1994 (11) TMI 335 - SC - VAT and Sales Tax

Whether there was an obligation upon the purchaser to return the tins or was it a case where the return or non-return of the tins lay within the discretion and pleasure of the purchaser/ customer/ Held that - Appeal allowed. As 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 of non-return of the tins. While entrusting the tins, the respondent took care to stipulate and receive the value of the tins and a little more-to be precise 20 per cent. If the tin was returned, well and good- the 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 of grace-probably a business decision-rather than a matter of right or an obligation.But once we hold that there was no such obligation, then the said trading receipt cannot be anything but sale price.

Issues Involved:
1. Nature of the transaction between the respondent and the purchasers regarding the tins.
2. Obligation of the purchaser to return the tins.
3. Taxability of the deposit amount appropriated to the Profit and Loss (P&L) account.
4. Interpretation and application of relevant provisions of the Bombay Sales Tax Act, 1959.
5. Determination of whether the transaction constituted a sale or bailment.

Detailed Analysis:

1. Nature of the Transaction:
The primary issue was to determine whether the transaction between the respondent (a manufacturer of biscuits) and the purchasers was a sale or bailment of the tins in which the biscuits were sold. The respondent collected a refundable deposit for the tins, which was credited to the "Deposit account returnable tins." The High Court initially held that the arrangement was one of bailment, not a sale, as there was an obligation on the purchasers to return the tins, and the deposit amount could not be treated as the sale price.

2. Obligation of the Purchaser to Return the Tins:
The High Court concluded that the purchasers were under an obligation to return the tins within three months to get the deposit refunded. However, the Supreme Court disagreed, stating that neither the endorsements on the price list nor the invoices created such an obligation. The return of the tins was at the discretion of the purchaser, and the respondent's practice of accepting tins returned after three months was more of a business decision rather than an obligation.

3. Taxability of the Deposit Amount:
The assessing authority included the amount written off by the respondent in the tin-stock account and transferred to the P&L account in its taxable turnover, treating it as the sale price of tins not returned. The Supreme Court held that the deposit amount appropriated to the P&L account, treated as a trading receipt, constituted the sale price of the tins. It was neither compensation nor damages for breach of obligation, as there was no such obligation to return the tins.

4. Interpretation and Application of Relevant Provisions:
The Supreme Court referred to the definitions of "sale," "sale price," and "turnover of sales" under the Bombay Sales Tax Act, 1959. The Court emphasized that the true nature of the transaction should be determined based on the precise terms between the parties, not merely on the entries in the account books. The transaction was seen as a composite one, where the entrustment of tins could result in a sale if the tins were not returned within the stipulated period.

5. Determination of Sale or Bailment:
The Supreme Court concluded that the transaction was not a bailment but a sale of tins if they were not returned within three months. The tins were delivered with the stipulation that the deposit would be refunded if returned in good condition within three months. After this period, the transaction became a sale, and the deposit amount represented the sale price. The Court also referenced Section 24 of the Sale of Goods Act, 1930, which supports the principle that the property in goods passes to the buyer if they are not returned within the prescribed time.

Conclusion:
The appeals were allowed, and the judgment of the High Court was set aside. The Supreme Court answered the question referred to the High Court in the affirmative, in favor of the Revenue and against the assessee, holding that the deposit amount appropriated to the P&L account constituted the sale price of the tins and was exigible to sales tax. The decision emphasized the importance of the precise terms of the transaction and the factual context in determining the nature of the transaction and its tax implications.

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