Case: State of Maharashtra, Bombay and Ors Vs. Britannia Biscuits Co. Ltd. and Ors

alia is that where the goods are delivered to the buyer on terms similar to the delivery of goods on approval or "on sale or return", the property in the goods therein passes to the buyer, if he does not signify his approval or acceptance and also does not return the goods within the time prescribed therefor. According to the said principle, the position of the purchaser, until he returns the goods within the prescribed period, is that of a bailee and on the expiry of the said period, he becomes a purchaser. Where however, the person to whom the goods ar delivered is under an obligation to return the goods, there is no question of sale ever coming into being and the person to whom the goods are delivered remains a bailee. The transaction herein is in its nature nearer to the situation contemplated by and to the principle of Section 24 - inasmuch as the tins were delivered to the buyer with the stipulation that if he returns the tins in which the biscuits were sold in good condition within three months, he will get back the deposit kept by him in that behalf. It meant that after the expiry of the said period, he had no right to claim the refund on return of goods. The transaction then became a sale. As stated above, the customer was under no obligation to return, as explained hereinbefore; he had a right to return the tins in good condition within three months. Correspondingly, the respondent-assessee was under an obligation to refund the deposit amount if the tins were returned within three months in good condition; after the expiry of three months, the respondent was under no such obligation though it may be that for his own business or other reasons, he may yet accept the return of the tins and refund the deposit 20. Mr. Vellapally, learned counsel for the respondent submitted that for constituting the "sale price" as defined by the Act, there must be a specific sale of goods to a specific buyer and that on the approach adopted by the Assessing authority and the First Appellate Authority (whereunder sale of tins is held to have taken place at the end of the accounting year when the respondent made the entries in his books) no such specificity is identifiable. In the absence of such identification of the sale and the purchaser, the learned counsel submitted, the "sale price" cannot be ascertained. The said contention is unacceptable in the facts of this case. From the facts set out in the judgment of the High Court, it appears that each customer/purchaser (evidently all of them were wholesalers) had an account with the respondent and when a particular number of tins were supplied to a customer, an entry was made to that effect in that customers account in the account books of the respondent besides making an entry in the other relevant account books of the respondent. It is further recorded in the judgment that when the customer returned the tins, a reverse entry was made in the customers account as well as in the relevant account books of the assessee. If so there could be no difficulty in identifying the customer who failed to return the tins. The submission of Mr. Vellapally is thus without a factual foundation 21. To test the validity of the contention urged by Mr. Vellapally, we put to him a straight question, viz., if the deposit amount appropriated by the respondent to its P & L account, treating it as a trading receipt, is not a sale price, then what is its nature ? The answer of the learned counsel was that it is compensation or damages for breach of obligation to return the tins by the purchaser/customer. But once we hold that thee was no such obligation, then the said trading receipt cannot be anything but sale price. No other label could be suggested for it 22. Mr. Vellapally relied upon the decision of this Court in Raj Steel v., State of A. P. in support of his propositions. The said decision lays down, following the earlier decision of this Court in Hyderabad Deccan Cigarette Factory v. State of A. P. that the question whether there was a sale of container along with the contents is not a question of law but one of fact and that the said question has to be decided in each case having regard to the facts of that particular case. But while determining this question the Court should not be led away by the manner in which the assessee has made entries in its own account books but must look to the substance of the transaction and decide what in truth and in reality it amounts to. This is approach and opinion both of the High Court as well as the Special Bench of the Tribunal. As held by us hereinbefore, this was a composite transaction; in case of non-return of the tins within three months it became a sale of the unreturned tins 23. We may mention in this connection that the decision of the Bombay High Court (Goa Bench) in Arlem Breweries ( 1983 (53) ITR 172 (Bom)) referred to and distinguished in the judgment under appeal has been noticed by this Court in Raj Steel In our opinion, just as in Arlem Breweries ( 1983 (53) ITR 172 (Bom)), in this case too, payment of an amount for the bottles in advance (called deposit) was a terms of the sale 24. We do not think it necessary to refer to various decision of the High Courts referred to in the judgment under appeal or to other decisions brought to our notice for the reason that each of those cases turned upon the terms and the language of the arrangement/transaction between the parties. We reiterate that the question arising herein is not a pure question of law; it is a mixed question of law and fact

