Sujata V. Manohar, J.:— The applicants are registered dealers under the Bombay Sales Tax Act, 1959, as well as under the Central Sales Tax Act, 1956. The applicants carry on the business of manufacture and sale of biscuits both within the State of Maharashtra as also outside. The applicants charge a lump sum price for the sale of biscuits outside the City of Bombay and suburbs, which includes the cost of tins in which the biscuits are supplied. In the City of Bombay and its suburbs, however, the applicants sell biscuits in returnable containers. The applicants take a refundable deposit in respect of the tins in which the biscuits are supplied. On the return of the tins the deposit is refunded to the purchaser. These tins are shown in the books of account of the applicants as part of their stock along with their stock of tins actually lying with the applicants. The deposits are credited to “Deposit Account Returnable Tins” account and a corresponding debit is made to the customer's account. A reversal entry is passed in both the accounts when the tins are returned and the deposits are refunded. At the end of the accounting period, out of the balance left to the credit of the deposit account, 50 per cent of the amount is written off on a notional basis and is transferred to the credit of “Tin Stock Control Account”, thereby showing that the value of the closing stock is depleted to that extent. The balance 50 per cent of the outstanding deposits are considered as a part of the value of the closing stock of tins. This amount is shown in the balance sheet as an asset and the corresponding deposit amount is shown as a liability. These entries at the end of the accounting year are made on a notional basis of probable non-return of tins. The assessees, however, accept tins which are returned at any time and refund the deposit, although their invoice contains a statement that the Company's liability to refund the deposit exists only up to 3 months from the date of the invoice.
2. No sales tax has been collected or paid by the assessees on the deposits for tins. For the assessment year 1st April, 1967, to 31st March, 1968, the assessees received total deposits amounting to Rs. 12,97,229.05. Out of these deposits, deposits to the tune of Rs. 11,29,202 were refunded to the customers. At the end of the accounting year a balance of Rs. 1,68,027 was left outstanding. As per their accounting practice the assessees wrote off 50 per cent of this amount viz., Rs. 84,013, and reduced the corresponding tin stock account. The Sales Tax Officer subjected the said amount of Rs. 84,013 so written off to sales tax, treating the same as the sale price of tins. The order of the Sales Tax Officer was upheld in appeal by the Assistant Commissioner of Sales Tax. Thereafter the assessees preferred a second appeal bearing No. 1553 of 1972 before the Tribunal. The Tribunal referred the issue to a larger Bench, and the question which was referred to a larger Bench was: “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 the appellant-assessee and not returned by the customers during the period of assessment in question.” The Special Bench of the Tribunal held that the amount of Rs. 84,013 represented the sales price of tins supplied by the assessees to their customers. Following the judgment of the Special Bench, the ordinary Bench of the Tribunal passed orders accordingly. In respect of the orders passed by the Tribunal, at the instance of the assessees the following question has been referred to us for determination:
“Whether, 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 on 31st March, 1968, written off from the account stocks of tins on the probable non-return of the tins by the customers constitutes ‘sale price’?”
3. In order to determine whether the amount of deposit notionally written off by the assessees constitutes “sale price” of tins or not, it is necessary to examine the nature of the transactions between the assessees and their customers. It is well-settled that for the purpose of the Bombay Sales Tax Act, 1959, a sale is that transaction which is understood as a sale under the provisions of the Sale of Goods Act, 1930. A sale is the exchange of property for a price. And it involves a transfer of ownership of the thing sold from the seller to the buyer. Sales tax can be imposed only when there is a completed sale involving transfer of title in the goods sold from the seller to the buyer. In this connection a reference may be made to the decision of the Supreme Court-in the case of Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash reported in [1954] 5 STC 193 (SC). Reference may also be made to the case of State Of Madras v. Gannon Dunkerley & Co., (Madras) Ltd reported in [1958] 9 STC 353 (SC). We have, therefore, to examine whether in the present case the bargain between the assessees and their customers constitutes a sale of tins or whether the transaction amounts to a bailment or a loan of tins. Jowitt's Dictionary of English Law, 2nd Ed., at page 1110 defines “loan” as follows.:
“Loan: (Sax. hloon), anything lent or given to another on condition of return or repayment. See Moneylender.
