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Dyer Meakin Breweries v. Commissioner Of Sales Tax, U.P
Structured Summary of the Opinion (Dwivedi, J.)
Factual and Procedural Background
The Judge (Revisions), Sales Tax referred the following question to the court:
“Whether under these circumstances the amount of deposit of these containers which remained unrefunded because of the non-return of the containers can be treated to be the turnover about the sale of these containers in the regular course of business of the applicant-dealer or not?”
Procedural history: The reference was earlier heard by another two-judge Bench which directed the Judge (Revisions) to submit an additional statement of the case. The Judge (Revisions) submitted the additional statement and the matter was reheard by the present Bench.
Facts (as stated in the opinion): The assessment year is 1958–59. The assessee is M/s. Dyer Meakin Breweries Ltd. (now Mohan Meakin Breweries Ltd.), a dealer in beer, rum and country liquor. In that year:
- Beer and country liquor were supplied in glass bottles; rum was supplied in wooden casks.
- At the time of each supply the assessee received from purchasers a sum as a deposit for each bottle or cask, broadly refundable on return of the empty container.
- A large number of bottles and casks were not returned in the assessment year and the respective deposit amounts remained with the assessee: beer bottles Rs. 33,553.93; country liquor bottles Rs. 31,782.91; wooden casks Rs. 8,685.00.
- Sales tax authorities treated these deposit amounts as turnover on the sale of unreturned bottles and casks.
The Judge (Revisions) was criticised by the court in this opinion for sometimes describing the deposit as “price” and for not sufficiently considering the parties' intention or the terms of agreements governing supply of the containers.
Legal Issues Presented
- Whether the unrefunded deposit amounts taken for bottles and casks (because the containers were not returned) could be treated as turnover from the sale of those containers in the normal course of the assessee's business.
Arguments of the Parties
Sales Tax Authorities' Position
- The sales tax authorities held that the deposits in respect of beer bottles (Rs. 33,553.93), country liquor bottles (Rs. 31,782.91) and wooden casks (Rs. 8,685.00) should be deemed to be the assessee's turnover on the sale of unreturned bottles and casks.
Standing Counsel's Submission
- The standing counsel conceded that the containers were not sold at the moment of sale of their contents but contended they were sold when they were not returned after being emptied — effectively characterising the arrangement as a bailment with a conditional sale (the condition being non-return).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| South Australia Insurance Co. v. William Beavis Randell, L.R. 3 P.C. 101 | Illustration of the essential distinction between sale and bailment — in bailment the bailor has a right to claim return of the goods. | The court invoked this as the foundational distinction to test whether the transactions were sales or bailments; it supports treating the arrangements as bailments because the owner retained a right to claim return. |
| Manders v. Williams | Establishes that where a manufacturer supplies contents in barrels/casks with terms allowing return, the customer may be only a bailee entitled to keep the casks until emptied (not an owner). | The court relied on Manders to show the commercial practice and contractual construction that supports a bailment (manufacturer remaining owner) rather than a sale of containers. |
| William Leitch and Co. v. Leydon | Approves Manders and indicates that manufacturers' customers may be mere bailees of invoiced bottles, entitled to retain them only until empty. | The court cited Lord Blanesburgh's approval to reinforce that customers may be bailees and not owners under similar terms. |
| Barlow and Co. v. Hanslip, 1926 N.I. 113n | Used (as cited) to show principle is not affected in law by existence of deposits (i.e., deposit does not necessarily convert the arrangement into a sale). | The court quoted the reference in Lord Blanesburgh's remark to reject the view that a deposit alone converts bailment into sale; the deposit may accompany tenancy of the container without changing legal character. |
| Beecham Fords Ltd. v. North Supplies (Edmonston) Ltd., [1959] 2 A.E.R. 336 | Held that on sale of bottled Lucozade the bottle was not sold and the bottle charge was “in the nature of a deposit.” | The court used this authority to support its conclusion that the deposit was taken as security/compensation for loss of bottles and not as the price of the bottles (i.e., the transaction was not a sale of the containers). |
| Commissioner of Taxes v. Prabhat Marketing Co. Ltd., [1967] 19 S.T.C. 84 (S.C.) | Relied on by the standing counsel (as noted in the opinion). | The court observed that this authority did not assist the standing counsel in the present case. |
Court's Reasoning and Analysis
The court structured its analysis around the central legal distinction between sale and bailment: in a sale property passes; in a bailment the owner delivers possession for a purpose and retains the right to claim return once that purpose is accomplished. The court proceeded to apply that distinction separately to wooden casks (rum), country liquor bottles, and beer bottles on the facts and documents before it.
Evidence examined and key findings:
- Documentary terms concerning rum supplied to army Units: a Canteen Stores Department circular (15 Jan 1953) specified deposits per cask, refund on return of empty casks in sound condition with freight paid, and hire charges if return occurred after 60 days. The court treated the circular as constituting the agreement between the assessee and the Units.