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]9. The true nature of the transaction has to be decided in this case on the following materialthe endorsements on the price lists as well as the invoices issued by the respondent; the fact that in respect of sales to dealers in the city of Bombay and its suburbs; invoices showed sale of biscuits only and not of tins; that sale tax was charged only on the sale price of biscuits and and that refundable deposit was collected for tins supplied. The manner in which entries were made by the respondent in its account books including thek deposit account are also said to be relevant facts; there is also the finding that the appellant used to refund the deposit even in cases where the tins were returned after the expiry of three months. Yet another relevant fact is that in respect of bulk of sales, tins were also sold along with the biscuits and that only in case of sales in Bombay and its suburbs that this different practice was being followed. It is on the above material that we have to determine the question at issue. But before we do that, it would be appropriate to refer to a few relevant provisions in the Bombay Sales Tax Act12. We agree with Mr. Vellapally, learned counsel for the respondent that there is a difference in the approach adopted by the Assessing and the First Appellate Authorities and the approach adopted by the Tribunal. While the former held that the sale of tins took place when the respondent made the entries in its account books at the end of the accounting year writing off half the balance amount outstanding in thek account, the Tribunal has understood the transaction between the parties as involving a sale of tins along with the biscuits and held that when the tins were returned and the deposit refunded by the respondent, it was a case of purchase of tins by the respondent. But what is of interest to note is that the question which was referred by the Tribunal for the opinion of the High Court seems to reflect the approach adopted by the Assessing and the First Appellate Authorities rather than the approach adopted by the Tribunal. In fact, if the approach and reasoning of the Tribunal is accepted, the question referred by the Tribunal for the opinion of the High Court cannot be said to arise from the order of the Tribunal within the meaning of Section 61 of the Bombay Act and need not be answered. The proper coursewhich is indeed the course adopted by the High Courtis to take the question as stated and to answer it, keeping aside the interpretation placed by the Tribunal upon the transaction. In other words, we have to and we do proceed to answer the question accepting the approach and reasoning adopted by the Assessing Authority and the First Appellate Authority. A reading of the judgment of the High Court establishes beyond doubt that it has proceeded on this basis alone. Indeed, it may not have been open to the Tribunal to make out a new case not put forward either by the assessee or by the Assessing Authorities. We shall, therefore, take the basis adopted by the Assessing and the First Appellate Authorities for determining the question that has arisen herein13. We also agree with the High Court that the question whether there has been a sale of tins at the end of the accounting yearor along with the biscuits themselveshas to be determined on the precise terms of the transaction between the respondent and its customers and that n this aspect the manner in which the respondent maintained its accounts or made entries therein is not very much relevantIn our opinion, neither the endorsement on the price list not the endorsement on the invoice can be said to create an obligation to return. All that the endorsement on the price list says is that the deposit will be refunded on the return of the tins in good condition within three months. Similarly the endorsement on the invoice stated that the Companys liability to return the value (note the word value) of returnable tins extends only up to three months. Of course a finding has been recorded that in practice the respondent was not adhering to the said timelimit. But it cannot be said that either the aforesaid endorsements or said practice the respondent created an obligation upon the customer to return the tins. It was left to his choice. If he thought it would be more advantageous to him to return the tins and get back the deposit amount, he could do soThe fact remains that when the tin was not returned the said deposit was treated as a trading receipt (by making necessary entries in its books) treating 20 per cent of the deposit amount as profit. In all these circumstances, we are unable to agree with the High Court that the transaction/arrangement/understanding between the parties created an obligation upon the purchaser/customer to return the tins. Mr. Joseph Vellapally submitted that inasmuch as all the tins supplied to the purchasers were treated as the stock of the respondent in its account books, it must be presumed that the purchasers were in custody of the respondents property which they were obliged in law to return. Acceptance of this contention, in our opinion, amounts to attaching undue importance to the entries in the account books of the respondent and to ignoring the true nature of the transaction16. In our opinion, the transaction in question is neither a bailment nor a pledge. It was a composite transaction. It was to start with an entrustment which could result in a sale of tins in case ofn of the tins. While entrusting the tins, the respondent took care to stipulate and receive the value of the tins and a little moreto be precise 20 per cent. If the tin was returned, well and goodthe transaction remained one of entrustment. But if not returned within 3 months, it became a sale as per the terms of the transaction. The fact that the respondent was