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Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) Vs. Mcdowell and Co. Limited - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKerala High Court
Decided On
Case Number T.R.C. Nos. 4, 7, 11, 12, 13, 14, 15, 24, 25, 27, 28, 55 to 59, 62 and 104 of 1977
Judge
Reported in[1980]46STC79(Ker)
AppellantDeputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes)
RespondentMcdowell and Co. Limited
Appellant AdvocateThe Government Pleader
Respondent Advocate B.S. Krishnan,; V. Ramachandran and; P.R. Raman, Adv
Cases ReferredDyer Meakin Breweries v. Commissioner of Sales Tax
Excerpt:
.....for the bottles. ..the substance of the bargain clearly was that the appellant having sold the bottles agreed to take them back and repay all the amounts paid in respect of them. the appellate tribunal was clearly in error in having set aside the order of the sales tax officer and the appellate assistant commissioner and in directing the assessing authority to give the appellant an opportunity to produce the relevant c forms declaration and to come to a finding only after scrutinising the same. provided that if the prescribed authority is satisfied that the person concerned was prevented by sufficient cause from furnishing such declaration or certificate within the aforesaid time, that authority may allow such declaration or certificate to be furnished within such further time as..........used in relation to any dealer liable to tax under this act means the aggregate of the sale prices received and receivable by him in respect of sales of any goods in the course of inter-state trade or commerce made during any prescribed period and determined in accordance with the provisions of this act and the rules made thereunder.in the light of the definition, the question for decision is whether the amount of deposits for bottles would be the aggregate of the sale prices received and receivable in respect of the sale of any goods as mentioned in the definition. sale price is defined in section 2(h) as follows :'sale price' means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice.....
Judgment:

V.P. Gopalan Nambiyar, C.J.

1. These revisions raise certain common questions and may be dealt with and disposed of together. In the first batch of eight revisions, viz., T. R. C. Nos. 4, 7, 11, 12, 13, 14, 15 and 24 of 1977, the only question that is debated is the assessability to sales tax of the turnover on containers, viz., bottles, in which the liquor was sold. In the second batch of three cases, viz., T. R. C. Nos. 25, 27 and 28 of 1977, in addition to the question in the first batch of revisions, one other question also arises, viz., whether the Appellate Tribunal was justified in affording to the assessee an opportunity of producing the C forms and claiming the benefit of concessional assessment under the Central Sales Tax Act. In the third and last batch of seven cases, i. e,, T. R. C. Nos. 55 to 59, 62 and 104 of 1977, in addition to the point as to the assessability of the turnover of containers, a further point arises as to whether the insurance charges in respect of the goods sold are liable to be excluded from the turnover.

2. We may notice the facts of T. R. C. No. 12 of 1977 as representative of the first batch of cases. The assessee, M/s. McDowell & Co., manufactures foreign liquor at Shertallai and sells the same both locally and by way of inter-State transactions. They are also dealers in spirits and empty bottles. The invoice-war statement of sales filed at the time of the hearing before the Sales Tax Officer disclosed a gross turnover of Rs. 7,36,058.79 under the Central Sales Tax Act for the year 1962-63. Besides sale of liquors, sale of bottles, sale of packing cases, etc., it included an amount of Rs. 80,238.80 described as 'deposit on bottles'. The Sales Tax Officer allowed the deduction in respect of this claim to the extent to which the assessee was able to prove the return of the bottles, viz., Rs. 18,614.24. On appeal, the Appellate Assistant Commissioner found that realising the amounts described as deposits for the bottles, the company had charged a price for the bottles as part of the consideration for the sale of liquor and that the amounts so realised are really part of the goods sold. He was of the opinion that the customer was under no obligation to return the bottles and that the sums taken as deposits were not really such deposits but were an integral part of the commercial transaction of sale of liquor. On further appeal, the Sales Tax Appellate Tribunal noticed that there was no written contract. It referred to the copies of the bills produced which separately showed the amount realised by deposit of bottles. This is shown separately as security deposit for the return of the containers. Discussing the incidents of the transaction, the Tribunal found as a fact from the course of conduct and the attendant circumstances that the invoices showed the price of liquor, the excise duty and the sales tax to be collected from the customers but not the price of the containers ; secondly, that the amount of deposit on bottles was specifically shown in the invoices ; thirdly, that the credit notes; later issued, showed that the appellants were getting back the containers and returning the deposits; fourthly, that the fact of return of the bottles was sufficiently established by the exemption granted by the assessing officer in respect of the amounts shown to have been disbursed on the return of the bottles. These findings of fact by the Tribunal must be accepted in. these cases under revision before us. We proceed to examine the question of the assessability of the turnover on the said findings of fact.