- For country liquor the court relied on State-made rules under the U.P. Excise Act (rules incorporated in the U.P. Excise Manual). In particular, sub-rule (2) of rule 466 (quoted in the opinion) provided that the retail vendor must pay sanctioned rates for the cost of bottles but would be entitled to refund of the cost charged for the bottle if returned in sound condition. The court held that sub-rule (7) (as referenced in the opinion) created a statutory agreement between the assessee and wholesale vendors.
- As to beer, no express written agreement was produced, but the Judge (Revisions) had recorded that the assessee's modus operandi was to charge separately for the beer and to take deposits for containers, refundable on re-delivery (in whole or part) — a factual finding which the present court accepted as showing similar conditions to the country liquor case.
- Additional corroborating facts: the cost of containers was separately charged in bills; sales tax was charged on the contents but not on containers; in the assessee's registration application under section 8-A of the U.P. Sales Tax Act it described its business as selling spirit, liquor, beer and carbonic acid gas, and did not state that it carried on a business of selling containers; wholesale vendors deposited the “probable cost” of bottles.
Application of legal principles:
- Wooden casks (rum): the circular's terms — refundable deposit, right to hire if retained beyond 60 days, and absence of any time limit beyond which hire ceases — indicate the assessee retained ownership and had a right to hire and to claim return. The court concluded these features were incompatible with a conditional sale and consistent with bailment.
- Country liquor bottles: sub-rule (7) (rule 466) likewise gives the purchaser the right to return bottles and claim refund; it prescribes no fixed time-limit for return. The court found that these features support a bailment rather than a sale.
- Beer bottles: despite absence of an express agreement, the factual finding about the modus operandi (deposits taken, separate invoicing) led the court to regard the beer bottle transactions as substantially similar to the country liquor bottle transactions and therefore to be characterized as bailments.
- Commercial context and intention: the court emphasised that the deposits were described and treated as deposits (or “cost charged for the bottle”), not as price. No sales tax was charged on containers, deposits represented probable cost and not a profit-making supply of containers. Bottles and casks serve as receptacles for sale of liquor and the normal trade practice (return when empty) points to bailment.
- Precedents: the court relied upon the cited authorities (Manders v. Williams; William Leitch & Co.; Beecham Fords; etc.) to reinforce that similar commercial arrangements have been treated as bailments where the manufacturer or supplier retains ownership and the customer is entitled only to possession while the contents are retained and until the containers are returned.
Holding and Implications
Holding: The court answered the referred question in the negative. Specifically, the court held that the amounts of deposit retained because containers were not returned could not be treated as the turnover from sale of those containers in the assessee's regular course of business.
Directive and Costs: The court ordered that the Commissioner, Sales Tax, shall pay costs to the assessee in the amount of Rs. 100.
Implications: The direct consequence of the decision is that the sales tax authorities' assessment treating the unrefunded deposits as turnover of sales of containers was rejected in this reference. The opinion does not discuss any broader legal rule-making beyond the application of the sale-versus-bailment distinction and the cited authorities; therefore, no new precedent or novel legal principle was announced beyond the court's application of established principles to the facts of this case.
Dwivedi, J.:— The Judge (Revisions) Sales Tax has referred to the court this question:
“Whether under these circumstances the amount of deposit of these containers which remained unrefunded because of the non-return of the containers can be treated to be the turnover about the sale of these containers in the regular course of business of the applicant-dealer or not?”
2. The reference was earlier heard by another Bench of two Judges. The Bench directed the Judge (Revisions) to submit an additional statement of the case in regard to certain matters. The Judge (Revisions) has submitted the additional statement of the case. The case has now been heard by us. The assessment year is 1958-59. The assessee, M/s. Dyer Meakin Breweries Ltd. (now styled as Mohan Meakin Breweries Ltd.) is a dealer, inter alia, in beer, rum and country liquor. In the said assessment year it sold beer and country liquor to licensed wholesale vendors and rum to the military. Beer and country liquor were supplied in glass bottles, and rum in wooden casks. While selling, it used to receive from the purchasers a certain amount of money as deposit for each bottle and each cask. Broadly speaking, the deposit was refundable on return of the bottle and the cask. In the assessment year a large number of bottles and casks were not returned by the purchasers to the assessee. So the amount of money in respect of them remained deposited with the assessee. The total amount of deposit in respect of the beer bottles was Rs. 33,553.93; in respect of the country liquor bottles Rs. 31,782.91; and in respect of the wooden casks Rs. 8,685.00. The sales tax authorities have held that these three deposits should be deemed to be the turnover of the assessee on the sale of unreturned bottles and casks.
