United Breweries Limited v. State of Andhra Pradesh
AIR 1997 SC 1316
The assessee (the appellant) sold beer in bottles and crates. With regard to the sale of beer, a scheme was framed under which the assessee collected the sale price of beer and also deposits for the crates and the bottles so as to keep down the cost of Beer. The customers, in turn, would sell beer to the consumers and apart from the price of beer will recover 40 paise per bottle as deposit to ensure return of the bottles. The bottles will ultimately be taken back by the assessee and the trucks will be sent and the credit notes will be given to the customers for return of the empties. The Commercial Tax Officer held that since the customers did not always return the bottles and crates and these were higher in value than the amounts deposited as security, the taxable turnover had to be computed by the value of the bottles also.
ISSUE: Whether the transaction was an out and out sale, or a case of bailment?
The Tribunal was of the view that there was no bailment of the bottles and the crates and there was no contractual obligation on the part of the customers to return the bottles and the crates.
- The ownership in the bottles and crates did not remain with the UB when beer was sold.
- When bottles and crates were returned to the extent shown by the assessee, in law, there was a resale of bottles and crates to the assessee.
- UB did not have any right to the return of the bottles and crates nor was there any time- limit set for return of the bottles and crates.
- When beer was sold, bottles and crates were not sold to the customers and they were required to return it so that the process of bottling beer could continue smoothly and steady supply could be maintained.
- Two circulars were issued by the assessee clearly explaining the scheme to their customers as to how payments were to be made apart from the notice that they would be assured of better supply, if the scheme was adhered by the customers; otherwise the company expressed difficulty in supplying the liquor”. This made their intention clear.
- A substantial part of the bottles was returned by the consumers and deposits were returned to the selling agents.
- When beer was sold in bottles and dispatched in crates to the customers by UB, an out and out sale of the bottles and the crates took place.
- The customers had an option to retain the bottles and use them as they liked. There was no contractual obligation to return the bottles to UB within any specified period of time. Returning of bottle was just resale.
- The very fact that UB had a right to forfeit the deposits on the failure of the customer to return the bottles indicates that the bottles were sold.
- Punjab Distilling Industries Ltd. v. The Commissioner of Income Tax, Simla  is applicable in which the sums paid to the appellant and described as “security deposit” were trading receipts and, therefore, were assessable to tax.
Held (S.C. Sen, J. & Ors.)
- (w.r.t 1st contention of the respondent ) Whether the bottles and the crates were sold along with the beer or not will depend upon the intention of the parties. The facts of this case reveal that UB did not intend to sell the bottles or the crates to the customers, on the contrary UB was very anxious not to lose the bottles and crates in which the beer was supplied. 40 paise was charged as deposit and the customers were also advised to do likewise when they sold the beer to the consumers. Therefore, an out and out sale of the bottles did not take place when beer was supplied in bottles by UB to its customers
- Section 24 of SOGA cannot be applied as s.24 is subject to the provisions of Section 19 which provides that the property in specific or ascertained goods is passed to the buyer only at such time as the parties to the contract intend it to be passed.
- (w.r.t 2nd contention of the respondent) Agreed, no time limit was fixed for return of bottles in this case; but, even if it had been fixed, it is well settled that time is not of the essence of the contract unless the parties specifically make it so. Section 11 of the SOGA gives statutory recognition to this principle. (This aspect of the matter was overlooked in Britannia Biscuits Co.’s case.)
- (w.r.t 3rd contention of the respondent) The deposit amount which was liable to be forfeited on failure of the return of bottle was in the nature of liquidated damages recoverable by the supplier under Section 74 of the Contract Act.
- (w.r.t 4th contention of the respondent, case explained) The buy-back scheme was devised by the Government due to scarcity of bottles. Under this scheme, a distiller on a sale of liquor became entitled to charge the wholesaler a price for the bottles in which the liquor was supplied at rates fixed by the Government. Therefore, not only a sale of liquor took place but under “buy-back” scheme, the bottles were also sold. The supplier was bound to repay the wholesaler the price as and when the bottles were returned. Therefore, there could not be any doubt that under the “buy-back” scheme the bottles were being sold in the first instance and bought back later on.