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United Breweries Ltd. v. State Of Andhra Pradesh
Factual and Procedural Background
M/s. United Breweries Limited, a beer manufacturer based in Bangalore, began supplying two brands of beer, “U.B Export Lager” and “Sun Lager,” in Hyderabad from October 18, 1971. For sales conducted in Andhra Pradesh, the company was assessed under the Andhra Pradesh General Sales Tax Act (6 of 1957). The company asserted before the taxing authorities that the sale price of beer did not include the sale of bottles and crates, as ownership of these remained with the company. Customers paid a security deposit for bottles and crates, which was refundable upon their return. The company presented two circulars explaining this sales scheme.
The Commercial Tax Officer investigated and found that customers did not return bottles and crates as claimed, and the company failed to produce ledgers for verification. The value of bottles and crates exceeded the security deposits. Consequently, the scheme was deemed untrue. On appeal, the Sales Tax Appellate Tribunal confirmed that there was no bailment or contractual obligation for customers to return bottles and crates, rejecting the company’s scheme as false. The company then filed three tax revision cases for the respective years before this Court.
Legal Issues Presented
- Whether the ownership of bottles and crates remained with the company when beer was sold, or whether ownership passed to the customers along with the sale of beer.
- Whether the security deposits paid by customers constituted a bailment scheme or a sale of bottles and crates.
- Whether the scheme propounded by the company, involving refundable security deposits for bottles and crates, was legally valid and true.
Arguments of the Parties
Company's Arguments
- The company asserted that bottles and crates were not sold but only supplied on a refundable deposit basis, retaining ownership.
- The scheme was supported by two circulars explaining the booking and payment process, and assurances of better supply if the scheme was followed.
- The company cited several precedents, including Punjab Distilling Industries Ltd. v. Commissioner of Incometax and English cases, to support the assertion that the security deposit was not part of the sale price and that ownership of bottles remained with the company.
Revenue's Arguments
- The Revenue contended that the mere possibility of returning bottles and crates did not mean the customers were not owners of these items once sold.
- They argued that the scheme was not true and that the bottles and crates were sold along with the beer, not merely supplied on deposit.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Punjab Distilling Industries Ltd. v. Commissioner of Incometax, [1959] 35 ITR 519 (SC) | Consideration of “buy-take” scheme and whether security deposit implies right to return bottles. | The Court relied on this precedent to determine that without a right to return bottles, no security deposit could be justified, rejecting the company’s scheme. |
| Hindustan Sugar Mills v. State Of Rajasthan & Others, [1979] 43 STC 13 | Consideration includes excise duty, sales tax, and freight; relevance to determining total consideration paid by vendee. | Referenced to clarify that the composition of consideration is immaterial to the question of ownership transfer. |
| Beecham Fords Ltd. v. North Supplies, [1959] 2 All ER 336 | Sale of glucose drink where receptacles were not sold. | Used to highlight complexities in transactions involving contents and receptacles, though not fully applicable here. |
| William Leitch and Company Limited v. Leydon, [1931] AC 90 | Legal nature of sale transactions involving containers. | Quoted to appreciate the legal nuances of transactions involving bottles and crates. |
| Deputy Commissioner of Sales Tax v. McDowell & Co. Ltd., [1980] 46 STC 79 (Ker) | Principles regarding sale and ownership of bottles and crates in liquor sales. | Supported the conclusion that bottles and crates were sold along with the beer. |
| State of Tamil Nadu v. McDowell & Co. Ltd., [1980] 46 STC 85 (Mad.) | Similar principles on sale and ownership of bottles and crates. | Confirmed the finding that ownership passed to customers. |
| Arlem Breweries Ltd. v. Assistant Commissioner of Sales Tax, [1983] 53 STC 172 (Bom) | Sale and ownership issues in brewery sales. | Reinforced the conclusion that bottles and crates were sold. |
| Britannia Biscuits Co. Ltd. v. State of Maharashtra, [1983] 53 STC 179 (Bom) | Legal principles on sale and ownership of packaging materials. | Applied to uphold the view that bottles and crates were sold and ownership passed to customers. |
Court's Reasoning and Analysis
The Court carefully examined the scheme propounded by the company and the findings of the three tax authorities. It noted that the Commercial Tax Officer and the Sales Tax Appellate Tribunal found the company’s scheme to be untrue as customers did not return bottles and crates and there was no contractual obligation to do so. The Court agreed that ownership of bottles and crates did not remain with the company upon sale of beer. It reasoned that the security deposits and the possibility of returning bottles did not amount to bailment or retention of ownership by the company. Instead, ownership passed to the customers along with the beer. The Court also held that when bottles and crates were returned, it constituted a resale back to the company. The Court relied on several precedents, particularly Punjab Distilling Industries Ltd. v. Commissioner of Incometax, to reinforce that a security deposit implies a right to return, which was not substantiated in this case. The Court found no merit in the company’s contentions and upheld the concurrent findings of the tax authorities.
Holding and Implications
The Court dismissed all three tax revision cases filed by M/s. United Breweries Limited.
