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

3. The assessee is a manufacturer of biscuits. It is a registered dealer both under the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act, 1956. The biscuits manufactured by the respondent are sold in tins. In respect of the biscuits sold outside the city of Bombay and its suburbs, the price charged by the respondent includes the cost of tins in which the biscuits are sold but insofar as the city of Bombay and its suburbs are concernedwith which sales alone we are concerned hereinthe respondent followed a different practice. While selling the biscuits in tins, it collected the price of biscuits alone and so far as the tins in which biscuits were sold, it took a refundable deposit with the stipulation that if the tin is returned within three months in good condition, the deposit shall be returned. These deposits were credited to "Deposit account : returnable tins". The tins so supplied to purchasers were shown as the stock of thee in its account books, but debited in the customers account. When the tins were returned, a reversal entry was made in both the account. Sales tax was charged only on the sale price of the biscuits but not on the deposit received in respect of the tins. Indeed in respect of the city of Bombay and its suburbs, a separate price list was issued by the respondent. The price list carried an endorsement : "(A) Deposit of Rs. 5.50 for LB tins and Rs. 3.50 for LS tins will be charged at the time of supply, which will be refunded on return of tins in good condition within 3 months from date of supply". In the invoices issued by the respondent, there was a separate column showing the number of tins supplied to the purchaser and the amount of deposit received from him in that behalf. At the top of the invoice the following endorsement occurred : "Dealers are informed that the Companys liability to refund the value of returnable tins extends only up to three months from the date of the invoice." It has however been found by the High Court that notwithstanding the endorsement on the price list as well as on the invoice, the respondent was in fact receiving the tins returned even after the expiry of three months and refunding the deposit amount4. For the assessment year, the respondent received a total deposit amount of Rs. 12, 97, 229.05 paise. Out of the said amount, Rs. 11, 29, 202.00 was refunded to the customers on receiving back the tins. At the end of the accounting year, a balance of Rs. 1, 68, 027.05 paise was left outstanding. As per the accounting practice followed by the respondent in this behalf, the assessee wrote off 50 per cent of this amount, viz., Rs. 84, 013 reducing the correspondingk account to that extent. The said amount was treated as a trading receipt and was transferred to PL account. This amount represented the value of the tins which the respondent thought were not likely to be returned. The balance amount of Rs. 84, 013 was shown as the value of the closing stock of tins (and was shown as the opening balance in the next years account)5. In the assessment proceedings relating to the said assessment year, the Assessing Authority included the sum of Rs. 84, 013 (the amount written off by the respondent in thek account and transferred to its PL account) in its taxable turnover. He treated the said amount as the sale price of tins not returned. The said inclusion was questioned by the respondent in appeal before the Assistant Commissioner of Sales Tax. The appeal was dismissed. The respondent carried the matter in second appeal to the Tribunal. The Bench which initially heard the appeal referred the following question to a larger Bench"Whether on the facts and in the circumstances of the case, the amount of Rs. 84, 013 represents the sale price of tins supplied by thes and not returned by the customers during the period of assessment in question." *6. The Special Bench of the Tribunal answered the question in favour of the Revenue and against the respondent following which the respondents appeal was dismissed. At the instance of the respondent, the Tribunal referred the following question for the opinion of the High Court : "[W]hether on the facts and circumstances of the case, the Tribunal was justified in law in holding that the book entry of Rs. 84, 013 representing 50 per cent of the closing balance of the tin deposits left on8 written off from the account stock of tins on the probablen of the tins by customers constitutes sale price ?7. The High Court was of the opinion hat the arrangement between the respondent and the purchasers (from the city of Bombay and its suburbs) was one of bailment insofar as tins were concerned and not a transaction of sale. It held that according to the said arrangement "there is an obligation on the assessee (respondent) to accept the tins returned and a corresponding obligation on the customer to return the tins." Accordingly it held that"the amount of deposit in the hands of they at the end of the assessment year which is written off by the assessees on a notional basis cannot be treated as price of tins sold and is not exigible to sales tax." *The High Court did observe that the manner in which accounts are maintained by assessee or entries are made in their account book is not conclusive of the matter and that the true nature of the transaction has to be determined on the basis of the precise arrangement between the parties. It referred to various decisions of the High Courts cited by both the sides and distinguished them holding that the decision in each of those cases turned upon the precise terms of arrangement/agreement between the parties. In particular it distinguished the decision of that very Court (Goa Bench) in Arlem Breweries Ltd. v. Asstt. CST ( 1983 (53) ITR 172 (Bom)) on the ground that in that case"the terms of the sale did not contain any obligation on the purchaser to return bottles nor was there any time prescribed for such return. The payment of deposit for bottle in advance was a term of the sale. The petitioners had also no control over the return of the bottles which would be sold by the wholesalers to retailers and by the retailers to consumers." *

Court's reasoning:
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.