Holding

There is no out‑and‑out sale of the bottles and crates; the deposits are security/ liquidated damages and cannot be treated as part of the taxable turnover.

Summary

United Breweries Ltd. (the appellant) challenged the assessment of sales tax on the value of bottles and crates supplied with its beer, arguing that these were not sold but were returned against a refundable deposit. The Commercial Tax Officer, the Tribunal and the Andhra Pradesh High Court held that the bottles and crates were part of the taxable turnover, treating the deposits as part of the sale price. The Supreme Court examined the intention of the parties under Sections 19, 20, 24 and 11 of the Sale of Goods Act, 1930 and held that there was no out‑and‑out sale of the containers; the deposits were security and liquidated damages, not consideration for a sale. Consequently, the deposits could not be included in the taxable turnover. The Court allowed the appeals (Civil Appeals Nos. 8479‑8482 1994) and dismissed the other set of appeals (Nos. 892‑94 1991).

Issues considered

The nature of the transaction involving bottles and crates supplied with beer – whether it constitutes a sale for sales‑tax purposes.
Whether the refundable deposit collected on bottles and crates is part of the sale price or a security/ liquidated damages.
Applicability of Sections 11, 19, 20 and 24 of the Sale of Goods Act, 1930 to determine the intention of the parties.
Whether the assessment under the Karnataka Sales Tax Rules, 1957 is valid.

Legislation cited

Indian Contract Act, 1872s. 74
Karnataka Sales Tax Rules, 1957s. 6(4)
Sale of Goods Act, 1930s. 11, s. 19, s. 20, s. 24

Subjects

Sales taxTaxable turnoverSale of goodsRefundable depositBottle return schemeIntention of partiesSection 19 Sale of Goods ActSection 74 Contract ActLiquidated damagesOut‑and‑out sale

Judgment

A UNITED BREWERIES LTD.
v.
STATE OF ANDHRA PRADESH

MARCH 4, 1997
B
[AM. AHMADI, CJI, S.C. SEN AND SUJATA V. MANOHAR, JJ.]

Sale of Goods Act 193(}--Sections 11, 19, 20 & 24-Taxable Turn-
over-Sale of Beer-deposit collected for bottle~Reimbursed on retum-Com-
-
C mercial Tax Officer took into account value of bottles and crates for imposing
sales tax--Upheld by both Tribunal and High Court-Held, no intention to
sell bottles and crates-Deposits cannot be considered as price for bot-
tle~Retained as liquidated damage~En-or committed by High Court in
holding that crates and bottles sold along with beer.

D The appellant company has been carrying on the business of
manufacture and sale of beer. A dispute arose between the appellant and
sales tax authority regarding crates and bottles in which beer was supplied.
The Commercial Tax Officer held that the taxable turnover had to be
computed not only by taking into account the sale price but also the value
of bottles. On appeal the Tribunal upheld the views of Commercial Tax
E Officer. On further appeal, the High Court held that bottles and crates
were sold along with beer and had to be included in the price of beer. Hence
this appeal by the assessee.

The contention of the appellant was that when beer is sold, bottles
F and crates are not sold to the customers. The deposits collected from
customers is not sale proceeds and it refundable on return of bottles and
crates. It was further contended that the assessee had issued circular to

-
its contended that the assessee had issued circular to its customers making
it clear that bottles and crates were not being sold.

G The contention of the respondent on the other hand was that when
beer was sold in bottles and despatched in crates to the customers by
appellant-assessee an out and out sale of the bottles and crates took place.
The customers had an option to return the bottles. There is no contractual I
obligation to return the bottles to the appellant company within any
H specified period of time.
690
UNITED BREWERIES LTD. v. STATE 691

Allowing the appeals, this Court A
HELD.: 1. An out and out sale of the bottles did not take place when
•
beer was supplied in bottles by appellant assessee to its customers against
the deposits which had to be refunded when the bottles were returned. The
High Court was in error in holding that when beer was sold in bottles, not
only beer but also the bottles were sold and the price of beer along with B
the deposits became exigible to sales tax. (699-G-H]