receiving back the tins even after the expiry of three months and returning the deposits was more by way ofy a business decisionrather than a matter of right or an obligation19. The principle of Section 24 inter alia is that where the goods are delivered to the buyer on terms similar to the delivery of goods on approval or "on sale or return", the property in the goods therein passes to the buyer, if he does not signify his approval or acceptance and also does not return the goods within the time prescribed therefor. According to the said principle, the position of the purchaser, until he returns the goods within the prescribed period, is that of a bailee and on the expiry of the said period, he becomes a purchaser. Where however, the person to whom the goods ar delivered is under an obligation to return the goods, there is no question of sale ever coming into being and the person to whom the goods are delivered remains a bailee. The transaction herein is in its nature nearer to the situation contemplated by and to the principle of Section 24inasmuch as the tins were delivered to the buyer with the stipulation that if he returns the tins in which the biscuits were sold in good condition within three months, he will get back the deposit kept by him in that behalf. It meant that after the expiry of the said period, he had no right to claim the refund on return of goods. The transaction then became a sale. As stated above, the customer was under no obligation to return, as explained hereinbefore; he had a right to return the tins in good condition within three months. Correspondingly, thee was under an obligation to refund the deposit amount if the tins were returned within three months in good condition; after the expiry of three months, the respondent was under no such obligation though it may be that for his own business or other reasons, he may yet accept the return of the tins and refund the depositFrom the facts set out in the judgment of the High Court, it appears that each customer/purchaser (evidently all of them were wholesalers) had an account with the respondent and when a particular number of tins were supplied to a customer, an entry was made to that effect in that customers account in the account books of the respondent besides making an entry in the other relevant account books of the respondent. It is further recorded in the judgment that when the customer returned the tins, a reverse entry was made in the customers account as well as in the relevant account books of the assessee. If so there could be no difficulty in identifying the customer who failed to return the tins. The submission of Mr. Vellapally is thus without a factual foundation24. We do not think it necessary to refer to various decision of the High Courts referred to in the judgment under appeal or to other decisions brought to our notice for the reason that each of those cases turned upon the terms and the language of the arrangement/transaction between the parties. We reiterate that the question arising herein is not a pure question of law; it is a mixed question of law and factIn our opinion, neither the endorsement on the price list not the endorsement on the invoice can be said to create an obligation to return. All that the endorsement on the price list says is that the deposit will be refunded on the return of the tins in good condition within three months. Similarly the endorsement on the invoice stated that the Companys liability to return the value (note the word value) of returnable tins extends only up to three months. Of course a finding has been recorded that in practice the respondent was not adhering to the said timelimit. But it cannot be said that either the aforesaid endorsements or said practice the respondent created an obligation upon the customer to return the tins. It was left to his choice. If he thought it would be more advantageous to him to return the tins and get back the deposit amount, he could do. On the other hand, if he found it more advantageous to retain the tins and forgo the deposit, it was equally open to him not to return the tins. (It is probably in view of this situation that the Tribunal understood and interpreted the transaction as involving a sale of tins along with the biscuits themselves, and a case of purchase of tins by the respondent when it received back the tins and refunded the deposit.) It must be remembered that sales of the respondent were spread all over the country and the normal practice was to sell the tin along with the biscuits contained therein and that it was also the most convenient and cheap method of selling the biscuits by the respondent. The sales within the city of Bombay and its suburbs represented only a small portion of its total volume of sales. It is only in the case of this small portion of its sales that the respondent followed a different practice aforesaid. Another circumstance to be kept in mind in this behalf is that the deposit amount stipulated, received and kept by the respondent was always a little higher (by 20 per cent as we shall indicate later) than the value of the tin. May be, this was done to induce the customer to return the tin, or may be the respondent was careful enough to provide for the consequences of, including the possibility of the transaction being treated as a sale and taxed as such.The fact remains that when the tin was not returned the said deposit was treated as a trading receipt (by making necessary entries in its books) treating 20 per cent of the deposit amount as profit. In all these circumstances, we are unable to agree with the High Court that the transaction/arrangement/understanding between the parties created an obligation upon the purchaser/customer to return the tins.