2013 (4) TMI 149 - HC - VAT and Sales Tax

Valuation - inclusion of cost of bottles - sale price of the soft drinks - Taxability of Rental charges collected by the manufacturer from the distributors/ wholesalers for bottles and crates - Held that - entry 21 of Schedule-VI to the AP General Sales Tax Act,1957 imposes Sales Tax only on the soft drinks which are bottled and sold under a brand name and merely because the words bottled soft drinks under a brand name are used in the entry, it does not follow that the bottle has to be taken as sold along with the soft drink. Merely because the soft drinks and bottles cannot be separated till they reach the end-customer, in the absence of sale of the bottle, it cannot be said that there is no transfer of the right to use the bottle. In our view there is a transfer of the right to use, such use being for storing the contents , thereby attracting S.5-E of the Act. The decision of State of Orissa vs Asiatic Gases Limited 2007 (5) TMI 322 - SUPREME COURT OF INDIA applies to this case and it has to be held that there is only a transfer of the right to use the bottle or crate and there is no sale of the bottle or crate as the bottle is to be returned by the end-customer to the retailer and by the retailer to the wholesaler and by the wholesaler to the manufacturer. The Tribunal erred in distinguishing the said case simply on the ground that entry 118 of Schedule-I to the Act mentions industrial gases other than petroleum gases and gases specified elsewhere in the schedules i.e., only gases were mentioned and not bottled gases . Admittedly, the sale invoices indicate the price of the soft drink separately and the rentals on bottles and crates separately. The Tribunal appears to have not noticed that even prior to 01-08-1996, the same entry was there from 01-09-1976 as entry 108 in Schedule-I to the Act taxable at the point of first sale. It was omitted w.e.f, 1-8-1996 from Schedule-I and introduced as entry 21 in Schedule-VI making soft drinks taxable at every point, such tax to be determined after deducting the tax levied on the turn over on such goods at the immediately preceding point of sale by registered dealer from the tax leviable on the turn over of the same goods at the point of sale by the selling dealer. Only mineral water sold under brand name was added for the first time at the end of the entry w.e.f., 1-8-1996. As decided in Government of Madras vs Simpson & Co., Limited 1967 (5) TMI 58 - SUPREME COURT OF INDIA that in the absence of any other material, recitals in invoices will furnish good proof of the intention of the parties relating to the terms of the agreement and that by themselves, they will be inclusive piece of evidence. The Revenue, in the present case, has not adduced any evidence to rebut the contents of the invoices or its correctness therefore, the invoices filed by the manufacturers, which show clearly the separate charge on the sale of soft drinks and rental charges on crate and bottles indicate a contract between the parties to treat both as separate categories ( to be charged at the rate of 12 %(u/s. 5 of the Act) and 5 % (u/s. 5-E of the Act) respectively) have to be accepted and tax levied accordingly. The rotation of the bottles and crates takes place about six times during their lifetime and the manufacturers are entitled to calibrate their charges keeping this in mind. Thus this cannot be said to be a colourable device adopted by the manufacturers to evade tax. Sec 6-C would apply only if the packing material is sold with the goods and as that is not the case here as bottles are returned to the retailer and ultimately to the manufacturer, thus S.6-C has no application to the facts of these cases. As already held that in the business of sale of soft drinks, there is a facility and practice of recycling the bottles and crates in which beverages are sold and that the charges for such limited user of bottles and crates is recovered separately. Since the bottles and crates constitute packing material,such turnover is liable to be taxed @ 4 % u/s. 4(8) of the Andhra Pradesh VATAct, 2005 r/w Item No.90 of Schedule-IV of the said Act. The Revenue thereforeis not entitled to treat the entire turnover as taxable @ 12.5 % by placing reliance on S.6 of the Andhra Pradesh VAT Act, 2005 which was not even mentioned by the assessing authority in the show cause notice issued by him to the petitioner.

