1983 (3) TMI 242 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the deposit amount written off by the assessees constitutes the "sale price" of tins.
2. The nature of the transactions between the assessees and their customers regarding the deposit for tins.
3. The applicability of sales tax on the deposit amount for tins.

Issue-wise Detailed Analysis:

1. Whether the deposit amount written off by the assessees constitutes the "sale price" of tins:
The primary issue was whether the amount of Rs. 84,013, representing 50% of the closing balance of the tin deposits left on 31st March 1968, which was written off from the account stocks of tins on the probable non-return of the tins by the customers, constitutes "sale price." The Sales Tax Officer treated this amount as the sale price of tins and subjected it to sales tax. This decision was upheld by the Assistant Commissioner of Sales Tax and later by the Special Bench of the Tribunal.

2. The nature of the transactions between the assessees and their customers regarding the deposit for tins:
To determine if the written-off deposit constitutes "sale price," the court examined the nature of the transactions. According to the Bombay Sales Tax Act, 1959, a sale is defined as a transaction involving the exchange of property for a price and a transfer of ownership from the seller to the buyer. The court explored whether the transactions were sales or bailments. The court referred to definitions from Jowitt's Dictionary of English Law and Black's Law Dictionary, and Section 148 of the Indian Contract Act, which defines bailment.

The court concluded that if the property in the tins passed to the purchaser upon receipt of the deposit, without an obligation to return the tins, the transaction would be a sale. Conversely, if the agreement allowed the purchaser to use and return the tins, the transaction would be a bailment, and the deposit would be considered security, not the sale price.

3. The applicability of sales tax on the deposit amount for tins:
The court considered the assessees' accounting practices and the nature of the entries made in their books, noting that these unilateral entries could not alter the nature of the transaction. The price list and invoices indicated that the deposit was refundable upon the return of tins in good condition within three months. Despite the stated condition, the assessees accepted and refunded deposits for tins returned after three months. This practice suggested a bailment rather than a sale.

The court reviewed several precedents, including:
- Punjab Distilling Industries Ltd. v. Commissioner of Income-tax: The Supreme Court held that the transaction was a sale because the bottles were sold with an obligation to buy them back.
- Madura Coats Ltd. v. State of Kerala: The Kerala High Court found a sale because the price of yarn included the cost of cones, which were credited upon return.
- Arlem Breweries Ltd. v. Assistant Commissioner of Sales Tax: The court found a sale due to the lack of obligation to return bottles and the advance payment of deposits.
- Dyer Meakin Breweries v. Commissioner of Sales Tax, U.P.: The Allahabad High Court found a bailment because the property in containers did not pass to the purchasers, and deposits were refundable.
- Deputy Commissioner of Sales Tax (Law) v. McDowell Co. Ltd.: The Kerala High Court found that deposits for bottles were not part of the sale price.
- State of Tamil Nadu v. McDowell and Company Ltd.: The Madras High Court found that deposits were not sale prices but safeguards against non-return of bottles.

Based on these precedents and the specifics of the case, the court concluded that the transactions were bailments, not sales. Therefore, the deposit amount written off by the assessees could not be treated as the sale price of tins and was not subject to sales tax.

Conclusion:
The court answered the referred question in the negative, ruling in favor of the assessees and against the department. The respondents were ordered to pay the costs of the reference, and the applicants were entitled to withdraw the sum of Rs. 100 deposited with the Tribunal.

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