2. The Principle of Section 24 of the Sale of Goods Act or any analogous
principle is not applicable. Neither the beer nor the bottles nor the crates ware
sent to the customers by appellant-assessee, for approval or "on sale or return" C
basis or any other similar terms. Section 24 of the sale of goods Act is subject
to the provisions of Section 19 which provides that the property in specific or
ascertained goods is passed to the buyer only at such time as the parties to the
contract intent it to be passed. The facts of this case reveal that appellant
assessee did not intent to sell the bottles or the crates to the customers. On the
contrary the customers were advised to sell the beer in bottles to the consumers D
and collect a deposit so that the bottles can be brought back from consumers.
No time limit was fixed for return of bottles in this case. But even if such limit
was fixed, it was well settled that time is not the essence of contract unless the
parties specifically make it so. Section 11 of the Sale of Goods Act gives
statutory recognition to this Principle. [699-C-F] E
3. Whether the bottles and the crates were sold along with the beer or
not will depend upon the intention of the parties. It does not appear from the
terms and conditions that appellant-assessee intended to sell crates and
bottles to the customers. On the contrary it was very anxious to get back these
crates and bottles in order to use them again for further supplies. By taking F
the deposits appellant-assessee nearly ensured the return of bottles and the
crates. The deposit amount which was liable to be forfeited on failure to return
bottles was in the nature of liquidated damages recoverable by the supplier
under Section 74 of the Contract Act. The intention of the appellant-assessee
has not been to sell the bottles. Nor was there any intention of the retailers G
to sell the bottles to the consumer. [700-C-E]

4. The customers clearly know the price they will have to pay for the
beer. They are required to pay an additional amount by way of deposit for
taking away the bottles which is refunded if the bottle is returned. If the
bottle is not returned, the deposit is retained as liquidated damages for H
692 SUPREME COURT REPORTS [1997] 2 S.C.R.

A the loss of the bottle. There is a clear intention not to sell the bottle. Hence
deposits cannot be considered as price of the bottles. The High Court was
in error in holding that the crates and the bottles were sold along with
• the beer. (705-C·D]

State of Maharashtra, Bombay & Ors. v. Britannia Biscuits Company
B Ltd. & Ors., [1995) Supp. 2 SCC 72; Punjab Distilling Industries limited v.
Commissioner of Income~Tax, Simla, [1959) Supp. 1 SCR 683 and Com-
missioner of Income Tax Madurai v. T.V. Sundaram Iyengar & Sons Ltd.,
(1996) 6 Scale 757, held in applicable.

C Raj Steel and Others v. State of A71dhra Pradesh and Others, [1989) 3
sec 262, referred to.
Beecham Foods Ltd. v. North Supplies (Edmonton) Ltd., ( 1959) 2 All
England Reports 336 and Jay's-The Jewellers Ltd. v. Commissioners of
Inland Revenue, 29 Tax Cases 274, referred to•
...
D
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 8479-
8482 of 1994.

From the Judgment and Order dated 4.4.94/17.2.87 of the Andhra
Pradesh High Court in T.R. Case No. 8/93, 7, 9 and 11 of 1985.
E WITH

Civil Appeal Nos. 892-94 of 1991.

From the Judgment and Order dated 17.8.90 of the Karnataka High
Court in W.A. Nos. 275-76 of 1984 with STRP No. 50 of 1984.
F
H.N. Salve, Sunil Gupta and Ms: K. Verma for JBD & Co. for the
Appellant.in C.A. Nos. 8479-82/94.

M. Veerappa for the Appellant in C.A. Nos. 892-94/91.

G 'K. Ram Kumar, Balasubramaniam and Mrs. Asha Nair 'for the
Respondent in C.A. Nos. 8479-82/94.

B. Sen, Praveen Kumar and George Wundgaonkar for the Respon-
/
dent in C.A. Nos. 892-94/91. · '

H The Judgment of the Court was delivered by
UNITED BREWERIES LTD. v. STATE [SEN, J.] 693

- SEN, J. This case along with a number or other cases was heard by A
S.P. Bharucha and Faizan Uddin, JJ. Who passed the following order:

"During the course of the arguments, the judgment of a bench of
two learned Judges 'in State of Maharashtra, Bombay & Ors. v.
Brittannia Biscuits Company Ltd. & Ors., (1995] Supp. 2 SCC 72,
ha,s been cited. Our attention has also been drawn to the judgment. B
of a bench of three learned Judges in Punjab Distilling Industries
Limited v. Commissioner of Income-Tax, Simla, (1959] Supp. 1 SCR
683. Having regard to these judgments, we think that these appeals
require the consideration of a larger bench. The larger bench may
also take note of the judgment dated 11th September, 1996 in C.A. C
Nos. 11864-67 of 1996. Commissioner of Income Tax, Madurai v.
T. V. Sundaram Iyengar & Sons Ltd."