Summary

Issues Involved:
1. Taxability of rental charges on bottles and crates.
2. Applicability of Section 5E of the Andhra Pradesh General Sales Tax Act, 1957.
3. Interpretation of Entry 21 of Schedule VI to the AP General Sales Tax Act, 1957.
4. Applicability of Section 6C of the Andhra Pradesh General Sales Tax Act, 1957.
5. Validity of assessment orders under the Andhra Pradesh VAT Act, 2005.

Detailed Analysis:

1. Taxability of Rental Charges on Bottles and Crates:
The primary issue was whether the rental charges collected by the manufacturer from the distributors/wholesalers for bottles and crates should be treated as part of the sale price of the soft drinks or as compensation for the transfer of possession thereof for a limited period, assessable under Section 5E of the AP General Sales Tax Act, 1957. The Tribunal held that the return of the bottles by the end customers and the return of the bottles and crates by the retailers to the wholesale dealers and by the wholesale dealers to the manufacturers is not in dispute. The Tribunal concluded that the segregation from the sale price of the rental charges was a device to escape sales tax from that part of the turnover, and there was no transfer of the right to use bottles and crates, thus Section 5E was inapplicable.

2. Applicability of Section 5E of the Andhra Pradesh General Sales Tax Act, 1957:
Section 5E of the AP General Sales Tax Act, 1957 states that every dealer who transfers the right to use any goods for any purpose shall pay a tax on the total amount realized by him by way of payment in cash or otherwise in such transfer. The court found that the Tribunal erred in its reasoning. It was held that the bottle is used only for storing the contents (soft drinks), and when the bottle is returned to the retailer by the customer and so on to the manufacturer, the cost of the bottle cannot be said to get included in the cost of the soft drink. Therefore, there is a transfer of the right to use the bottle, thereby attracting Section 5E of the Act.

3. Interpretation of Entry 21 of Schedule VI to the AP General Sales Tax Act, 1957:
Entry 21 of Schedule VI to the AP General Sales Tax Act, 1957 reads "aerated water and bottled soft drinks sold under a brand name whether or not flavoured or sweetened and whether or not containing vegetable or fruit juice or fruit pulp, including squashes, jams, jellies, juices when sold in sealed or capsuled or corked bottles, jaws, tins, drums or other containers and mineral water sold under a brand name." The court held that merely because the words "bottled soft drinks under a brand name" are used in the entry, it does not follow that the bottle has to be taken as sold along with the soft drink. In the absence of sale of the bottle, it cannot be said that there is no transfer of the right to use the bottle.

4. Applicability of Section 6C of the Andhra Pradesh General Sales Tax Act, 1957:
Section 6C of the Andhra Pradesh General Sales Tax Act, 1957 states that the rate of tax on packing material sold with the goods shall be the same as that of the goods packed or filled. The court held that Section 6C would apply only if the packing material is sold with the goods, and as that is not the case here (since bottles are returned to the retailer and ultimately to the manufacturer), Section 6C has no application to the facts of these cases.

5. Validity of Assessment Orders under the Andhra Pradesh VAT Act, 2005:
The assessing officer purported to rely on Section 6 of the Andhra Pradesh VAT Act, 2005, which states that the rate of tax applicable to containers or packing material shall be the same as the rate of tax applicable to the goods so contained or packed. The court held that the Revenue is not entitled to treat the entire turnover as taxable at 12.5% by placing reliance on Section 6 of the Andhra Pradesh VAT Act, 2005. The view taken by the assessing officer that the petitioner cannot split the turnover on the sales of soft drinks and the lease rentals on the bottles and crates is incorrect.

Conclusion:
The court allowed the TREVCs No.43 to 45 of 2007 and set aside the order dated 17-10-2007 passed by the STAT. The writ petitions were also allowed, and the assessment orders dated 15-09-2005 and 08-12-2005 were set aside. The respondent was restrained from taking any action pursuant to the notice dated 8-12-2005 for October 2005 and from issuing any notices for the months of November 2005 onwards contrary to the court's decision. No costs were awarded.