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TMI Blog2013 (1) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... .1323 of 2003, 911 of 2003 and 912 of 2003 of the Sales Tax Appellate Tribunal, Hyderabad for the assessment years 1998-99 (APGST), 1997-98 (APGST) and 1997-98 (CST) respectively. 4. The petitioner is a manufacturer and dealer in Soft Drinks and aerated water having its factory at Moula Ali, Hyderabad. It is registered on the rolls of the Commercial Tax Officer, Malkajigiri. It manufactures Soft Drinks with the brand names such as Thums Up, Citra and Limca, puts them in the standard glass bottles of 200 ml, 300 ml and 350 ml and transports the same to the Wholesale Dealers in crates housing 24 bottles in each crate. The Wholesale Dealers in turn sell the same to the retailers. The retail dealers sell the same to the consumers who after consuming the soft drinks, return the bottles to the retailers. The retailers return the same to the wholesalers who in turn return the same to the manufacturers and this circle continues until the bottles and crates become useless. In order to secure the return of bottles, the manufacturers have been collecting rentals on the bottles and crates. 5. For the assessment year 1997-98, the petitioner was assessed under the Andhra Pradesh General Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Sales Tax Act,1957 by the Commercial Tax Officer, Malkajigiri Circle by order dated 30.03.2002. He held that with the substitution of Sl.No.19 of the First Schedule by Act 30 of 1997 with effect from 12.5.1997, packing material has to be taxed at the same rate as the content. 11. For the assessment year 1998-99, the assessee filed an appeal to the Deputy Commissioner (Appeals) who upheld the assessment order stating that the claim for assessment under Section 5E of the Act cannot be maintained in view of Section 6C of the Act by order dated 14.2.2003. 12. The assessee filed TA No.1323 of 2003 to the Sales Tax Appellate Tribunal, Hyderabad stating that Act 30 of 1997 has no relevance to the controversy and if there was no sale of packing material, Section 6C of the Act has no relevance. 13. On 30.9.2004, a judgment was delivered by the Tribunal wherein the Chairman agreed with the assessee and held that the crate rental represented a transaction of right to use taxable under Section 5E of the Act and allowed the appeal, but the Departmental Member disagreed with him and dismissed the appeal. Thereafter, the matter was placed before a Larger Bench of the Tribunal. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice dated 1.9.2005. Challenging the same, the petitioner filed W.P.No.21115 of 2005 inter alia contending that the Revenue cannot tax the entire turnover @ 12.5% ignoring the terms and conditions between the parties; that the dispute whether the bottles and crates were subject matter of lease or infact sold along with soft drinks and hence taxable at a higher rate was a controversial issue between the petitioner and the Revenue even under the repealed AP General Sales Tax Act, 1957 and appeals are pending for various years commencing from 1997 to 2003 before the STAT; that the impugned assessment order was passed without application of mind; that it was never the case of the revenue that the turnover of bottles and crates shown under 4% category is taxable at 12.5% in view of the provisions of Section 6 of the VAT Act, 2005; that there was no reference to Section 6 at all in the show cause notice and therefore, the said assessment order should be suspended. On 28.9.2005, in W.P.M.P.No.27041 of 2005, this Court granted interim suspension of the said order. 16. For September, 2005, the Assistant Commissioner (CT) (LTU), Saroornagar Division, Hyderabad passed orders dated 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of soft drink in a sealed and duly carbonated bottle to enable the customer to consume the soft drink, the manufacturers are not justified in splitting of the price into cost of soft drinks and rental value of crates and bottles; that the same appears to be a colourable device adopted by the manufacturers to avoid payment of tax; that neither the wholesalers nor the retailers can use the bottles and crates for any other purpose except to make the soft drink available to the end customer; therefore, there is no use of the bottles and crates by the wholesale dealers to the end customers and as such Section 5E of the Act is inapplicable; that there is no transfer of right to use goods exigible to tax under Section 5E of the Act as neither the wholesale dealers nor the retailers or the end customers have any control or domain over the bottles and crates; that no agreements between the manufacturers and the wholesale dealers have been filed and only invoices were filed to show the separate sale of soft drinks and lease of bottles and cartons; that the deposits made by the wholesale dealers have nothing to do with the turnover as the deposits were only for the purpose of security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks and beverages and by wholesale dealers as well. These revisions are restricted to the decision of the Tribunal insofar as it pertains to rejection of the appeals by the manufacturers. However, the decision of the Tribunal insofar as it allowed appeals preferred by the wholesale dealers, on interpretation of the same transactional documents has become final as the State has not chosen to prefer any revision against the common order of the Tribunal insofar as the Tribunal decided in favour of the wholesale dealers. 21. Since the same transaction was in issue, both in the appeals preferred by the manufacturers as well as the wholesale dealers, though the decision in these revisions may not have an impact on the liability to tax of the wholesale dealers (since the State has not preferred any revisions), it was felt that hearing of the views of the wholesale dealers would aid holistic adjudication of the issue involved in the revisions. Therefore, when the State filed TREVC M.P.No.239 of 2012 in TREVC No.43 of 2007 to implead the wholesale dealers/ distributors, the said application was ordered on 01-11-2012 by this Court rejecting the objection of the petitioner in the TREVC No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relying upon the self-serving case of the distributors that what was collected in the name of rental of bottles and crate was an integral part of the price of the soft drink, whereas the wholesalers had transacted accepting the invoice of the petitioners for a number of years and paid for crate rental for the use and return of the bottles and crates; the Tribunal committed serious error of law and jurisdiction in permitting the distributors to orally argue a case contrary to their own