3. Section 2(j) of the Central Sales Tax Act, 1956, defines the expression 'turnover' as follows:

'Turnover' used in relation to any dealer liable to tax under this Act means the aggregate of the sale prices received and receivable by him in respect of sales of any goods in the course of inter-State trade or commerce made during any prescribed period and determined in accordance with the provisions of this Act and the Rules made thereunder.

In the light of the definition, the question for decision is whether the amount of deposits for bottles would be the aggregate of the sale prices received and receivable in respect of the sale of any goods as mentioned in the definition. Sale price is defined in Section 2(h) as follows :

'Sale price' means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged.

On the facts found which show that the amount of deposits for bottles was separately invoiced and differently treated in the accounts and that, on the nature of the transaction, it cannot be regarded as an integral part of the sale price, we do not think it satisfies the definitions of 'turnover' and 'sale price' as extracted supra.

4. Counsel for the revenue placed strong reliance on the decision of the Supreme Court in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, Simla [1959] 35 I.T.R. 519 (S.C.), to contend that the transaction was a sale and the amount representing deposits on bottles was part of the sale price. It seems to us that the decision of the Supreme Court cannot be pressed into service in considering the provisions of an Act quite differently worded and of a transaction the incidents of which are materially different. The facts in the Supreme Court case were that after the second world war, when the demand of country liquor was great, and the stock of bottles to sell them was scarce, the Government revised the scheme in 1940 called the 'buy-back scheme'. A distiller, on sale of liquor became entitled to charge a wholesaler a price for the bottles in which the liquor was supplied at rates fixed by the Government which he was bound to pay back to the wholesaler on the latter returning the bottles. Mutatis mutandis the same arrangement was made applicable for sales of liquor by a wholesaler to a retailer and by the retailer to the customer. It was expected that the price fixed under the scheme for the bottles would be found to be higher than it fetched in open market and that the same would prove to be an incentive to the consumers to return the bottles through the intermediaries ultimately to the distiller. With this end in view the price refundable was even increased by later notifications. The Amritsar Distillery Co. Ltd., some time in 1944, insisted on the wholesalers paying to it, in addition to the price of the bottles fixed under the buy-back scheme, certain amounts described as security deposits at varying rates per bottle, depending on the size of the bottle, promising to pay back for each bottle returned, at a specified rate, and further promising to pay back the entire amount of a transaction when 90 per cent of the bottles covered by it had been returned. While it was in existence the company realised these additional amounts; and the Punjab Distilleries which had taken over the business of the company also did so. The amount was meant only as further incentive for return of the bottles and to prevent the trade of the distiller being hampered for want of bottles to stock the liquor. The price of bottles received by the appellant under the buy-back scheme was entered in the general account, while the additional sum received was entered in the general ledger under a special head of account, 'Empty Bottles Return Security Deposit Account'. It was described that the additional amount was taken as a condition imposed by the distiller for the sale of the liquor. The distiller was assessed to income-tax on the balance of the amount of these additional sums left after the refunds made thereout. The question before the Supreme Court was whether the additional sums demanded and received by the appellant were trade receipts and therefore assessable for the purpose of income-tax. The High Court had held that they were. The Supreme Court sustained the decision. It endorsed the High Court's reasoning that the company was charged an extra price for the bottles. The Supreme Court was of the view that the trade of sale of liquor and the consideration of the sale was constituted by several accounts respectively called the price of liquor, the price of the bottles, and the security deposit; and that unless all these sums were paid the appellant would not have sold the liquor. The court proceeded to consider what would be the position if the amounts were not part of the price. Posed the court:

Now, if these additional sums were not part of the price, what were they? Mr. Sastri said that they were deposits securing the return of the bottles. According to him, if they were such security deposits, they were not trading receipts. Again we are unable to agree. There could be no security given for the return of the bottles unless there was a right to their return for if there was no such right, there could be nothing to secure.... The substance of the bargain clearly was that the appellant having sold the bottles agreed to take them back and repay all the amounts paid in respect of them.

Later, in the discussion, the court pointed out that the amounts in question were parts of the trading transactions themselves, and were essential parts ; and that the appellant could not sell liquor unless these amounts were paid and the trade of the appellant was to make profit out of these sales. At page 526, the court noticed the following argument advanced for the revenue:. Mr. Sanyal was prepared to argue that even if the amounts were securities deposited for the return of the bottles, they would still be trading receipts, for they were part of the trading transactions and the return of the bottles was necessary to enable the appellant to carry on its trade, namely, to sell liquor in them. As we have held that the amounts had not been paid as security for the return of the bottles, we do not consider it necessary to pronounce upon this contention.

This is significant as the question whether the amounts representing trading receipts assessable as income was quite different from the question arising for consideration in this case. Thus, both on the facts found, and on the legal concepts arising, the decision of the Supreme Court has no application. We think the Tribunal was right in holding that the decision had no application.

