JUDGMENT
B.C. Chakrabarti, Chairman
1. This application at the instance of an existing company, namely, Kalyani Breweries Limited, is directed against an assessment order dated February 27, 1979, which was subsequently confirmed by the appellate authority, namely, the Assistant Commissioner, Commercial Taxes, Chowringhee Circle, by his order dated March 21, 1983. Being aggrieved with the order, the applicant moved the West Bengal Commercial Taxes Tribunal in revision. The Tribunal by its order dated May 5, 1988, allowed the revision application in part on contest. Being aggrieved with that order the applicant has invoked the extraordinary jurisdiction of this Tribunal by filing the present application under Section 8 of the West Bengal Taxation Tribunal Act, 1987.
2. The case of the applicant in brief is as follows :
The applicant-company carries on the business of manufacturing and selling beer in bottles and is registered as a dealer under the Bengal Finance (Sales Tax) Act, 1941, and also under the Central Sales Tax Act, 1956. The applicant sells beers in bottles raising separate invoices–one for the beer simpliciter and another for the deposit of the price of bottles with a stipulation for return of such containers or bottles to the applicant within a period of four months from the date of supply. In the event of purchasers failing to return the empty bottles, the deposit with the petitioner stands forfeited. If and when such empty bottles are returned, the corresponding value thereof kept as security is forthwith refunded. There was never any agreement or contract or any transaction of sale or purchase of such container/bottles which the customers were obliged to hold in possession for a limited time as a mere bailee without any right or title or interest therein. The deposits for empty bottles kept by the applicant do not represent sale proceeds of any goods and such deposits do not consitute part of sale price or turnover within the meaning of the Bengal Finance (Sales Tax) Act, 1941 (hereinafter called “the BFST Act”), or the Central Sales Tax Act, 1956. It is further the case of the applicants that their right to forfeit the deposits furnished by its customers was an “actionable claim” within the meaning of Section 3 of the Transfer of Property Act. As such, the empty bottles are excluded from the definition of “goods” contained in Section 2(d) of the BFST Act and the Central Act. The value of such bottles could not be validly charged to tax. There was never any agreement, contract or understanding between the applicant and its customers for sale of bottles as chattel qua chattel. The levy of tax thereon was thus misconceived and without any jurisdiction. The respondents exceeded their lawful jurisdiction in adding to the applicant’s turnover the sum of Rs. 16,55,355 being the value of bottles not returned by customers resulting in forfeiture of such amount during the four quarters ending March 31, 1975. The respondents also exceeded their lawful jurisdiction in levying tax on export pass fee (Rs. 17,472) from the customers outside the State of West Bengal. In terms of the West Bengal State Government Notification No. 1617-EX dated September 29, 1970, the selling dealer was required to deposit in advance a certain amount as export pass fee with the excise department of this State and such fee was recoverable by the selling dealer in the event of the liquor being sold to parties outside the State. Such export pass fee was recovered from such buyers separately having no nexus to the sale price of liquor. On such averments the applicant has prayed for a direction to the effect that no tax could be levied on deposit of bottles to be returned to the applicant and also on the export pass fee paid by the applicant.
3. In support of the contentions raised in the application under Section 8 of the West Bengal Taxation Tribunal Act, the applicant has referred to several decisions of the Supreme Court and other High Courts which we shall have occasion to consider in the course of our judgment.
