclaimed balances to the profit and loss account. IT was held
that the moneys had been received by the assess in course of trading
transaction. Although originally the amounts received were not of income
nature, by lapse of time the claim of the depositors became time barred and the
amount by operation of law acquired a totally different character. This
principle was enunciated in the case of Jay's The Jewellers Ltd. v.
Commissioners of Inland Revenue 29 Tax Cases 274. This was case under the
Income Tax Act.
fail to see how this principle has any relevance to the case not before us. In
that case, the dictum of Lord Greene in the case of Morley (H.M. Inspector of
Taxes) v. Messr.
, (1939) 7 ITR 316 (CA), that the taxability of receipts was fixed with
reference to its character at the moment it was received, was explained and
confined to the peculiar facts of that case.
principle laid down in the case of Jay's-The Jewellers Ltd. (supra) was that
the money owed t the clients in course of usual business transactions remaining
with the assessee-company and transferred by it from the suspense account to
profit and loss account after it had become, by operation of law, the assessee's
money, arose out of ordinary trading transactions and had to be taxed as income
of the company.
however, cannot be said that the moneys laying with the company for a long time
as security deposit from its customers would automatically become sale proceeds
in the hands of the company of efflux of time. The customers ma lose all claims
to the deposit amount by operation of law.
company may take the unclaimed deposits to its profit and losss account by
treating them as trading receipts.
however, will not convert the deposits which were not received initially as
price into sale proceeds of the tins in which the biscuits were supplied or the
bottles in which the beer was sold.
were referred to a large number of decision of various High Courts. It is not
necessary to refer to these decisions in this case. The case were decided on
the basis of the facts found by the Tribunal and the provisions of the local
sales tax laws.
case of Raj Steel and others V. State of Andhra Pradesh and other (1989) 3 262,
this Court had to deal with two types of cases -(1) beer sold in bottles packed
in cartons and (2) cement sold in gunnies. It was held that the issue as to
whether the packing material had been sold, depended on the contract between
the parties. The fact that the packing was on insignificant value in relation
to the value of the contents might imply that there was no intention to sell
the packing, but where any packing material was of significant value it might
an intention to sell the packing material. It was concluded that in every case
the assessing authority had to ascertain the true nature and character of the
transaction upon a consideration of all the facts and circumstances pertaining
to the transaction. The case was, therefore, remitted to the High Court to find
out the facts on fuller investigation.
were also referred to an English decision in the case of Beecham Foods Ltd. v.
North Supplies (Edmonton) Ltd.
2 all England Reports 336, where the plaintiffs were the manufacturers and
suppliers of a glucose drink sold under the trade mark 'Lucozade'. Every bottle
of 'Lucozada' was supplied subject to a condition as to the price at which it
might be resold, the condition being the observance of the fixed retail price
as published in the current price list issued by the Plaintiffs' distributors.
In the retails price list for 1957, the price was shown as "2s. 6d. plus
3d." for a twenty-six ounce unit, and under the heading "bottle and
container charges" it was stated that 'Lucozade' bottles were
"charged at 3s. per dozen, refundable". The defendants, who carried
on business as grocers, sold 'Lucozade' at 2s. 7d per bottle. Moulded in the
glass of the bottle was the word 'Lucozade', and there was a label was the word
'Lucozade', and there was a label on the bottle with "2s. 6d." in
large type, followed by the words "Plus 3d. deposit returnable on bottle
with stopper", in smaller type. The plaintiffs, who were the
manufacturers, brought an action for an injunction to restrain the defendants
from selling 'Lucozade' at a price less than the fixed retail price, i.e. 2s. 6d.
plus 3d. It was held that the bottles in which 'Lucozade' was supplied were not
sold to customers, but merely hired to them, as the property in the bottles was
not intended to pass to customers. The correct retail prices of the drink in a
twenty-six ounce bottle of ' Lucozade' was 2a. 6d., and not 2s. 9d., the extra
3d. being for the hire of the bottle, and on each occasion when the defendants
received 2s. 7d. for a bottle of 'Lucozade', the customer paid the correct
retail price of 2s. 6d. for the drink and 1d. instead of 3d., for the hire of
further held that the action was under Section 25 (1) of the Restrictive Trade
practices Act, 1956, which applied only to sales and not to hiring agreements,
and therefore the defendants were not in breach of the statue in not charging
the stipulated rate for the hire of the bottles and therefore, the action of
the defendants must fail.
facts of this case come very close to the facts of the case before us. The
Court took note of the fact that initially it was stated specifically on the lable
" plus 3d.
returnable on bottle with stopper". The lable, however, did not say by
whom the 3d. would be returned when the bottle with stopper was returned the
retailer. The Court held that this merely implied that the customer would get
3d. back, if he took back the bottle to the same shop which supplied him the 'Lucozade',
Vaisey, J., after referring to the scheme of the transaction concluded,
"It further seems that the property in the bottle was never intended to
pass to the customer".
the present case each of the tow ladies who effected a trap or test purchase
from the defendants paid on each occasion , 2s. 7d and, in my judgment, may
fairly be said to have paid the full and correct price of 2s. 6d. for the
liquid but only 1d. for or towards the hire of the bottle. In my judgment,
however, the bottle, in each of these transactions, was never sold at all, but
was merely lent or hired as a convenient receptacle fr carrying the liquid
home. the same result follows if 2s 9d. is paid by a customer. In either case I
interpret the transaction as a payment of 2s. 6d. in full as the price of the
liquid and 3d. or 1d.
the hire of the bottle. The matter may be looked at in a variety of ways. For
example, a customer may t into a shop, ask of a bottle of 'Lucozade', fill up
his own flask from the contents and had back the bottle with its stopper across
the counter to the shop man.
has he to pay? Surely 2s. 6d. The suggestion that he must pay 2s. 9d. and a
minute or tow later ask for 3d. back is reducing a very ordinary transaction to
an absurdity. The moral is that, if people want to fix prices for retail sales,
they must, in may view, do so in plain simple an sensible and, above all,
accurate language. Here the price of 'Lucozade' is 2s. 6d. whether the bottle
to carry it home is hired or not." After referring to the clause in the
price-list that the deposit will be refunded when the bottles are returned, Vaisey,
J., observed that the charge over and above the price of 'Lucozade' was in the
nature of a deposit. It was held :- "I think that the distributors' view
is perfectly right, and that the good which are sold in the present case are
the contents of the bottles and no the bottles themselves. Indeed, it is this
face, and this fact only, which justifies, the prominence given to the figures
2s. 6d. on the labels." In the present case also the customers clearly
know the price they will have to pay for the beer. they are required to pay an
additional amount by way of deposit for taking away the bottle which refunded
if the bottle is returned. It the bottle is not returned, the deposit is
retained as liquidated damages for the loss of the bottle. There is a clear
intention not to sell the bottle. Hence, we are of the view that the deposit
cannot be considered as price of the bottles.
of the view that the High Court was in error in holding that the crates and the
bottles were sold along with the beer. In the facts of this case, the deposits
could not be treated as the price of the bottles and the crates.
therefore, set aside the judgment under appeal dated 17.2.1987 and 4.4.1994.
The appeals are allowed. There will be no order to costs.