pleadings set out in the Memorandum of Grounds as well as the stand of the wholesalers before the assessing authorities to the effect that the crate rental paid to the petitioner/manufacturer was recouped and the same cannot be taxed twice over; The Tribunal committed error of law in relying upon Sri Satya Winery Distillery [(2005) 41 APSTJ 111] Private Limited vs. State of Andhra Pradesh, Amrut [1986 (2) APSTJ 253] Distilleries vs. State of Andhra Pradesh and Premier [108 STC 599] Breweries vs State of Kerala which pertained to cases of sale of IMFL in bottles and packing materials for which independent tax treatment was denied in the light of S.6-C and corresponding provisions and were not at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o escape sales tax from that part of the turn over; that there is no transfer of right to use bottles and crates; that S.5-E is not applicable to the transactions between the manufacturers and wholesale dealers/distributors; that the decisions cited by the petitioners are inapplicable to the facts of the case; that the Tribunal rightly drew adverse inference when the manufacturers did not produce copies of the agreements between them and the wholesalers having pleaded in the grounds of appeal before the Tribunal that such agreements existed; that what is sold by the manufacturer is placing the soft drink(content) in a bottle(container) and therefore what is sold is both the content and the container; the intention of the manufacturer is that the soft drink should reach the consumer in that container directly and the mere handling in between by the wholesaler or distributor is irrelevant; that the bottle hire/rental issue therefore has to be ignored as there is a sale directly of the soft drink in the container to the customer; that the artificial contract, if any, between the manufacturer and the distributor is a colourable one; and therefore the TREVCs and W.Ps should be dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their business, they purchased and used crates and bottles with their respective brand names; they put the soft drinks in the standard bottles of 200 ml, 300 ml and 350 ml and transport the same to the Wholesale Dealers in the crates housing 24 bottles in each crate; the Wholesale Dealers in turn sell the same to the retailers; the retail dealers sell the same to the consumers who after consuming the soft drinks, return the bottles to the retailers; the retailers return the same to the wholesalers who in turn return the same to the manufacturers and this circle continues until the bottles and crates become useless; the manufacturers collect deposits/rentals towards these bottles and crates as security which is refundable. 30. The issue to be decided is whether the rental charges collected by the manufacturer from the distributors/ wholesalers for bottles and crates is to be treated as part of the sale price of the soft drinks or is to be treated as a compensation for transfer of possession thereof for a limited period assessable under S.5-E of the AP General Sales Tax Act, 1957. 31. It is important to note that the Tribunal has held in Paragraph 28 of its order that bottle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 34. I n Asiatic Gases Limited s case(6 Supra) the Supreme Court considered the question whether there was a transfer of the right to use the goods for consideration under the extended definition of the word sale u/s. 2(g)(iv) of the Orissa Sales Tax Act, 1947 which incorporates the concept of transfer of the right to use any goods from Art. 366(29-A) (d) of the Constitution of India. The Supreme Court was considering whether there was a transfer of the right to use the cylinders (in which the gas was housed) and whether the charge levied by the assessee/ manufacturer for over retention of the gas cylinders was in the nature of a penalty and therefore did not form part of the sale price as defined in S.2(h) of the said Act. The Supreme Court was of the opinion that the commodity in question being medical oxygen/ industrial g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its order extracted certain the portions from the minority judgment in 20 Century Finance Corporation Limited s Case(5 Supra) in coming to a conclusion that a transfer within the meaning of Art. 366 (29-A) (d) would be complete when the contract is executed and the control/ domain of the goods which are the subject of the contract are given to the hirer. But the majority in the said case held (at para 26 to para 28) that a transfer of the right to use any goods will be a deemed sale in the case of sub-clause(d); and that if the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed and the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. They held that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. In the present case, the end-customer might retain the bottle for more than 24 hours and after consuming the contents may even use it for storing wat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract 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 statement in the grounds of appeal before the STAT that there is a written contract between the manufacturers and the distributors appears to be erroneously made by the manufacturers as admittedly there is no such written contract between them and none was filed even by the distributors. The Tribunal therefore, in the facts and circumstances of the case, erred in drawing an adverse inference against the manufacturers for not filing the alleged written contract between them and the distributors and holding against the manufacturers on the said count. 40. The decision in Hindustan Sugar Mills s case (1 Supra) relied on by the Tribunal is also not applicable because in the said case, there was a contract which was incompatible with the Cement Control Order. The Control Order s scheme was that freight was payable by the producer and he must recover it from the purchaser as part of the F.O.R destination railway price. It was held that the provision in the contract that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... packing material is charged for separately or not, be the same as the rate of tax applicable to such goods so contained or packed, and where such goods sold or purchased are exempt from tax under the Act, the containers or packing material shall also be exempted. 47. We have 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 VAT Act, 2005 r/w Item No.90 of Schedule-IV of the said Act. The Revenue therefore is 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. 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 and therefore the total consideration including both cat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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