4. The respondents have opposed the application by filing an affidavit-in-opposition. The substance of the case of the respondents may be briefly put thus :
From the sample invoices filed by the applicant, it is apparent that they were raised in respect of the selling transaction of sale comprising 848 dozen of bottles of beer. The contention that the security deposits in respect of bottles is an actionable claim within the meaning of Section 3 of the Transfer of Property Act, is unfounded. There was no regularity of return of the goods, namely, the bottles, within a certain period of time as is commonly stipulated in a contract of bailment which is absent in the transactions entered into by and between the applicant and the purchasers. In the event of bottles being returned, the amount received as sale price of bottles, results in the reduction of the overall sale price of the goods and a rebate is allowed on such sales. The amount said to have been kept as deposit has a nexus to the purchase price of the goods and whenever the price escalates, a corresponding rise in the amount of deposit is also made. Therefore, while the total amount kept as deposit may not represent sale proceeds in respect of the bottles, the amount forfeited by the applicant definitely represents proceeds of sale price and is exigible to tax. Whenever a customer returns the containers, the refund of the security deposit by the applicant amounts to a discharge of its obligation to pay back the price of the bottles in terms commonly known in trade practice as “buy back system”. It is conceded, however, that if the amount is refunded on account of its export pass fee, such amount should be deducted from the taxable turnover. On such averments the respondents have refuted the claim of the applicant and prayed for the dismissal of the application.
5. The points that fall for our consideration are :
(i) Whether the price of bottles in which beer is sold and in respect of which a security deposit is kept by the applicant, really forms part of the sale proceeds where the bottles are not returned and the security money is forfeited ;
(ii) whether any tax is leviable on the export pass fee realised from customers outside the State of West Bengal.
6. We take the last point first. The amount involved on this count is only Rs. 17,472. It appears upon a perusal of the application that the selling dealer, namely, the applicant, is required in terms of Government Notification No. 1617-EX dated September 29, 1970, to deposit in advance a certain amount as export pass fee with the excise department and such fee was recoverable by the selling dealer in the event of the liquor being sold to the parties outside the State.
7. It appears from the order of the appellate authority, namely, the Assistant Commissioner, Commercial Taxes, Chowringhee Circle, dated March 21, 1983, that the appellate authority proceeded on the footing that the duties and the indirect taxes payable by the seller and recovered from the buyer will constitute a part of the sale price. The appellate authority further observed that there was no evidence to show that the export pass fee is payable by the purchasers and not by the seller, and that these are paid directly by the purchaser into the treasury before recovery of goods from the distillery or bonded warehouse. The question of exigibility of levy of export pass fee was the subject-matter of Civil Rule No. 2257-W of 1974, of the Calcutta High Court. The High Court quashed the levy of the fee as being illegal. A xerox copy of the judgment in the said Civil Rule has been made an annexure to the application being annexure D. The Commercial Taxes Tribunal in revision observed that pursuant to this decision, the petitioner refunded some amounts of export pass fee to the purchasers outside the State. In support of the observation, the Tribunal referred to the export pass fee account in the ledger. The Tribunal while holding that the export pass fee was a part of the total consideration passing from the buyer to the seller for sale of goods, however, found that the applicant-company was entitled to a deduction of that amount (Rs. 4,368) which he had actually refunded to the outstation purchasers. The decision in the case of Anand Swamp Mahesh Kumar v. Commissioner of Sales Tax reported in [1980] 46 STC 477 (SC), lays down the law on the subject in unequivocal terms. The decision lays down that where a dealer is authorised by law to pass on any tax payable by him on a transaction of sale to the purchaser, such tax does not form part of the consideration for the purposes of levy of tax on sales or purchases but where there is no statutory provision authorising the dealer to pass on the tax to the purchaser, such tax does form part of the consideration when he includes it in the price and realises the sum from the purchaser. The essential factor which distinguishes the former class of cases from the latter class is the existence of a statutory provision authorising a dealer to recover the tax payable on the transaction of sale from the purchaser. In the instant case before us there was no evidence to indicate as to what the statutory provision is regarding the liability to pay the tax, namely, the export pass fee. The applicant in his application has referred to the case of Commercial Tax Officer v. Trilok Chand [1987] 67 STC 432 (Raj). That, however, was a case relating to cess and it was found on facts that the liability to pay the same was on the purchaser and not on the seller of the goods. In the case before us it has been difficult for us to come to any positive finding with regard to whose liability it was. If the department considers that it is the liability of the dealer, namely, the applicant, the burden of proof of such liability lay on them. It is significant to note that while the applicant claims that the export pass fee was really payable by the purchaser, but that in order to facilitate the transaction it was deposited in advance by the selling dealer and subsequently realised from the purchasers, and that never forms part of the consideration of the sale price, the respondents in their affidavit-in-opposition, have stated that there being no evidence showing that the export pass fee was payable by the purchaser, the authorities below came to the conclusion that sales tax was payable on that component of the sale price which was charged on the purchaser as export pass fee. As we have already indicated that the burden of proving the liability is on the department and it is no answer to say that the applicant had not produced any evidence. This apart, in view of the decision in Civil Rule No. 2257-W of 1974 of the Calcutta High Court, at the instance of the applicant, quashing the levy of the fee as being illegal, the Tribunal below has permitted deduction of the actual amount refunded. That being the position, we think that in the state of the evidence on record, the department has failed to establish that the levy of the sum of Rs. 17,472 on account of export pass fee is justified. The second point, therefore, is found in favour of the applicant.