The Unitt;d Breweries (hereinafter referred to as 'VB') supplies at
Hyderabad two brands of beer - (1) U.B. Export Lager and (2) Sun Lager.
The dispute between UB and Another Pradesh Sales Tax Authority was as D
regard the crates and bottles in which the beer was supplied. The case of
UB was that when beer was sold bottles and crates were not sold to the
customers. The sale price of UB Export Lager was Rs. 43.18 and Sun Lager
Rs. 43.75 per dozen. The supplied were made to selling agents who
deposited security of Rs., 4,80 of the bottles and Rs. 5.00 for the crates.
These deposit were returned to the selling agents when the bottles and the E
crates were returned. This was the method of carrying on of the trade by
they assessee and two circulars were issued by the assessee to explain the
scheme to their customers. It was stated in the two circulars as to how
paymen(s for two brands of the beer were to be made. Additionally, it was
stated that the "Vendees to return bottles and crates and customers are
assured of better supply, if the scheme· is adhered by the customers; F
otherwise the company expressed difficulty in supplying the liquor".

The scheme was explained to the trucing authorities. The Comr.1ercial
Tax Officer verified the scheme and held that the customers did not always
return the bottles and crates. The sale of beer included sale of the crates G
and the bottles.

The Commercial Tax Officer was also of the view that the bottles
and crates were higher in value than the amounts deposited as security.
For these two reasons, it was held that the scheme was not genuine.
Therefore, the taxable turnover had to be computed not only by taking into H
694 . SUPREMECOURTREPORTS [1997]1 S.C.R.

A account the sale price but also the value of the bottles.

The case ultimately went up to the Tribunal. The Tribunal was of the
--
view that there was no bailment of the bottles and the crates and there was
no contractual obligation on the part of the customers to return the bottles
and the crates. The scheme, therefore, was not acceptable as genuine.
B
Thereafter, the case was taken up by UB to the High Court. Before the
High Court the contention of the Revenue was that the mere fact that bottles
and crates in which beer was sold could be returned did not mean that the
customers had not purchased the bottles and the crates and had not become
C owners thereof. The bottles and crates were also vended to the customers
along with the beer. The High Court held that the ownership in the bottles
and crates did not remain with the UB when beer was sold. The customers
purchased the bottles and the crates with the contents of receptacles. When
bottles ad crates were returned to the extent shown by the assessee, in law,
there was a resale of bottles and crates to the assessee. The High Court
D referred to the decision of this Court in the case of Punjab Distilling Industries
Ltd. v. Commissioner of Income Tax (A), (1959) 35 STC 519, and pointed
out that UB did not have any right to the return of the bottles and crates
nor was there any time- limit set for return of the bottles and crates.
Therefore, it was a clear case where bottles and crates were sold along
with beer and had to be included in the sale price.
E
The assessee has come up in appeal against this decision.

The case of the appellant is that the Company carries on business of
manufacture and sale of beer. It sells beer to retailers and wholesale dealers
throughout India. When the beer is sold the bottles and crates are not sold to
F the customers. The assessee follows the trade practice to sell the beer in bottles
which are ultimately to be returned to the assessee after the beer is consumed.
To ensure such return a deposit is collected from the customers. This deposit
cannot be treated as sale proceeds in any way. It has been emphasised that
the assessee had issued circulars to its customers making it clear that empty
G bottles and crates were not being sold. The bottles were to be returned so that
the process of bottling beer could continue smoothly and steady supply could
be maintained. The system followed by the assessee was that upon the return
of the empty bottles, fresh supplies would be made to the dealer. The assessee
had submitted figures to show that a substantial part of the bottles was returned
by the consumers. The attention of the Sales Tax Authority was also drawn to
H the circulars issued by the assessee to its customers to the following effect :-
UNITED BREWERIES LTD. v. STATE [SEN,J.] 695

"UNITED BREWERIES LIMITED, HYDERABAD, A
24, Grant Road,
P.B. 5104
Bangalore-1.

