http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 3  

PETITIONER: THE STATE OF TAMIL NADU

       Vs.

RESPONDENT: MC. DOWELL AND COMPANY LTD., MADRAS

DATE OF JUDGMENT:       04/03/1997

BENCH: CJI, SUHAS C. SEN, SUJATA V. MANOHAR

ACT:

HEADNOTE:

JUDGMENT: (With Civil  Appeal Nos. 44-45/84. 445-447/84, 4362/84 3173- 3176/88 and 5553-54/90)                       J U D G M E N T SEN. j.      This 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. 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 of  liquor  was separately  shown  and  the  sales  tax  was  added  to  it. Thereafter,  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.      Before 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 3  

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 bottles.      Another 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.      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 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  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. But if 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.      We are  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.      When 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 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,  no question of any sale of bottles arises.      If 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  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.,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 3  

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.      This appeal  is without  any merit and is dismissed. No order as to costs.      CIVIL 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.