8. The first point that falls for consideration is, however, a point presenting considerable difficulty. In view of some conflicting decisions on the subject, it may be convenient to recapitulate all the rival contentions of the parties once again for a proper appreciation of the point. The applicant sells beer in bottles. He charges a price for the beer and keeps a security for bottles in which the beer is sold. According to the applicant the security for the bottles is refundable as and when the bottles are returned and as such, the security deposit is not a consideration for sale of beer in bottles and not, therefore, exigible to tax. The case of the respondent, on the other hand, is that the dealer was actually charging a price for the bottles though under the guise of a security deposit. Their contention is that it is not a case of bailment–there being no time-limit for return of the bottles and there being no obligation on the part of the purchasers to return the bottles. The learned Advocate appearing for the applicant, argued that the security deposit could not form part of the sale price and that, at most, it could be an actionable claim within the meaning of Section 3 of the Transfer of Property Act. Actionable claim means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant which the civil courts recognise as affording grounds for relief whether such debt or beneficial interest be existent, accruing, conditional or contingent. The security deposits kept by the applicant, and which the applicant forfeit on the failure of the purchasers to return the bottles, do not, in our view, come within the meaning of actionable claim. It is not clear from the nature of the transaction as to who would be entitled to lay the claim and against whom. The applicant has relied upon several decisions in support of their contention that the security deposit could not be a part of the sale price and could not, therefore, be subject to levy of sales tax. In support of such contention, reliance was placed on the case of Britannia Biscuit Co. Ltd. v. State of Maharashtra [1983] 53 STC 179 (Bom). It was held in that case that the assessee had charged separately for biscuits and collected sales tax only on the price of biscuits. They had shown the amount of deposits collected for the tins separately in the invoice. They had also incurred an obligation to accept the tins which were returned and to refund the amount of deposit. In such a situation it was held that the bargain between the parties was in the nature of a bailment of tins rather than a sale of tins. Another case referred to was reported in [1986] 62 STC 61–a decision by Single Bench of the Calcutta High Court in the case of Indian Explosives Ltd. v. State of Bihar. The only question that arose for determination was whether the cost of freight or delivery of naphtha could be included in the sale price as defined in Section 2(h) of the Central Sales Tax Act or not for the purpose of exigibility of sales tax. It was held that the clauses of the agreement indicated that the freight charged was an identifiable and separate element and did not form part of the composite sale price. Another case relied on by the applicant–Girdhari Lal Nannelal v. Sales Tax Commissioner [1977] 39 STC 30 (SC), is on a different point altogether. There the assessing authority treated a cash credit entry of Rs. 10,000 in the account books of the appellant-firm in the name of the wife of one of the partners as income of the appellant out of concealed sales and added Rs. 1 lakh to the turnover of the appellant on the basis that the sum of Rs. 10,000 represented 10 per cent of the profit The explanation given by the appellant was that the sum of Rs. 10,000 was given by a partner of the firm to his wife, that the amount was lying with her and had been deposited by her with the appellant. The sales tax authorities did not accept the explanation. The High Court also was not satisfied with the explanation and inferred that the amount reflected profits of the business out of sales not entered in the account books. On appeal to the Supreme Court, it was held that in order to impose liability upon the appellant for payment of sales tax by treating the sum of Rs. 10,000 as profits arising out of undisclosed sales, two things have to be established :
(i) the amount was the income of the appellant, and not of the partner or his wife ;
(ii) the amount represented profits from income realised as a result of transactions liable to sales tax and not from other sources.