Dear Sir, B
We are glad to inform you that our brewery at Hyderabad com-
menced operating on October 18, 1971 and we are not in a position
to render the same service to you as we render to our valued
customers in Bangalore viz., delivery of our beer at your door fresh
from the Brewery every day. C
The brands can offer and their prices are as follows :

U.B. EXPORT LAGER

Rate per dozen Rs. 33.88 D
Refundable deposit on bottles Rs. 4.80

Refundable deposit on crates Rs. 5.00

TOTAL per dozen Rs. 43.68
E
SUN LAGER

Rate per dozen Rs. 38.95

Refundable deposit on bottles Rs. 4.80
F
Refundable deposit on crates Rs. 5.00

TOTAL per dozen Rs. 48.75

Rebate for orders at a time of 40 dozen and more of.Sun Lager
only is Rs. 1.24 per dozen making the net price Rs. 47.50 per dozen. G
Orders should be booked at the office of Phipson & Co. Ltd., _at
3-6-14/7, Himayathnagar, Hyderabad-29.

Full payment should be made at the above rates at the time of
booking of orders. Cheques for OB Export Lager should be made H
696 SUPREME COURT REPORTS (1997] 2 S.C.R.
A in favour of United Breweries Limited and cheques for Sun Lager
should be made in favour of Phipson & Co. Ltd.

Delivery will be made on the following working day after booking
of the order. Empty bottles and crates with customers will be taken
back by our truck, the driver of which will issue a receipt, against
B which our Brewery will issue a Credit Note on production of which
credit will be allowed for the deposit at the time- of booking of the
next order. Please take back empty bottles from your customers
and pay them 40 paise per bottle. This will reduce the cost of the
beer and encourage them to buy larger quantities from you.
c
As open delivery will be given, there will be no question of
leakages. Further, as already stated above, the beer will be
delivered to you fresh every day. Not only will this simplify your
business but you will build up a very good turnover ia beer just
like very every one of our customers in Bangalore. This arrange-
D ment will be particularly of great advantage to you during the hot
weather when there is a large demand for beer. We hope you will
easily visualize the tremendous benefit to you of our having started
our Brewery in Hyderabad and extend you kind patronage to your
mutual benefit."
E
Four things emerge from this circular set out herein -

(1) The refundable deposits were being collected on the bottles
and the crates.

F (2) The appellant advised its customers to collect forty paise per
bottle from the consumers as deposit.

(3) The customers were advised to collect the empty bottles from
the consumers and return them to the appellant.

G (4) The empty bottles and crates were to be taken back by the
trucks of the appellant, the drivers of which were authorised
to issue a receipt for the empties against which the appellant
would issue credit notes. At the time of the booking of the
next consignment, the customers would get advantage of the
H credit notes.
UNITED BREWERIES LTD. v. STATE [SEN, J.] 697

This arrangement suggests a continuous process by which the appel- A
!ant will sell beer to its customers in bottles and crates and collect the sale
price of beer and also deposits for the crates and the bottles. The cus-
tomers, in their turn, will sell beer to the consumers and apart from the
price of beer, will recover forty paise per bottle as deposit to ensure return
of the bottles. The bottles will ultimately be taken back by the appellant B
for which the trucks will be sent and the credit notes will be given to the
customers for return of the empties. This scheme of recycling the bottles
and crates will keep down the costs and ultimately will have the effect of
reducing the price of beer and encouraging the customers to buy beer in
larger quantities.
c
The contention of Mr. Ganguli appearing for the respondent is that
when beer was sold in bottles and despatched in crates to the customers
by UB, an out and out sale of the bottles and the crates took place. The
property in the bottles and the crates passed to the customers. The cus-
tomers had an option to retain the bottles and use them as they liked. There D
was no contractual obligation to return the bottles to UB within any
specified period of time. When the bottles were ultimately returned by the
customers to UB, a resale of the bottles took place.