A gratuitous loan is a class of bailment called commodatum in the civil law, and denominated by Sir William Jones as a loan for use (pret a usage), to distinguish it from mutuum, a loan for consumption.
The borrower has the right to use the thing during the time and for the purpose agreed upon by the parties. The loan is to be considered as strictly personal, unless from other circumstances a different intention may fairly be presumed. The borrower must take proper care of the thing borrowed, use it according to the lender's intention, and restore it at the proper time, and in a proper condition.”
4. Black's Law Dictionary, 5th Ed., at page 844, defines “loan” as follows: “Anything furnished for temporary use to a person at his request on condition that it shall be returned, or its equivalent in kind, with or without compensation for its use.”
5. “Bailment” is defined in section 148 of the Indian Contract Act as follows: “A ‘bailment’ is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the ‘bailor’. The person to whom they are delivered is called the ‘bailee’.”
6. In the present case, therefore, if by virtue of the transactions between the parties, on receipt of the deposit the property in the tins passes to the purchaser and there is no obligation either on the purchaser to return the tins or on the seller to accept the tins so returned, the transaction can be considered as a sale. If, on the other hand, the agreement between the parties is to allow the purchaser to use the tins for storing biscuits and to return them to the assessees, the transaction would be a bailment; the deposit in such a case cannot be considered as price of the tins and may be considered as a security for the return of tins, which security is liable to be forfeited if the bailee fails to carry out his obligations. Although considerable arguments have been advanced before the sales tax authorities in respect of the nature of the entries made by the assessees in their books of account pertaining to these deposits, in our view, the nature of accounting by the assessees does not go to the root of the dispute. These entries are made unilaterally by the assessees in their books of account. At the highest such entries may indicate the nature of the transaction as understood by the assessees, but these entries unilaterally made by the assessees cannot affect or alter the nature of the bargain between the assessees and their customers; all the more so when such entries are notional entries. For this purpose we must examine the documents, facts and circumstances which constitute the bargain between the parties.
7. The assessees have a separate price list for Bombay City and suburbs. At the foot of the price list it has been mentioned as follows:
“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 rufunded on return of tins in good condition within 3 months from date of supply.”
8. In their invoices there is a separate column showing the number of tins and the deposit taken in respect of these tins. In the main body of the invoice, quantity and value of the biscuits sold is set out and sales tax is charged on this price. No sales tax is charged on tin deposit which is shown separately. At the top of the invoice it has been stated as follows:
“Dealers are informed that the company's liability to refund the value of returnable tins extends only up to three months from the date of the invoice. Since in the invoice itself the amount taken from the customers against the tins is shown as tin desposit and since the price list of the assessees also describes the amount taken as a deposit for the tins, the term “value of returnable tins” in the note at the top of the invoice refers to this amount of tin deposits. It is not in dispute that although in the invoice it has been stated that the assessees' liability to refund the deposit extends only up to 3 months from the date of the invoice, the assessees have in practice not insisted upon this condition and have returned the deposits even in respect of tins returned after 3 months from the date of the invoice. It is pertinent to note that this arrangement for taking back tins from customers operates only in the area of Bombay City and suburbs; presumably because it is practicable only for the customers of the assessee-company in this area to return the tins at the office of the company situated in Bombay. This arrangement does not operate in respect of customers outside Bombay City and suburbs who are charged a lump sum price which includes the cost of the tins. It is also clear from the figures which are mentioned in the statement of facts that the bulk of the tins so supplied by the assessees to their customers in Bombay City and suburbs are returned by the customers to the assessees and the deposit amount is refunded. In these circumstances, the bargain between the parties is in the nature of a bailment of tins rather than a sale of tins. In the present case, there is an obligation on the assessees to accept the tins returned and a corresponding obligation on the customers to return the tins. If there had been an outright sale of tins, there would have been no need to stipulate that the tins should be returned in good condition within 3 months from the date of supply and that on such return, the deposit would be refunded. The manner in which the tin deposit is shown in a separate column in the invoice also indicates that there was no intention to sell the tins. In fact, the sales tax authorities have also not charged any sales tax on the outstanding tin deposits which are not notionally written off. They have charged sales tax only on that portion of the deposit which has been notionally written off as stated earlier. The sales tax authorities, presumably, did this because of a notional adjustment of such written off deposits of tins against the stock of tins. But a notional adjustment of this type made in their account books by the assessees cannot constitute a sale. How the assessees adjust their accounts at the end of the assessment year is not a matter of bargain between the assessees and their customers. From the bargain between the parties in the present case, there appears to be a bailment of tins to the customers rather than an outright sale.