5. On the other hand, more appropriate and to the point is the decision of the Allahabad High Court in Dyer Meakin Breweries v. Commissioner of Sales Tax, U. P. [1972] 29 S.T.C. 69 There the question directly arose whether the deposits taken in respect of the probable cost of the containers in. which the liquor was sold by the Dyer Meakin Breweries were assessable to sales tax as falling within the definition of 'turnover' under the U. P. Sales Tax Act. After examining the nature of the transaction the court found that it was a transaction of bailment and not a sale and, therefore, the amounts were not assessable as turnover. The nature of the transaction was recorded thus:

The modus operandi of the dealer was that he used to supply these three articles in containers. The price of beer was separately charged and the agreement with respect to container was that at the scheduled rate the price was to be deposited beforehand along with the delivery of container and on the contingency of redelivery back of the containers the price so deposited was to be refunded in whole or in part as the case may be whether the containers were redelivered as a whole or partially.

The court found that the conditions on which the deposits against beer bottles were made were substantially similar to the conditions against which a deposit against country liquor was made. Addressing itself to the question whether the facts established a sale or a bailment the court had noticed the argument that the containers were sold when they were returned after the use or consumption or sale of the liquor, and observed :

The sale of containers is not in the way of the trade of the assessee. It does not receive the cost of bottles as 'price'. The cost is taken as deposit. No sales tax is charged on the cost from wholesale vendors. They deposit the 'probable cost' of bottles. It seems there is no profit-making. Bottled liquor is sold to wholesale vendors. Bottles serve as receptacles of liquor. They may keep them till the liquor is consumed. As soon as they are empty, they should be returned to the assessee. All this appears to be the normal course of the trade in liquor, and signifies bailment.

The two decisions are capable of being understood in proper perspective on the facts found, and the terms of the transactions. On the facts of this case, in the light of the statutory provision in relation to which the transaction has to be examined, we have no hesitation to come to the conclusion that the Tribunal was correct in its findings and that no interference is called for with its conclusion. We affirm the same.

6. We then proceed to consider the additional question arising in T. R. C. Nos. 25, 27 and 28 of 1977, viz., whether the Tribunal was justified in affording to the assessee an opportunity for producing the C forms and claiming the benefit of concessional assessment under the Central Sales Tax Act. Under Section 8(1) of the Central Sales Tax Act a dealer is liable to be assessed to sales tax at the rate of 4 per cent of the turnover. Sub-clause (4) of Section 8 enacts:

8. (4) The provisions of Sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner-

(a) a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority; or

(b) if the goods are sold to the Government, not being a registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorised officer of the Government :

Provided that the declaration referred to in Clause (a) is furnished within the prescribed time or within such further time as that authority may, for sufficient cause, permit.

The prescribed authority is the Sales Tax Officer and the forms have to be produced before the sales tax authority. The Appellate Tribunal was clearly in error in having set aside the order of the Sales Tax Officer and the Appellate Assistant Commissioner and in directing the assessing authority to give the appellant an opportunity to produce the relevant C forms declaration and to come to a finding only after scrutinising the same. Rule 12(7) of the Central Sales Tax (Registration and Turnover) Rules, 1957, is as follows :

(7) The declaration in form C or form F or the certificate in form E-I or form E-II shall be furnished to the prescribed authority up to the time of assessment by the first assessing authority:

Provided that if the prescribed authority is satisfied that the person concerned was prevented by sufficient cause from furnishing such declaration or certificate within the aforesaid time, that authority may allow such declaration or certificate to be furnished within such further time as that authority may permit.

We think the Tribunal went too far in making such a direction. At the most, this should have been a matter of discretion for the Sales Tax Officer. This was freely conceded by the counsel appearing for the assessee. In these three revision cases, we accordingly vacate the direction of the Appellate Tribunal directing the Sales Tax Officer to afford an opportunity to the assessee to produce the C form declarations. These revisions will stand allowed to this limited extent and dismissed otherwise.

7. In T. R. C. Nos. 55 to 59, 62 and 104 of 1977, in addition to the assess-ability of the turnover on the deposit of bottles which we have dealt with in the first batch of revision cases, an additional question arises, viz., whether the Tribunal was right in allowing deduction of the insurance charges. The definition of 'turnover' has already been extracted. That excludes the cost of freight or delivery in cases where such cost is separately charged. We agree with the counsel for the assessee that the cost of freight or delivery should include the cost of insurance of the goods, when general insurance has become so much of a part of the commercial activity of this country and the risk and insecurity attendant on the delivery of the goods is so great as to make insurance of the goods an almost necessary part of the bargain in the transactions relating to them. On these grounds, we uphold the decision of the Tribunal on this aspect of the matter.

8. In the result, we dismiss all these tax revision cases, except T. R. C. Nos. 25, 27 and 28 of 1977, which are allowed to the limited extent of vacating the direction of the Appellate Tribunal to afford the assessee an opportunity of producing the C forms. We make no order as to costs.


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