We are unable to uphold this contention having regard to the nature
of the transaction. The basic questions are : What was the intention of the E
parties? When the bottles and crates were supplied by UB, did UB intend
to make an out and out sale of the bottles and the crates along with beer
and did the customers purchase not only beer but also the bottles and the
crates from UB? The intention has to be found out from the conduct of
the parties to the agreement and the manner in which the business· was F
being carried out.

Section 19 of the Sale of Goods Act lays down that where there is a
contract for sale of specific or ascertained goods, the property in them is
transferred to the buyer at such time as the parties to the contract intend
it to be transferred. For the purpose of ascertaining the intention of the G
parties, regard shall be had to the terms of the contract, conduct of the
parties and the circumstances of the case. Sections 20 to 24 contain rules
for ascertaining the intention of the parties as to the time at which the
property in the goods is passed to the buyer. But these rules will apply only
if a different intention does not appear from the contract itself. H
698 SUPREME COURT REPORTS [1997] 2 S.C.R.

A From the memorandum issued by UB, it appears that UB was very
anxious not to lose the bottles and crates in which the beer was supplied.
40 paise was charged as deposit and the customers were also advised to
do likewise when they sold the beer to the consumers. The whole intention
was to get back the bottles from the consumers through the customers. The
B scheme was that UB would regularly send trucks with beer to the cus-
tomers to supply beer and get back the empties. These empties· will be filled
up again for further supplies. This recycling of bottles will keep down the
costs and this process will have the effect of keeping down the price of the
beer which in turn will increase the sales. This does not appeal to be a case
where UB was selling beer in bottles and washing off its hands thereafter.
C It wanted to use the empty bottles. It was anxious to get back the bottles
and that is why it not only charged 40 paise per bottle from customers but
even advised them to do likewise, and collect 40 paise as deposit per bottle
of beer from consumers to ensure that the bottles ultimately are returned
to UB.
D
Mr. Ganguli invited our attention to Sections 23 and 24 of Sale of
Goods Act. According to him, this Court in the case of State of
Maharashtra, Bombay and others v. Britannia Biscuits Co. Ltd. and Others,
[1995] Supp. 2 SCC 72, in a similar transaction had held that supply of
biscuits by the manufacturer to its customers in returnable tins amounted
E to sale of goods. To come to this conclusion, a Bench of two Judges of this
Court took the view that the principle underlying Section 24 was that where
the goods were delivered to the buyer on terms similar to the delivery of
goods on approval or "on sale or return" basis, the property in the goods
therein passed to the buyer, if he did not signify his approval or acceptance
F and also did not return the goods within the time prescribed therefore. The
position of the purchaser, until he returned the goods within the prescribed
period, was that of a bailee and on the expiry of the said period, he
becomes a_purchaser. Where, however, the person to whom the goods were
delivered was under an obligation to return the goods, there was no
question of sale every coming into being and the person to whom the goods
G were delivered remained a bailee. It was held in the facts of that case that
the transaction therein was of the nature nearer to the situation con-
templated by Section 24 inasmuch as the tins were delivered to the buyer
with the stipulation that if he returned the tins in good condition within
three months, he would get back the deposit made by him in that behalf.
H It meant that after the expiry of the said period, he had no right to claim
UNITED BREWERIES LTD. v. STATE [SEN, J.] 699

the refund on return of goods. The transaction then became a sale. The A
Court highlighted two features of the transaction. One was that the cus-
tomer was under no obligation to return the tins in which the biscuits had
been supplied. He had a right to return the tins in good condition within
three months. The supplier was under an obligation to refund the deposit
amount only if the tins were returned within three months in good condi- B
tion.

It is not clear how the Court came to the conclusion in the facts of
that case that the tins were sent to the buyers on sale or 'on sale or return'
basis or any analogous condition. We are of the view that the principle of
Section 24 or any analogous principle cannot be applied to a case like this. C
Neither the beer nor the bottles nor the crates were sent to the customers
by UB for approval or 'on sale or return' basis or any other similar term.
Section 24 of the Sale of Goods Act is subject to the provisions of Section
19 which provides that the property in specific or ascertained goods is
passed to the buyer only at such time as the parties to the contract intend D
it to be passed. The facts of this case reveal that UB did not intend to sell
the bottles or the crates to the customers. There was no intention of an out
and out sale to the customers. On the contrary, the customers we~e advised
to sell the beer in bottles to the consumers and collect a deposit of 40 paise
per bottle so that the bottles can be brought back from the consumers and
returned to UB. The entire i~ea was to use the bottles over and over, again E
so that the business costs of UB could be kept at the minimum and the
price of the beer could be kept at a low level so that consumption of beer
would increase. It does not appear that any time limit was fixed for return
of bottles in this case. But, even if such limit was fixed, it is well settled
that time is not of the essence of the contract unless the parties specifically F
make it so. Section 11 of the Sale of Goods Act gives statutory recognition
to this principle. This aspect of the matter was also overlooked in Britannia
Biscuits Co. 's case.