The direct effect of this decision is that the company’s scheme of retaining ownership of bottles and crates by way of refundable security deposits is legally rejected. Ownership of bottles and crates is deemed to pass to customers at the time of sale. No costs were awarded. The Court did not set any new precedent but affirmed the established legal principles as applied by the tax authorities.
A. Raghuvir, J.:— M/s. United Breweries Limited is a manufacturer of ‘beer at Bangalore. The company commenced supplying beer in two brands at Hyderabad from October 18, 1971. The name of the two brands are: “U.B Export Lager”, “Sun Lager”. For the business they have done in the State of Andhra Pradesh (covering sale of beer), they were assessed under the Andhra Pradesh General Sales Tax Act (6 of 1957). Before the taxing authorities the company asserted to have sold U.B Export Lager at Rs. 43.18 and Sun Lager at Rs. 43.75 per dozen of bottles and crates. The company asserted when beer was sold, bottles and crates were not sold to their customers. Ownership in the bottles and crates remained with them. Further the agents kept security of Rs. 4.80 per dozen bottles and Rs. 5 for crates. These deposits were returned to customers when bottles and crates were returned. This methodology of vending, the company represented, to be their scheme of sales and offered two circulars of the company to explain the scheme.
2. The two circulars recite for the two brands of beer are to be booked and cheques are to be issued in the name of Phipson & Co. Ltd., Himayatnagar. Cheques for U.B Export Lager, however, are to be issued in favour of United Breweries Ltd. The circulars further recite 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.
3. The scheme was explained to the taxing authorities. The Commercial Tax Officer verified the scheme and held the customers did not return bottles and crates. There was no truth in the scheme, as it was never implemented. On appeal, the Commercial Tax Officer recorded the ledgers of the company were not produced for verification. Further bottles and crates were higher in value than the amounts deposited as security.
4. For the two reasons the scheme was not true. Aggrieved the company-assessee approached and the Sales Tax Appellate Tribunal verified the records. The Tribunal held there was no bailment of bottles and crates and no contractual obligation on the part of the customer to return bottles and crates. The scheme therefore, was not accepted (as) true. Hence the three revision cases for the respective years.
5. Before this Court the scheme is sought to be supported. The same contentions argued before the taxing authorities are reiterated. It is argued on behalf of the Revenue, bottles and crates could be returned, does not mean the customer was not the owner of bottles and crates, which were vended to the customers. Therefore, there is no truth in the scheme propounded by the company.
6. We are in agreement with the conclusions reached by the three tax authorities having considered numerous aspects of the scheme. We hold ownership in bottles and crates did not remain with the company when beer was vended. The customer purchased bottles and crates with the contents of receptacles. When bottles and crates are returned (to the extent shown by the company) in law there was a resale of bottles and crates in favour of the company. We have no hesitation to reject the contentions raised by the company.
7. The company, however, cited large number of cases. Among the cases, in Punjab Distilling Industries Ltd. v. Commissioner of Incometax, [1959] 35 ITR 519 (SC) a like contention is found considered “buy-take” scheme. The issue raised there was whether the price of liquor included the cost of bottles. This aspect was juxtaposed with the security deposit (made as in the instant case) and it was considered whether deposit made was part of consideration. The Supreme Court held that there could be no security given for the return of bottles unless there was a right to their return and if there was no such right, there would be nothing to secure. It was further held there was no time-limit for the return of the bottles and this aspect strikes at the bottom of the contention. These two tests and answers on these aspects were held decisive.
8. In another case of the Supreme Court in Hindustan Sugar Mills v. State Of Rajasthan & Others, [1979] 43 STC 13 observation was made that it is immaterial to enquire as to how the amount of consideration was made up, whether it included excise duty, sales tax and also the freight. These aspects were dealt in considering what was the consideration paid by the vendee. Two English cases were cited by the company. In Beecham Fords Ltd. v. North Supplies, [1959] 2 All ER 336 glucose drink was sold. The facts in the case showed the receptacles were not sold. In another case in William Leitch and Company Limited v. Leydon, [1931] AC 90 a passage at page 104 was read before us for appreciating the nature of transaction. In the former English case we agree with the observation made that at times the contentions raised with reference to receptacles raised difficult questions.
9. The three authorities under the Act 6 of 1957 have concurrently found bottles and crates were sold when beer was sold to vendees. We have borne in mind the principles laid in Deputy Commissioner of Sales Tax v. McDowell & Co. Ltd., [1980] 46 STC 79 (Ker), State of Tamil Nadu v. McDowell & Co. Ltd., [1980] 46 STC 85 (Mad.), Arlem Breweries Ltd. v. Assistant Commissioner of Sales Tax, [1983] 53 STC 172 (Bom) and Britannia Biscuits Co. Ltd. v. State of Maharashtra, [1983] 53 STC 179 (Bom) in arriving at the conclusion. We find the bottles and crates when they are returned to the company indicated in our conclusion a different sale by the customer to the company.
10. In that view there are no merits in the three tax revision cases. The three tax revision cases are dismissed. No costs.
11. Petitions dismissed.
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