It was further held that the failure on the part of the partner or his wife to furnish satisfactory or reasonable explanation could not have the effect of discharging the onus of proving both the ingredients by the respondent. It was necessary to produce more materials in order to connect the amount with the income of the appellant as a result of sales. The decision in the case of Dyer Meakin Breweries v. Commissioner of Sales Tax [1972] 29 STC 69 (All.) and McDowell’s case reported in [1980] 46 STC 79, of the Kerala High Court were also referred to. In these cases it was held that the deposits for bottles were separately invoiced and differently treated and on the nature of such transactions the amount could not be recorded as a part of the sale price. In the case of State of Tamil Nadu v. McDowell and Company Ltd. [1980] 46 STC 85, the Madras High Court held that the deposits were collected as a mere safeguard against the contingency of the bottles not being returned and that the deposits, therefore, retained only the character of deposits and were not the sale price of the bottles.
9. In our view the decision in the case of Punjab Distilling Industries Limited v. Commissioner of Income-tax reported in [1959] 35 ITR 519 (SC), is more to the point. The facts there were as follows :
The assessee carried on business as a distiller of country liquor and sold its produce to wholesalers. After the war, difficulty was felt in finding bottles. Government devised a scheme whereby the distiller was entitled to charge the wholesalers a price for the bottles at rates fixed by the Government which he was bound to repay when the bottles were returned. In addition to this the assessee took certain further amounts described as security deposits on account of bottles. The amount was returned as and when the bottles were returned. The price of bottles received was entered in its general trading account and the additional sum was entered under the heading “empty bottles return security deposit account”. It was held that in realising the additional amount described as security deposit the assessee was really charging an extra price for the bottles, and the amount was a part of the consideration for the sale of liquor and was part of the price of what was sold. It did not make any difference that the additional amount was entered in a separate ledger termed “empty bottles return security deposit account” for, what was a consideration for the sale did not cease to be so by being written up in the books in a particular manner. The wholesalers were under no obligation to return the bottles. There could be no security given for the return of the bottles unless there was a right to their return. It was further held that the additional amounts taken as security were an integral part of the commercial transaction of sale of liquor in bottles. The balance of the additional sums left after refund was assessable to tax. Their Lordships particularly noted that no time-limit was fixed for the return of the bottles and there was no obligation to return the bottles.
10. This case, therefore, lays down the principle that an amount kept in the name of security, becomes a part of the commercial transaction of sale to the extent it remains in the hands of the seller after refunds, if any. The case is sought to be distinguished on the plea that it was a case under the Income-tax Act and considerations for the purposes of income-tax and sales tax are different. Assuming that it is so, it may be stated that the decision at least lays down the principle that the security deposits under such circumstances, form part of the commercial transaction of sale.
11. In the instant case before us, only one invoice, annexure B, has been produced. The invoice is in two parts–one for the price of the liquor and the other on account of deposits on bottles. There is nothing to indicate in the invoices as to any time-limit within which the bottles are to be returned. In view of the decision in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax [1959] 35 ITR 519 (SC), it may be held, in the circumstances, that there was no obligation to return the bottles.
