State of Tamil Nadu Vs. Mc. Dowell and Company
Ltd., Madras  INSC 243 (4 March 1997)
SUHAS C. SEN, SUJATA V. MANOHAR
Civil Appeal Nos. 44-45/84. 445-447/84, 4362/84 3173- 3176/88 and 5553-54/90)
appeal arises from a judgment of the High Court at Madras on a sales taxa revision case. Mc.
Dowell and Company Ltd. Is primarily a distributor of liquor for United
Breweries Limited (hereinafter referred to as U.B."). It was customary for
the bills issued to the assessee by U.B., the principal, to show the price, the
tax payable thereon and the deposits for assessee in its turn, similarly
charged its customers. The rate of deposit at which the assessee was charged by
U.B. and the rate at which assessee charged its customers were same. The same
procedure was followed year after year. From time to time, the rate of deposit
was enhanced due to shortage of empty bottle. In the ale notes, it was
specifically stated "Empty bottle deposit is refundable against the return
of the bottles at the Brewery.
freight on return of empties and breakages will be on your (Purchaser's)
account". In the copies of the bills issued as against the assessee, the
price of liquor was separately shown and the sales tax was added to it.
with reference to the number of bottles supplied, a separate charge was made as
deposits at the rate of 40 paise per bottle or Rs.4.80 per dozen of bottles.
The question that came up for consideration was whether these deposits were
liable to be treated as part of the assessee's sales turnover for the purpose
of levy of sales tax. The assessing authority was of the view that there was a
sale of the bottles by U.B. to the purchaser and the deposit amount had to be
included in the turnover and taxed. The Tribunal, however, took the view that
the receipts were only deposits and not price realised on sale of the bottles.
The deposit amount could not be taxed in any way was price of bottles.
the High Court, contention of the State was that the transactions were liable
to be treated as sales. The deposits were merely shown in the accounts
separately. That did not mean that these deposits were not sale proceeds. The
way they were shown in the accounts could not be determinative of the nature of
the amount received. The rights of the parties crystallised at the time when
the sale of liquor took place. The Purchaser not only paid for the liquor but
also for the bottles. The amounts received on account of sale of the bottles
though described in the account as deposits, were nothing but sale price of the
point which was highlighted on behalf of the State was that the assessee has
debited the amounts paid for the bottle in its purchase account. It was,
therefore, contended that there was no doubt in the mind of the assessee that
it was purchasing the bottles.
High Court, however, did not uphold the contention of the State. It was of the
view that the bottles were handed over to the assessee subject to their being
safeguard against the contingency of the bottles being damaged or not being
returned for any reason, a deposit was collected which According to the High
Court, this was a clear case where the deposit retained the character of
deposit and did not acquire the character of sale price of the goods. It was
pointed out that even in the case of soft drinks, in all retail outlets, the
trade practice was to collect small amounts against the return of the bottles.
If the bottle were not returned, the amounts were forfeited.
the bottles were returned, the amount was refunded to the consumer. In all such
cases, it cannot be said that there was a sale of the bottles in the first
instance, and thereafter, when the bottles were returned, a resale took place.
of the view that the High Court in the facts of this case, has come to a
correct decision. The bottles were supplied initially by U.B. to the assessee
who was a distributor. The finding of fact by the Tribunal is that the assessee
had to deposit certain amounts for taking delivery of the liquor in bottles.
The assessee, in its turn, collected deposits at the same rate from its
customers when it sold liquor in bottles. when the bottles were returned, the assessee
refunded the amount of deposit collected by it to its customers. It any
customer did not return the bottles due to breakages or for any other reason,
the assessee did not refund the deposit amount.
the assessee received back the bottles from its customers, it used to return
the bottles to its principal and get back its deposit. It there was any
shortage in returning of the bottles, the deposit to that extent was retained
by U.B., The principal. In this case, the assessee was just a middle-man. No
question of sale of bottles could arise. When it collected the bottles, it paid
a deposit to its principal. when in its turn, it supplied the bottles to its
customers, it obtained a deposit from its customers returned all the bottles,
the assessee would refund the entire amount of deposit received by it from its
the assessee would return all the bottles to its principal, The principal would
then refund the deposit amount to the assessee. In the facts of this case, no
question of any sale of bottles arises.
State's contention is accepted that sale of bottles took place when the bottles
with beer were supplied by the manufacturer to the wholesaler and again by the
wholesaler to the consumers, then it will have to be held that sale of bottles
to the dealers. Therefore, the consumers will be liable to pay sales tax when
they return the bottles by taking back the deposits. This proposition was
countered by arguing that there was a single point tax on sale of bottles. If
that be so, then the charge of tax, if any, would fall on the first sale by the
principal, i.e., United Brewery Company Limited. The assessee was a middle- man
and could not be made liable to pay sales tax on account of "sale" of
the bottles to the retailers or the consumers in any event.
appeal is without any merit and is dismissed. No order as to costs.
APPEAL NOS. 44-45/84, 445-44/84, 4362/84, 3173- 3176/88 AND 5553-54/90 In view
of our above decision in Civil Appeal No. 3172 of 1988, these appeals are also
dismissed with no order as to costs.
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