2005 (3) TMI 783 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the security charged from customers for returnable cylinders, forfeited on non-return, amounts to sale consideration liable to tax.

Analysis:
1. The case involved a Public Limited Company engaged in bottling and distributing domestic cooking gas. The company charged cash security for cylinders and regulators from customers, which was forfeited on non-return. The Assessing Authority considered this forfeited amount as sale of cylinders and brought it to tax. The applicant's appeals were rejected, leading to the present revision under Section II of U. P. Trade Tax Act against the Tribunal's order for the Assessment Year 1999-2000 under the Central Sales Tax Act.

2. The main question was whether the forfeited security amount constituted a sale consideration liable to tax. The applicant argued that the security was for ensuring cylinder return, not for selling cylinders. They contended that the forfeited amount was in the nature of compensation, not sale consideration. The applicant relied on the decision of the Apex Court in United Breweries Ltd. v. State of Andhra Pradesh, emphasizing that the forfeited security was not part of the sale price.

3. The Court examined the definitions of "sale," "sale price," and "turnover" under the Central Sales Tax Act. Referring to the United Breweries case, the Court highlighted that the intention of the parties was crucial in determining whether a sale had occurred. The Court distinguished another case, Kalyani Breweries Ltd. v. State of West Bengal, where forfeited security was considered liable to tax due to lack of communicated terms for refund and equal deposit cost to bottle price.

4. After analyzing the facts and the two Apex Court decisions, the Court concluded that the forfeited security in the present case was not a sale consideration. The terms communicated to customers indicated the security was for cylinder return, not for sale. The Court held that the transaction was a bailment, not a sale, as the parties did not intend to enter a contract for buying and selling cylinders. Therefore, the Tribunal's decision to levy tax on the forfeited amount was deemed erroneous, and the revision was allowed, setting aside the Tribunal's order.