THE STATE OF TAMIL NADUversusMC. DOWELL AND COMPANY LTD. MADRAS

                    THE STATE OF TAMIL NADU                                   A
                                     v.
          MC. DOWELL AND COMPANY LTD. MADRAS

                             MARCH 4, 1997

              [A.M. AHMADI, CJ. SUHAS C. SEN AND                              B
                    . SUJATA V. MANOHAR, JJ.]

      Sales Tax:

      Assessee--Disflibutor of liquor-Deposit Amount collected for bot-        C
Iles-Refunded on retum-Deposit amount included in Sales tumover for
imposing sales tax-Held, no sale of bottles took place-No resale on retum
of bottles-Not liable to sales tax on sale of bottles.

       The respondent-assessee was a distributor of liquor for United
Breweries Ltd., the principal. The assessee had to deposit certain amounts - D
for taking delivery of the liquor in bottles. On return of bottles, the deposit
amount was refunded. The assessee in turn collected deposits at the same
rate from its customers and refunded the amount on return of bottles. The
assessing authority included the deposit amount in the Sales turnover and
impose tax.                                                                     E
      On appeal the Tribunal took the view that deposit amount could not
be taxed. High Court upheld the stand taken by the Tribunal. Hence the
present appeal.

      Dismissing the appeal, this Court                                        F
       HELD : 1. The High Court was right in holding that there was no
sale of bottles in the first instance and when the bottles were returned no
resale took place. The assessee was just a middleman. No question of sale
of bottles could arise. When the assess collected the bottles, it paid a
deposit to its principal. When in its turn, it supplied the bottles to its G
customers, it obtained a deposit from its customers. On return of bottles
by the customers, the assessee had refunded the entire amount of deposit
received. Thereafter, the assessee had returned all the bottles to its prin-
cipal. The Principal had-then returned the deposit amount to the assessee.
Hence not question of any sale of bottles arose. (687-H, 688-A, D-F]         H
                                      -085
    686                   SUPREME COURT REPORTS                  (1997] 2 S.C.R.

A          2. Assuming that sale of bottles took place when the bottles with bear
    were supplied by the manufacturer to the wholesalers and again by the
    wholesaler to the customers, then it had to be held that sale of bottles also
    took place when the consumers returned the bottles to the dealers. Thus
    consumers will be liable to pay sales tax on the return of bottles by taking
B   back the deposits. There being a single point tax on sale of bottles, the
    charge of tax if any would fall on the first sale by the Principal. The
    assessee being a middleman could not be made liable to pay sales tax on
    'sale' of bottles to the retailers or the consumers. [688-G-H, 689-A]

        CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3172 of
C. 1988 Etc.

         From the Judgment and Order dated 5.2.85 of the Madras High
    Court in T.C. No. 2200 of 1984.

         A.K. Ganguli, V. Krishnamurthy and T. Harish Kumar for the
D   Appellant.

         H.N. Salve, Sunil Gupta, Ms. A.K. Verma for the JBD. & Co. for the
    Respondent. in C.A. No. 3172/88, 4445/84 and 3174-76/88.

E         The following Judgment of the Court was delivered;

          SEN, J. This appeal arises from a judgment of the High Court at
  Madras on a sales tax 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
F by U .B., the principal, to show the price, the tax payable thereon and the
  deposits for bottles in which the liquor was sold separately. The 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 the assessee charged
  its customers were the same. The same procedure was followed year after
G year. From time to time, the rate of deposit was enhanced due to shortage
  of empty bottles. In the sale notes, it was specifically stated "Entry bottle
  deposit is refundable .against the return of the bottles at the Brewery. The
  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
H of liquor was separately shown and the sales tax was added to it. There-
                  STATE v. MC. DO WELLAND CO. LTD. [SEN, J.]                 687

     after, with reference to the number of bottles supplied, a separate charge A
     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 he assessee's sales
     turnover for the purposes for 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 B
     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 sales of the bottles. The deposit amount could not be
     taxed in any way as price of bottles:

           Before the High Court, contention of the State was that the transac- C
     tions 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 sale of liquor took place. The p,ur-. D
     chaser 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 bottles.

           Another point which was highlighted on behalf of the State was that     E
     the assessee has debited the amounts paid for the bottles 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.

            The 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 F
     to their being returned. As a safeguard against the contingency of the
     bottles being damaged or not being returned for any reason, a deposit was
     collected which was refunded as soon as the bottles were returned. Ac-
     cording 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 G
     the goods. It pointed out that even in the case of soft drinks, in all retail
     outlets, the trade practice was to collect small amount against the return
     of the bottles. It the bottles were not returned, the amounts were forfeited.
     But if the bottles were returned, the amount was refunded to the consumer.
     In all such case, it cannot be did that there was a sale of the bottles in the H
''
    688                     SUPREME COURT REPORTS                        [1997] 2 S.C.R.

A first instance, and thereafter, when the bottles were returned, a resale took
    place.;

           We are of view that the High Court in the facts of this case, has come
    to a correct decision. The bottles were supplied initially be U.B. to the
    assessee who was a distributor. The findings 'of fact by the Tribunal is that
B
    the assessee had to deposit certain amounts for taking delivery of the liquor
    in bottles. The clear understanding was that when the bottles were
    returned, U.B. would refund the amount of the deposits. The assessee, in
    its turn, collected deposits at the same rate from is customers when it sold
    liquor in bottles. When the bottles were returned, the asscssee refunded



                                                                                             -
C   the amount of deposit collected by it to its customers. If any customer did
    not return the bottles due to breakages or for any other reason, the assessee
    did not refund the deposit amount.

          When the assessee received back the bottles from its customers, it
D ·used to return the bottles to its principal and get back its deposit. If 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
E   to its customers, it obtained a deposit from it customers as instructed by its
    principal. If the customers returned all the bottles, the assessee would refund
    the entire amount of deposit received by it from its customers. Thereafter,
    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,
    hence no question of any sale of bottles arises.
F
          . It the 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 against by the wholesaler to the consumers, then it will have
    to be held that sale of bottles also took place when the consumers returned
G   the bottils to the dealers. Therefore, the consumes will be liable to pay
                 ' turn the bottles by taking back the deposit. This proposition
    sales tax when
    was countered by arguing that there was a single point tax on sale of b.ottles.
    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
H   middle-man and could not be made liable to pay sales tax on account of
                   STATEv. MC.DOWELLANDCO.LTD.[SEN,J.]                      689

    "sale" of the bottles to the retailers or the consumers in any event.         A
             This appeal is without any merit and is dismissed. No order as to
    costs.

        CIVIL APPEAL NOS. 44-45/84, 445-447/84, 4362/84, 3173-3176/88
    AND 5553-54/90.                                                               B


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)
         In view of our above decision in Civil Appeal No. 3172 of 1988, these
    appeals are also dismissed with no order as to costs.

    SV.K.I.




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