9. There have been a number of cases where problems have arisen under the relevant sales tax law in respect of deposits taken by a seller for containers in which the goods were sold. The decision in each case necessarily turns on the nature of the transaction between the parties. In the case of Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, Simla reported in [1959] 35 ITR 519 (SC) the Supreme Court was required to consider the case of an assessee that carried on business as a distiller of country liquor. After the war started difficulty was felt in finding bottles in which the liquor was to be sold; and to relieve the scarcity the Government devised a scheme whereby the distiller was entitled to charge the wholesaler a price for the bottles in which the liquor was supplied, at rates fixed by the Government. When the bottles were returned, the seller was bound to repay the price. This was known as “buy-back scheme”. In addition to the price fixed under the Government scheme, the assessee took from the wholesalers certain further amounts described as security deposits. The money described as security deposits were also returned as and when the bottles were returned. The price of the bottles received by the assessee was entered by it in its general trading account while the additional sum was entered in the general ledger under the heading “empty bottles return security deposit account”. The Supreme Court was required to consider whether the assessee could be taxed on the balance of the amounts of these additional security deposits left after the refunds made. For the purpose of income-tax the Supreme Court was required to consider whether these amounts represented trading receipts. It held that the contract between the parties amounted to a sale of bottles. In the case before the Supreme Court the Government scheme was clearly a scheme for buying back bottles; that is to say, at the time of the sale of liquor the bottles were sold to the purchaser at a fixed price. The seller was required to buy the bottles back from the purchaser and return the price if the buyer returned the bottles. Any additional sum, therefore, charged by the seller in respect of the bottles so sold could not be considered as a deposit for bailment as the bottles were sold to the buyers. Since the transaction was really a transaction of sale, the Supreme Court held the additional deposit to be a trading receipt. Secondly, the Supreme Court was required to consider in that case the provisions of the Income-tax Act. It had to decide whether the amount in dispute was a trading receipt and not whether it was the price of’ goods sold and delivered. The ratio of this decision, therefore, will not apply in the present case.
10. In the case of Madura Coats Ltd. v. State of Kerala reported in [1978] 41 STC 333, the Kerala High Court was required to consider a case where the assessee-company had received yarn from Madura Mills. The yarn supplied was wound round cones. At the time when the cones were passed on to the assessee a debit note was made by the mills and at the time of the return of the cones a credit note was made. These notes were in respect of the cost of the cones. The Kerala High Court considered the relevant terms of the contract between the assessee and the mills. One of the terms of the contract was to the effect that the rate for yarn agreed between the parties was a consolidated rate including the cost of cones, stiffeners and other packing materials. It was also agreed between the parties that the assessees would be given credit for the cost of cones, stiffeners, etc., at rates as agreed between the parties as and when returned. Therefore, in the case before the Kerala High Court, the assessees were required to pay a consolidated price for yarn which included the cost of cones. The bargain for giving credit for the cost of returned cones was also on the basis of the rates agreed upon as and when the cones were returned. In these circumstances, the Kerala High Court came to the conclusion that there was a sale of cones along with the yarn wound round cones. It held that under the terms of the contract the property in the cones passed to the assessees and it repassed to the mills when the cones were returned.
11. In the case of Arlem Breweries Ltd. v. Assistant Commissioner of Sales Tax, Panaji, [1983] 53 STC 172 being Special Civil References Nos. 4, 5, 6, 7, 8 and 9.B of 1979, by its judgment dated 2nd February, 1983, a Division Bench of this High Court at Goa consisting of Rege and Couto, JJ., considered the case of assessees who were manufacturers of bottled beer. The price list of the assessees after stating the price of beer mentioned that the prices were ex-brewery, exclusive of excise duty and cost of bottles. The price list stated that the deposit per bottle was 40 paise and the same was refundable on return of empty bottles to the brewery in good condition. Breakages and shortages were to the party's account. Full value of order and bottles deposit was payable in advance. The court held that the terms of the sale did not contain any obligation on the purchaser to return the 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. In these circumstances, the court held that the amount taken by the assessee-manufacturers from their purchasers towards bottles, though termed as deposit, was the sale price of bottles and was exigible to sales tax. As against these cases, there are other cases where the court has come to an opposite conclusion, once again on the basis of the nature of the bargain between, the parties in those cases.