12. The decision in the case of Arlem Breweries Ltd. v. Assistant Commissioner of Sales Tax reported in [1983] 53 STC 172 [Bombay High Court (Panaji Bench)], is in a case on the point now before us. There the petitioners were manufacturers of bottled beer. The Sales Tax Officer assessed the petitioner on the price of beer and bottles on the basis of sales being of bottled beer at the rate applicable under item 22 of the First Schedule to the Goa, Daman and Diu Sales Tax Act. The Sales Tax Officer took into consideration for levy of sales tax towards the sale price of bottles only that net amount remaining with the dealer as on 31st March of each year after refund on account of return of bottles. It was held that the agreement by the assessee with the wholesalers did not create any obligation on the purchasers to return the bottles nor did it fix any time-limit for their return. It was further held that the amount taken from the purchasers towards bottles though termed as deposits, was the sale price thereof. But the assessee would be liable to pay sales tax only in respect of the unrefunded amount. In arriving at the decision reliance was placed in the case of Punjab Distilling Industries Limited [1959] 35 ITR 519 (SC), referred to above.
13. The applicant has filed a certified xerox copy of the case of Raj Sheel v. State of A.P. [1989] 74 STC 379 (SC). This was a case which their Lordships of the Supreme Court remitted to the High Court for further investigation on certain points. In this case the decision in the case of Arlem Breweries Limited v. Assistant Commissioner of Sales Tax [1983] 53 STC 172 (Bom), referred to earlier was cited. The observation of the Bombay High Court to the effect that the payment of an amount for the bottles in advance constituted the sale price of the bottles although described as a deposit, was not reversed.
14. Upon a consideration of the principles laid down by the Supreme Court in the case of Punjab Distilling Industries Ltd. [1959] 35 ITR 519, it appears to us that the forfeited amounts of the security deposits are exigible to sales tax being a part of the transaction of sale. In the case of Hindustan Sugar Mills Ltd. [1979] 43 STC 13, the Supreme Court has observed that the expression “sale price” meant the amount payable to a dealer as consideration for the sale of any goods. The question is what is the consideration passing from the purchaser to the dealer for the sale of the goods ? It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to be considered is as to what is the amount payable by the purchaser to the dealer as consideration for the sale. This judgment, however, came to be reviewed later by the Supreme Court ([1980] 45 STC 194), but that was entirely on a different point. The contention of the applicant that the transaction was in the nature of a bailment, does not appeal to us. Bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. In the instant case, there is nothing to indicate that there was any contract for return of the bottles. The invoice does not show any direction on the purchaser to deliver them to the seller. The bailee’s duty to deal with the goods according to the bailer’s orders is incidental to the contract of bailment. In the case before us, as we have already indicated, there is nothing to in the invoice as to the existence of any order of the bailer upon the bailee to deal with the goods in a particular manner. In fact, it is a case of a sale of the beer and bottles. The security deposit for the bottles appears to us to be merely a device to avoid tax liability. The transaction has all the ingredients of a sale. Therefore, in our view, the unrefunded portion of the security deposit constitutes price of the bottles sold and remaining at the hands of the assessee-applicant. In course of the arguments it was conceded that the quantity of bottles refunded is negligible. The applicant did not produce their account books to show what percentage of bottles was refunded although they had offered in their application to produce the books at the time of hearing.
15. It seems to us that the nature of the transaction was such that return of bottles could hardly be expected. The manufacturer-dealer sells to wholesalers, the wholesalers sell to retailers and the retailer sells to the ultimate consumer. In such a situation it is difficult to conceive that the bottles would be returned to the original seller in the same reverse process by which it came to the eventual consumer. If, in some cases, bottles were returned and corresponding value returned therefor, the transaction remained a transaction of sale. The refund in such cases must have to be treated as a rebate or discount. Consequently, the amount refunded, will be excluded from sale price ; but the amount forfeited must have to be treated as part of sale price and, therefore, liable to levy of sales tax.
16. Upon a consideration of all the materials before us, we find that the export pass fee paid by the applicant in advance amounting to Rs. 17,472 is liable to be deducted from the turnover for the relevant year. As regards the security deposits, we find that so much of the security deposits as are remaining in the hands of the applicant after refund, are liable to be treated as sale price of bottles and consequently liable to levy of sales tax thereon.
17. The case, therefore, succeeds in part. There will be no order as to costs.
P.C. Banerji, Member (T)
18. I agree.
L.N. Ray, Member (J)
19. I agree.
