1998 (3) TMI 666 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the bottles supplied along with beer can be subjected to tax at the rate of 10 per cent and not 4 per cent.
2. Whether the levy of interest from the date of filing of returns can be upheld in view of the decision of the Supreme Court in J.K. Synthetics Limited v. Commercial Taxes Officer [1994] 94 STC 422.
3. Whether the penalty imposed on the petitioner is liable to be reduced if the finding on the first issue is in favor of the assessee.

Issue-wise Detailed Analysis:

1. Tax Rate on Bottles Supplied with Beer:
The primary issue was whether the bottles supplied along with beer could be taxed at 10% instead of 4%. The court examined the nature of the transaction between the petitioner (a brewery) and its customers (wholesalers). The petitioner argued that the bottles were not sold but merely bailed, with a security deposit charged for their return. However, the court found that the bottles were not returned, and there was no statutory obligation for the wholesalers to return them. The tribunal and authorities had consistently held that the bottles were sold along with the beer, forming an integral part of the transaction. The court agreed, citing the Supreme Court's decision in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax [1959] 35 ITR 519, which held that such security deposits were part of the sale price. The court concluded that the bottles were indeed sold along with the beer, making the transaction taxable. However, it found that taxing the bottles at a higher rate of 10% was unjustified, as the sale was of bottled beer, not separate transactions of beer and bottles. The court held that the tax rate on bottles should be the same as that on beer, i.e., 4%.

2. Levy of Interest:
The tribunal had upheld the levy of interest on the petitioner based on the Supreme Court's decision in Associated Cement Co. Ltd. v. Commercial Tax Officer [1981] 48 STC 466. However, this decision was later overruled by the Constitution Bench in J.K. Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422, which held that interest could not be levied from the date of filing returns but only from the date of assessment. The court applied this ruling and held that the levy of interest from a date prior to the assessment order was not sustainable.

3. Imposition of Penalty:
The petitioner contested the penalty imposed under section 10(7) of the Punjab General Sales Tax Act, arguing that it had not acted with an oblique motive but was contesting its liability in good faith. The court noted that the petitioner was aware of the consistent view of the authorities that the security deposit was part of the sale price, yet it continued to exclude this from its taxable turnover. The court upheld the penalty, finding no ground to interfere with the authorities' decision. However, it directed that the penalty amount be proportionately reduced in light of its finding that the tax rate on bottles should be 4%.

Conclusion:
The court concluded that the price of the bottles supplied with beer was includible in the taxable turnover and upheld the tax on the sale of bottles. However, it declared the levy of tax at 10% illegal and held that the tax rate should be 4%. The levy of interest was modified to comply with the Supreme Court's ruling in J.K. Synthetics Limited, and the penalty was upheld but proportionately reduced. The court directed the Sales Tax Tribunal to refer the specified questions of law to the High Court for adjudication.