Having regard to the facts of this case, we are of the view that an out
and out sale of the bottles did not take place when beer was supplied in G
bottles by UB to its customers against the deposits which had to be
refunded when the bottles were returned. Having regard to the scheme
and the nature of the transactions, we are of the view that the High Court
was in error in holding that when beer was sold in bottles, not only beer
but-also the bottles were sold and the price of beer along with the deposits H
700 SUPREME COURT REPORTS (1997] 2 S.C.R.

A became exigible to sales tax.

Mr. Ganguli argued that the very fact that UB had a right to forfeit
the deposits on the failure of the customer to return the bottles indicates
that the bottles were sold. The deposits were nothing but price of the goods
B which was returnable when the bottle; were resold.

We are unable to uphold this contention. Whether the bottles and
the crates were sold along with the beer or not will depend upon the
intention of. the parties. We have set out the terms and conditions under
which the beer was sold and it does not appear from these terms and
C conditions that UB intended to sell crates and bottles to the customers. On
the contrary it was very anxious to get back these crates and bottles in order
to use them again for further supplies. The fact that UB advised their
customers to charge similar deposits from their consumers and get back
the bottles from them goes to show that an out and out sale of the bottles
D had not taken place. By taking the deposits UB merely ensured the return
of the bottles and the crates. A deposit of forty paise per bottle was taken
to ensure return of the bottles. In our view, the deposit amount which was
liable to be forfeited on failure of the return of bottle was in the nature of
liquidated damages recoverable by the supplier under Section 74 of the
Contract Act. An overall view has to be taken of the dealings and transac-
E tions between the manufacturer of the beer, its customers and the con-
sumers. The intention of UB does not appear to have been to sell the beer
bottles. Nor was there any intention of the retailers to sell the bottles io
the consumers. On the contrary, by the terms and conditions of the
agreement UB was trying to ensure that the bottles in which the beer was
F supplied to the consumers through their customers were brought back to
it so that they could be used again for fresh supply of beer at a cheap rate.
i
Strong reliance was place by Mr. Ganguli on the decision of this
Court in the case of Punjab Distilling Industries Ltd. v. The Commissioner
of Income Tax, Simla, [1959) Supp. 1 SCR 683. That case was decided
G under the Income Tax Act, 1922. There the appellant-distiller of country
liquor carried on the business of selling liquor to licensed wholesalers. Due
to shortage of bottles during the. war-time, a buy-back scheme was evolved
by the Government whereunder the distiller could charge a wholesaler a
price for the bottles in which liquor was supplied at a rate fixed by the
H Government, which he was bound to repay to the wholesaler on his
UNITED BREWERIES LTD. v. STATE [SEN, J.] 701

- returning the bottles. In add,ition to this, the distiller took a further sum A
from the wholesalers described as security deposit for the return of the
bottles. Like the price of the bottles, these moneys were also repaid as and
when the bottles were returned with the difference that the entire sum was
refunded only when 90 per cent of the bottles covered by it had been
returned. The distiller was assessed to income tax on the balance of the B
amounts of these additional sums left after the refunds were made. This
Court held that the sums paid to the appellant and described as "security
deposit" were trading receipts and, therefore, were assessable to tax~ These
amounts were paid as an integral part of the commercial transaction of the
sale of liquor in bottles and represented an extra price charged for the
bottles. They were not security deposits as there was nothing to secure, C
there being no right to the return of the bottles.