3. It may be noticed that the Judge (Revisions) has at times inaccurately described the deposit of money as “price”. At the time of sale of beer, rum and liquor the parties did not regard the deposit as the “price” of the containers. Again, he has not given adequate attention to the important facts and circumstances of the case. He has also not tried to ascertain the intention of the parties from the terms of their agreement relating to the sale of rum, beer and country liquor.
4. It appears from the statement of the case that the assessee used to take deposit of “the probable cost of the containers”. The supplementary statement of the case shows that the cost of containers was separately charged in the bills issued by the assessee, that the assessee “charged sales tax from the purchasers on the contents of the containers but not on the containers” and that in its application under section 8-A of the U.P Sales Tax Act for registration, the assessee has stated that it was carrying on business of selling spirit, liquor, beer and carbonic acid gas. The application does not state that it was also carrying on business of selling containers. As regards sale of rum to the army, there is annexed to the supplementary statement of the case a circular from the Canteen Stores Department (India), Bombay, to all its Units located in U.P This circular is dated 15th January, 1953. It contains conditions on which the assessee would supply rum to the Units in wooden casks of different capacities against deposits of certain amounts. It states that the assessee will supply rum in 30, 20, 10 and 5 gallons capacities wooden casks against deposits of Rs. 35, Rs. 25 and Rs. 10 per cask respectively. It further states that on return of the empty casks in sound condition and freight paid to the assessee “these deposits will be refunded to the Units concerned………………. after deducting hire charges of Rs. 4, Rs. 2-8-0, Rs. 1-8-0 and Re. 1 per month for 30, 20, 10 and 5 gallons casks respectively. No hire charges will be levied if the casks are returned……………. within sixty days from the date of supply.” We think that this circular constitutes an agreement between the assessee and the Units who purchased rum in the assessment year.
5. In respect of country liquor supplied by the assessee, the question is to be examined in the light of certain rules made by the State Government under the U.P Excise Act. They are incorporated in the U.P Excise Manual, Volume I (1954 Edition). The assessee supplied country liquor on the basis of the contract supply system mentioned in rule 27. Under this system the assessee was required to store country liquor in the bonded warehouse. The liquor was sold to the wholesale vendors from the bonded ware house. Rules 447 and 460 show that the wholesale vendor has to deposit the price of the country liquor and the duty exigible thereon in the Government treasury. Rule 466 regulates the mode of sale of the country liquor in all the warehouses where country spirit is bottled. Sub-rule (3) of rule 466 provides that the bottles used shall have a permanent distinguishing mark “U.P Excise”, and the corks and capsules must have the name of the firm branded on them. The colour of the capsules and labels shall be as prescribed by the Excise Commissioner. According to sub-rule (6) the assessee shall be bound to supply spirit in bottles of standard sizes of one-sixth, one-twelfth and one-twenty-fourth of an imperial gallon, properly and securely corked, labelled and capsuled according to the specification prescribed by the Excise Commissioner. Sub-rule (2) has an important bearing on the question before us. It reads:
“The rates sanctioned for the cost of bottles…… shall be sanctioned by the Government from time to time. The retail vendor shall have to pay these in addition to the price of spirit at the time of taking issues of spirit. But he shall be entitled to a refund of the cost charged for the bottle from the contractor, provided he returns it in a sound condition,”
6. We think that sub-rule (7) created a statutory agreement between the assessee and the wholesale vendors who purchased country liquor from it.
7. The circular and sub-rule (7) of rule 466 evince certain common features. Neither calls the amount of deposit made against bottles and casks as their “price”. While the circular calls it as a “deposit”, sub-rule (7) calls it as a “rate for the cost of bottle” or “cost charged for the bottle”. Secondly, according to the circular the deposit will be refunded “on return of the empty casks in sound condition and freight paid” to the assessee. sub-rule (7) states that the wholesale vendor “would be entitled to a refund of the cost charged for the bottle if he returns the bottle in sound condition”. Thirdly, according to the circular if a cask is returned after sixty days from the date of supply, the Unit purchasing rum shall have to pay hire charges of Rs. 4, Rs. 2-8-0, Rs. 1-8-0 and Re. 1 per month for 30, 20, 10 and 5 gallons casks respectively. No hire charge is provided for in sub-rule (7). It is important to notice that the circular as well as sub-rule (7) give a right to the purchaser to return the casks and bottles and claim refund thereon. Fourthly, neither of them fix any definite time for return of the bottles and casks.
8. As regards beer we have no express agreement. But the Judge (Revisions) has recorded this finding:
“The modus operandi of the dealer was that he used to supply these three articles in containers. The price of beer was separately charged and the agreement with respect to container was that at the scheduled rate the price was to be deposited beforehand along with the delivery of container and on the contingency of re-delivery back of the containers the price so deposited was to be refunded in whole or in part as the case may be whether the containers were re-delivered as a whole or partially.”
