1997 (3) TMI 601 - SC - VAT and Sales Tax

Whether where bottles and crates were sold along with beer and had to be included in the sale price/ Held that - In the present case 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 is refunded if the bottle is returned. If 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. We are 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. We therefore set aside the judgments under appeal. The appeals are allowed

Summary

Issues Involved:
1. Whether the sale of beer includes the sale of bottles and crates.
2. Whether the refundable deposits collected for bottles and crates should be included in the sale price for tax purposes.

Issue-wise Detailed Analysis:

1. Whether the sale of beer includes the sale of bottles and crates:
The appellant, a company engaged in the manufacture and sale of beer, argued that when beer is sold, the bottles and crates are not sold to the customers. Instead, these are to be returned after consumption, and a deposit is collected to ensure their return. The appellant issued circulars to customers clarifying that empty bottles and crates were not sold, and the process of bottling beer required their return to maintain a steady supply. The Commercial Tax Officer, however, held that the sale of beer included the sale of bottles and crates, as customers did not always return them, and the value of the bottles and crates exceeded the deposit amounts. The Tribunal and the High Court supported this view, stating that the ownership of bottles and crates passed to customers upon the sale of beer. The High Court referred to the decision in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, which indicated that there was no contractual obligation for customers to return the bottles and crates.

2. Whether the refundable deposits collected for bottles and crates should be included in the sale price for tax purposes:
The appellant contended that the deposits collected could not be treated as sale proceeds. The High Court, however, included these deposits in the sale price, asserting that the sale of beer included the sale of bottles and crates. The appellant argued that the intention was not to sell the bottles and crates but to ensure their return for reuse, thereby reducing costs and maintaining lower prices for beer. The Supreme Court examined the intention of the parties, the terms of the contract, and the conduct of the parties. It was found that the appellant did not intend to sell the bottles and crates, as evidenced by the continuous process of collecting deposits and advising customers to return the bottles. The Court held that the deposits were in the nature of liquidated damages under Section 74 of the Contract Act, ensuring the return of bottles and crates.

Judgment:
The Supreme Court concluded that the High Court erred in holding that the sale of beer included the sale of bottles and crates. The intention of the appellant was not to make an out-and-out sale of bottles and crates but to ensure their return for reuse. The deposits collected were not to be treated as the sale price of the bottles and crates. The judgments dated February 17, 1987, and April 4, 1994, were set aside, and the appeals were allowed with no order as to costs.