Case: United Breweries Limited Vs. State of Andhra Pradesh

This case along with a number of other cases was heard by S.P. Bharucha and Faizan Uddin, JJ. who passed the followingthe course of the arguments, the judgment of a bench of two learned judges in State of Maharashtra, Bombay &Ors. vs. Brittannia Biscuits Company Ltd. &Ors., 1995 Supp, 2 SCC 72 , has been cited. Our attention has also been drawn to the judgment of a bench of three learned judges in Punjab Distilling Industries Limited vs. Commissioner of Income Tax, Simla. Having regard to these judgments, we think that these appeals require the consideration of the larger bench. the larger bench may also take not of the judgment dated 11th September, 1996 in C.A. Nos. 11864- 67 of 1996, Commissioner of Income Tax, Madurai vs. T.V. Sundaram Iyengar &SonsUnited Breweries (hereinafter referred to as UB) supplies at Hyderabad two brands of beer - (1) U.B. Export Lager and (2) Sun Lager. The dispute between UB. and Andhra Pradesh Sales Tax Authority was as regards the crates and bottles in which the beer was supplied. The case of UB was that when beer was sold bottles and creates were not sold to the customers. The sale price of UB Export Lag er was Rs. 43.18 and Sun Lager Rs. 43.75 per dozen. The supplies were made to selling agents who deposited security of Rs. 4.80 for the bottles and Rs. 5.00 for the crates. These deposits were returned to the selling agents when the bottles and the crates were returned. This was the method or carrying on of the trade by the asessee and two circulars were issued by the assessee to explain the scheme to their customers. It was stated in the two circulars as to how payments for two brands of the beer were to be made. Additionally, it was stated that the "vendees to return bottles and crates and customers are assured of better supply, if the scheme is adhered by the customers; otherwise the company expressed difficulty in supplying the liquor"The scheme was explained to the taxing authorities. the Commercial Tax Officer verified the scheme and held that the customers did not always return the bottles and crates. The sale of bear included sale of the crates and the bottles. The Commercial Tax Officer was also of the view that the bottles and crates were higher in value than the amounts deposited as security. For these two reasons, it was held that the scheme was not genuine. Therefore, the taxable turnover had to be computed not only by taking into account the sale price but also the value of thecase ultimately went up to the Tribunal. The Tribunal was of the view that there was no bailment of the bottles and the crates and there was as contractual obligation on the part of the customers to return the bottles and the crates. The scheme, therefore, was not acceptable asthe case was taken up by UB to the High Court. Before High Court the contention of the Revenue was hat the mere fact that bottles and creates in which beer was sold could be returned did not mean that the customers had not purchased the bottles and the crates and had not become owners thereof. The bottles and crates were also vended to the customers along with the beer. The High Court held that the ownership in the bottles and crates did not remain with the UP when beer was sold. The customers purchased the bottles and the crates with the contents of rece ptacles. 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. The High Court referred to the decision of this Court in the case of Punjab Distilling Industries Ltd. v. Commissioner of Income Tax (A) (199) 1975 (35) STC 519, and pointed out that Up did not have any right to the return of the bottles and crates no was there any time- limit set for return of the bottles and crates. Therefore, it was a clear case where bottle and crates were sold along with beer and had to be included in the sale price.The assessee has come up in appeal against thiscase of the appellant is that the Company carries on business of manufacture and sale of beer. It sells beer to retailers and wholesale dealers throughout India. When the beer is sold the bottles and crates are not sold to the customers. The assessee follows the trade practice to sell the beer in bottles which are ultimately to be returned to the assessee after the beer is consumed. To ensure such return a deposit is collected from the customers. This deposit cannot be treated as sale proceeds in any way. It has been emphasised that the assessee has issued circulars to its customers making it clear that empty bottles and crates were not being sold. The bottles were to be returned so that the process of the bottling beer could continue smoothly and steady supply could be maintained. The system followed by the assessee was that upon the return of the empty bottles, fresh supplies would be made to the dealer. The assessee had submitted figures to show that a substantial part of the bottles was returned by the consumers. The attention of the Sales Tax Authority was also drawn to the circular issued by the assessee to its customers to the followingBREWERIES LIMITED, HYDERABAD, 24, Grant Road, P.B. 5104 Bangalore -1 Dear Sir , We are glad to inform you that our brewery at Hyderabad commenced operating on October 18, 1971 and we are not in a position to render the same service to you as we render the same service to you as we render to our valued customers in Bangalore viz., delivery of out beer at you door fresh from the Brewery every day.The brands can offer and their prices are as follows: U.B. EXPORT LAGER Rate per dozen Rs. 33.88 Refundable deposit on bottles Rs. 4.80 Refundable deposit on crates Rs. 5.00------------- TOTAL per dozen Rs. 43.18------------ SUN LAGER Rate per dozen Rs. 38.95 Refundable deposit on