The principle laid down in that case has to be understood having
regard to the special facts of that case. The buy-back scheme was devised
by the Government due to scarcity of bottles. Under this scheme, a distiller D
on a sale of liquor became entitled to charge the wholesaler a price for the
bottles in which the liquor was supplied at rates fixed by the Government.
Therefore, not only a sale of liquor took place but under "buy-back"
scheme, the bottles were also sold. The price at which the bottles were to
be sold were fixed by the Government. The supplier was bound to repay
the wholesaler the price as and when the bottles were returned. Therefore, E
there could not be any doubt that under the "buy-back" scheme the bottles
were being sold in the first instance and bought back later on. This was a
scheme devised by the Government. The parties had no option to do
business in any other way. Since the bottles had to be sold in the first
instance and bought back thereafter, any additional deposit could not be F
anything but an additional consideration for sale of the bottles.

This case cannot be treated as an authority for the proposition that
whenever liquor is supplied in bottles to a consumer, the container is also
sgld along with liquor.
G
Commissioner of Income Tax, Madurai v. Mis T. V. Sundaram Iyengar
& Sons Ltd., (1996) 6 Scale 757, is a case under Income Tax Act. The !
question in that case was whether unclaimed sundry credit balances lying
with the assessee could be treated as trading receipt. The amounts were
left lying with the assessee and the claims of the customers had become H
702 SUPREME COURT REPORTS [1997] 2 S.C.R.

A barred by limitation. The assessee transferred the unclaimed balances to
the profit and loss account. It was held that the moneys had been received
by the assessee in course of trading transaction. Although originally the
-
amounts received were not of income nature, by lapse of time the claim of
the depositors became time barred and the amount by operation of law
acquired totally different character. This principle was enunciated in the
B
case ofJay's-The Jewellers Ltd. v. Commissioners of Inland Revenue, 29 Tax
Cases 274. This was a case under the Income Tax Act. We fail to see how
this principle has any relevance to the case now before us. In that case, the
dictum of Lord Greene in the case of Morley (H.M. Inspector of Taxes) v.
Messr, Tattersall, (1939) 7 ITR 316 (CA), that the taxability of receipts was
C fixed with reference to its character at the moment it was received, was
explained and confined to the peculiar facts of that case.

The principle laid down in the case of Jay's-The Jewellers Ltd. (supra)
was that the money owed to the clients in course of usual business trans-
actions remaining with the assessee-company and transferred by it from the
D suspense account to profit and loss account after it had become, by
operation of law, the assessee's money, arose out of ordinary trading
transactions and had to be taxed as income of the company.

It however, cannot be said that the moneys lying with the company
E for a long time as security deposit from its customers would automatically
become sale proceeds in the hands of the company by efflux of time. The
customers may lose all claims to the deposit amount by operation of law.
The company may take the unclaimed deposits to its profit and loss
account by treating them as trading receipts. That, however, will not
convert the deposits which were not received initially as price into sale
F proceeds of the tins in which the biscuits were supplied or the bottles in
which the beer was sold.

We were referred to a large number of decisions of various High
Courts. It is not necessary to refer to these decisions in this case. The cases
G were decided on the basis of the facts found by the Tribunal and the
provisions of the local sales tax laws.

In the case of Raj Steel and others v. State of Andhra Pradesh and
others, [1989] 3 SCC 262, this Court had to deal with two types of cases -
(1) beer sold.in bottles packed in cartons and (2) cement sold in gunnies.
H It was held that the issue as to whether the packing material had been sold,
UNITED BREWERIES LID. v. STATE [SEN, J.) 703

depended on the contract between the parties. 'fhe fact that the packing A
was of insignificant value in relation to the value of the contents might
imply that there was no intention to sell the packing, but where any packing
material was of significant value it might imply an ·intention to sell the
packing material. It was concluded that in every case the assessing authority
had to ascertain the true nature and character of the transaction upon a B
consideration of all the facts and circumstances· pertaining to the transac-
tion. The case was, therefore, remitted to the High Court to find out the
facts on fuller investigation.