9. It appears to us that the conditions on which a deposit against beer bottles was made are substantially similar to the conditions on which a deposit against country liquor bottles was made.
10. Do these facts and circumstances establish a sale or a bailment? The standing counsel has conceded that the containers were not sold at the moment of the sale of their contents. But he maintains that they were sold when they were not returned after they had been emptied of their contents. Perhaps what he means to say is that there was bailment with a conditional sale, the condition being their non-return.
11. The essential distinction between a sale and a bailment is this: In a sale property in the goods passes from the seller to the buyer; in a bailment one person delivers possession of the goods to another person for some purpose on the agreement that the latter shall, when the purpose is accomplished, return the goods or otherwise dispose them of according to the directions of the former. Thus the bailor has a right to claim return of the goods: South Australia Insurance Co. v. William Beavis Randell L.R 3 P.C 101.. With this essential distinction in mind, we shall first examine the case of wooden casks.
12. The text of the circular plainly shows that property in the casks is not intended to pass at any point of time from the assessee to the Units, for the former is given a right to claim hire from the latter for the period of retention of casks beyond sixty days. The circular does not fix a time-limit after which the hire will not be payable. This unceasing liability to pay hire is incompatible with an agreement of conditional sale. The term for hire also implies a right in the assessee to claim return of the casks.
13. The circular does not fix the time for return of the casks. The Units are bound to return them after they have been emptied of their contents. There is neither evidence nor a finding that they had been so emptied. So the bailment apparently never came to an end.
14. The case of country liquor bottles has a close resemblance to the case of casks. sub-rule (7) prescribes no time-limit for the return of bottles. The wholesale vendor is entitled to return them and claim refund. The absence of a term for hire no doubt distinguishes the case of bottles from the case of casks; but it does not change the character of agreement from a bailment to sale.
15. The sale of containers is not in the way of the trade of the assessee. It does not receive the cost of bottles as “price”. The cost is taken as deposit. No sales tax is charged on the cost from wholesale vendors. They deposit the “probable cost” of bottles. It seems there is no profit-making. Bottled liquor is sold to wholesale vendors. Bottles serve as receptacles of liquor. They may keep them till the liquor is consumed. As soon as they are empty, they should be returned to the assessee. All this appears to be the normal course of the trade in liquor, and signifies bailment.
16. In Manders v. Williams, a brewer sold porter in barrels to a trader. The invoice contained this clause: “The empty casks to be returned…… at (the trader's) expense and risk within six months from the date hereof, or paid for at invoice price, at the option of the (brewer).” The invoice then stated the price of the porter and mentioned: “Value of the barrels 7s. 6d. each.” It was held that there was bailment of barrels and the brewer was their owner. Parke, B., said:
“The contract must be construed with reference to the course of trading between the parties……. The object was to put the vendee in possession of the porter, and he was to have the casks for keeping the porter until he had an opportunity of disposing of it. Then what was his situation as soon as the porter was emptied from the casks? Was he more than a mere bailee during pleasure, the plaintiffs having a right to say ‘You have no longer any claim to the possession of the casks. That was determined when they were emptied, and we insist upon their being delivered to us…’ The true construction of the contract is to give (the trader) an interest only until the casks are empty…. The interest of (the trader) was never meant to extend beyond the right to keep casks until the porter was consumed.”
17. This observation received the approval of Lord Blanesburgh in a similar case, William Leitch and Co. v. Leydon. According to him Manders2 “shows that in such cases as the present the manufacturers' customers may be no more than mere bailees of the invoiced bottles entitled to retain them until they are empty……”
18. When it was pointed out that unlike the case before him, there was no deposit against barrels in Manders, Lord Blanesburgh said:
“There was, it will be noted, no deposit in that case. But the appellants contended that Barlow and Co. v. Hanslip 1926 N.I 113n. rightly shows that the situation in law is not thereby affected in principle although tenders of Id. per bottle would possibly in this case have to accompany each demand.”
19. In Beecham Fords Ltd. v. North Supplies (Edmonston) Ltd. [1959] 2 A.E.R 336., it was held that on a sale of bottled Lucozade, the bottle was not sold and the charge for the bottle was “in the nature of a deposit.” In our view, the deposit was taken as security to compensate the assessee for loss of bottles and not as the price of bottles.
20. Our discussion with respect to liquor bottles will also determine the nature of the transaction in respect of rum bottles. It is also a case of bailment, and there is no sale. The Standing Counsel has relied on Commissioner of Taxes v. Prabhat Marketing Co. Ltd. [1967] 19 S.T.C 84 S.C. It does not help him.
21. As a result of the foregoing discussion our answer to the question referred to us is in the negative. The Commissioner, Sales Tax, shall pay costs to the assessee which we assess at Rs. 100.
22. Reference answered in the negative.
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