bottles Rs. 4.80 Refundable deposit on crates Rs. 5.00------------- TOTAL per dozen Rs. 48.75----------- Rebate for orders at a time of 40 dozen ad more of S un Lager only is Rs. 1.24 per dozen making the net price Rs. 47.50 pershould be booked at the office of Phipson &Co. Ltd. At 3-6-14/7, Himayathnagar, Hyderabad- 29 Full payment should be made at the above rates at the time of booking of orders. Cheques for UB Export Lager should be made in favour of United Breweries Limited and cheques for Sun Lager should be made in favour of Phipson &Co. Ltd. Delivery will be made on the following working day after booking of the order. Empty bottles and crates with customers will be taken back by our truck, the driver of which will issue a receipt, against which our Brewery will issue a Credit Note on production of which credit will be allowed for the deposit at the time o f booking of the next order. Please take back empty bottles from your customers and pay them 40 paise per bottle. This will reduce the cost of the beer and encourage them to by larger quantities fromopen delivery will be given, there will be no question of leakages. Further, as already stated above, the beer will be delivered to you fresh every day. Not only will this simplify you business but you will build up a very good turnover in beer just like very every one of our customers in Bangaloe. This arrangement will be particularly of great advantage to you during the hor weather when there is a large demand for beer. We hope you will easily visualize the tremendous benefit Hyderabad and extend you kind patronage to you mutual benefit."Four thins emerge from this circular set out herein- (1) The refundable deposits were being collected on the bottles and the crates. (2) The appellant advised its customers to collect forty paise per bottle from the consumers as deposit. (3) The customers were advised to collect the empty bottles from the consumers and return them to the appellant. (4) The empty bottles and crates were to be taken back by the trucks of the appellant, the drivers of which were authorised to issue a receipt for the empties against which the appellant would issue credit notes. At the time of the booking of the next consignment, the customers would get advantage of the creditarrangement suggests a continuous process by which the appellant will sell beer to its customers in bottles and crates and collect the sale price of beer and also deposits for the crates and the bottles. The customers, in their turn, will sell beer to the consumers and apart form the price of beer will recover forty paise per bottle as deposit to ensure return of the bottles. The bottles will ultimately be taken back by the appellant for which the trucks will be sent and the credit notes will be given to t he customers for return of the empties. This scheme of recycling the bottles and crates will keep down the costs and ultimately will have effect of reducing the price of beer and encouraging the customers to by beer in larger quantities.

Court's reasoning:
Having regard to the facts of this case, we are of the view that an out and out sale of the bottles did not take place when beer was supplied in bottles by UB to its customers against the deposits which had to be refunded when the bottles were returned. Having regard to the scheme and the nature of the transactions, we are of the view that the High Court was in error in holding that when beer was sold in bottles, not only beer but also the bottles were sold and the price of beer along with the deposits became exigible to salese unable to uphold this contention. Whether the bottles and the crates were sold along with the beer or not will depend upon the intention of the parties. we have set out the terms and conditions under which the beer was sold and it does not appear from these terms and conditions that UB intended to sell crates and bottles to the customers. On contrary it was very anxious to get back these crates and bottles in order to use them again for further supplies. The fact that UB advised customers to charge similar deposits from consumers and get back the bottles from them goes to show that an out and out sale of the bottles had not taken place. By taking the deposits UB merely ensured the return of the bottles and the crates. A deposit of forty paise per bottle was taken to ensure return of the bottles. In our view, 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. An overall view has to be taken of the dealings and transactions between the manufacture of dealing and transactions between the manufacturer of the beer, its customers and the consumers. The intention of UB does not appear to have been to sell the beer bottles. Not was there any intention of the retailers to sell the bottles to the consumers. On the contrary, by the terms and conditions of the agreement UB was trying to ensure that the bottles in which the beer was supplied to the consumer through their customer were brought back to it so that they could be used again for fresh supply of beer at a cheapthe present case also the customers clearly know the price they will have to pay for the beer. they are required to pay an additional amount by way of deposit for taking away the bottle which refunded if the bottle is returned. It the bottle is not returned, the deposit is retained as liquidated damages for the loss of the bottle. There is a clear intention not to sell the bottle. Hence, we are of the view that the deposit cannot be considered as price of theare of the view that the High Court was in error in holding that the crates and the bottles were sold along with the beer. In the facts of this case, the deposits could not be treated as the price of the bottles and the crates.