12. Thus, in the case of Dyer Meakin Breweries v. Commissioner of Sales Tax, U.P, reported in [1972] 29 STC 69, the Allahabad High Court considered the case of an assessee-dealer who sold beer, rum and country liquor. Beer and country liquor were supplied in glass bottles and rum in wooden casks. At the time of sale, the assessees used to receive from the purchasers a certain amount of money as deposit for each bottle and each cask. The deposit was refundable on return of the bottles and casks. It was found that the assessees-separately' charged the cost of containers in the bills issued by them but did not charge-sales tax on the containers. Daring the relevant assessment year a large number of such containers were not returned by the purchasers to the assessees and the amount of money in respect of them remained deposited with the assessees. The court held that the property in containers was not intended to pass at any time from the assessees to the purchasers because under the terms of the bargain the assessees were given a right to claim hire charges for the period of retention of containers beyond 60 days. No time-limit was fixed for the return of containers but the purchasers were bound to return them after they become empty. The sale of containers was not in the way of trade of the assessees. They did not receive the cost of containers as price; the cost was taken as a deposit; no sales tax was charged on the cost. The deposit was the probable cost of the container and there was no profit-making. The court therefore held that this was a case of bailment of containers rather than a sale. It, therefore, held that the deposit remaining in the hands of the assessees could not be subjected to sales tax.
13. In the case of Deputy Commissioner of Sales Tax (Law) v. McDowell & Co. Ltd. reported in [1980] 46 STC 79, the Kerala High Court considered the case of an assessee-that manufactured foreign liquor. At the time of sale, the assessee charged a price for the sale of liquor and charged separately an amount of deposit on bottles. The deposit was refunded on return of bottles. It was held that the amount representing the deposits for bottles was separately invoiced and differently treated in the accounts and that on the nature of the transaction, the amount could not be regarded as an integral part of the sale price and it did not satisfy the definitions of “turnover” and “sale price” in the Central Sales Tax Act, 1956. While deciding this case the Kerala High Court distinguished the earlier case of Dyer Meakin Breweries, [1972] 29 STC 69 decided by the Kerala High Court itself as well as the decision of the Supreme Court in Punjab Distilling Industries' case, [1959] 35 ITR 519 (SC), on the basis of special features of the bargain between the parties in those cases (sic).
14. Similarly in the case of State of Tamil Nadu v. McDowell and Company Ltd. reported in [1980] 46 STC 85, the Madras High Court considered the case of an assessee who was primarily a distributor of liquor for certain breweries. The bills issued by the principals to the assessee showed separately the price of liquor, sales tax thereon and a certain amount called “empty bottle deposit” which was refunded to the assessee when bottles were returned at the brewery. The assessee also similarly collected deposits from its customers and refunded the same to the customers as soon as the bottles were returned. The rate of deposit was the same in both the cases. The Madras High Court held that the deposits were collected by the assessee as a safeguard against the contingency of the bottles not being returned; the deposits therefore retained only the character of deposits and were not sale price of the bottles and there was no sale of bottles when liquor was sold. The deposits could not be taxed as sale price.
15. From these decisions it becomes clear that the decision in each of these cases has turned on the circumstances governing the contract between the parties. In the case which we are required to consider, the assessees have charged separately for biscuits and have collected sales tax only on the price of biscuits. They have shown the amount of deposit collected for the tins separately in the invoice in a column specially printed for that purpose. They have also incurred an obligation to accept tins which are returned and on such return to refund the amount of deposit. In these circumstances the amount of deposit in the hands of the assessee-company 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, In the premises, the question referred to us is answered in the negative, that is to say, in favour of the assessee and against the department.
16. The respondents to pay to the applicants the costs of the reference. The applicants will be entitled to withdraw the sum of Rs. 100 deposited by them with the Tribunal.