We were also referred to an English decision in the case of Beecham
Foods Ltd. v. Norlh Supplies (Edmonton) Ltd., (1959) 2 All England C
Reports 336, where the plaintiffs were the manufacturers and suppliers of
a glucose drink sold under the trade mark 'Lucozade'. Every bottle of
'Lucozade' was supplied subject to a condition as to the price at which it
might be resold, the condition being the observance of the fixed retail price
as published in the current price list issued by the plaintiffs' distributors. D
In the retail price list for 1957, the price was shown as "2s. 6d. plus 3d." for
a twenty-six ounce unit, and under the heading "Bottle and container
charges", it was stated that ··Lueozade' bottles were "charged at 3s. per
dozen, refundable". The defendants, who carried on business as grocers,
sold 'Lucozade' at 2s. 7d per bottle Moulded in the glass of the bottle was
. the word 'Lucozade', and there was a label on the bottle with "2s. 6d." in E
large type, followed by.the words "plus 3d. deposit returnable on bottle
with stopper", in smaller type. The plaintiffs, who were the manufacturers,
brought an action for an injunction to restrain the defendants from selling
'Lucozade' at a price less than the fixed retail price. i.e., 2s. 6d. plus 3d. It
was held that the bottles in which 'Lucozade' was supplied were not sold f
to customers, but merely hired to them, as the property in the bottles was
not intended to pass to customers. The correct retail price of the drink in
a twenty-six ounce bottle of 'Lucozade' was 2s. 6d., and not 2s. 9d., the
extra 3d. being for the hire of the bottle, and on each occasion when Lhc
defendants received 2s. 7d. for a bottle of 'Lucozade', the customer paid
the correct retail price of 2s. 6d. for the drink and ld., instead of 3d., for G
the hire of the bottle.

It was further held that th~ action was under Section 25(1) of the
to
Restrictive Trade Practices Act, 1956, which applied only sales and riot
to hiring agreements; and therefore the defendants were not in breach of H
704 SUPREME COURT REPORTS [1997] 2 S.C.R.

A -the statute in not charging the stipulated rate for the hire of the bottles
and ther.efore, the action of the defendants must fail.

The facts of this case come very close to the facts of the case before
us. The Court took note of the fact that initially it was stated specifically
on the label "plus 3d. deposit returnable on bottle with stopper". The label,
B however, did not say by whom the 3d. would be returned when the bottle
with stopper was returned to the retailer. The Court held that this merely
implied that the customer would get 3d. back, if he took back the bottle to
the same shop which supplied him the '_Lucozade'. Vaisey, J., after referring
to the scheme of the transaction concluded. "It further seems that the
C property in the bottle was never intended to pass to the customer".

The Court observed:-

. "In the present case each of the two ladies who effected a trap- or
test purchase from the defendants paid, on each occasion, 2s 7d.,
b and, in my judgment, may fairly be said to have paid the full and
correct price of 2s. 6d. for the liquid but only ld. for or towards
the hire of the bottle. In my judgment, however, the bottle, in each
of these transactions, was never sold at all, but was merely lent or
hired as a convenient receptade for carrying the liquid home. The
same result follows if 2s. 9d. is paid by a customer. In either case
E I interpret the transaction as a payment of 2s. 6d. in full as the
price of the liquid and 3d. or. ld. for the hire of the bottle. The
matter may be looked at in a variety of ways. For example, a
customer may go into a shop, ask for a bottle of 'Lucozade', fill
up his own flask from the contents and hand back the bottle with
F its stopper across the counter to the shop man. What has he to
pay? Surely 2s. 6d. The suggestion that he must pay 2s. 9d. and a
minute or two later ask for 3d. back is reducing a very ordinary
transaction to an absurdity. The moral is that, if people want to fix
prices for retail sales, they must, in my view, do so in plain, simple
and sensible and, above all, accurate language. Here the price ,of.
G 'Lucozade' is 2s. 6d., whether the bottle to carry it home is hired
or not."

After referring to the clause in the price-list that the deposit will be
refunded whe~ the bottles are returned, Vaisey, J., observed that the
H charge over and above the price of 'Lucozade' was in the nature of a
UNITED BREWERIES LTD. v. STATE [SEN, J.] 705

deposit. It was held :- A

- "I think that the distributors' view is perfectly right, and that the
goods which are sold in the present case are the contents of the
bottles and not the bottles themselves. Indeed, it is this fact, and
this fact only, which justifies the prominence given to the figures
2s. 6d. on the labels." B

In the present case also the customers clearly know the price they
will have to pay for the beer. They are required to pay an additional
amount by way of deposit for taking away the bottle which is refunded if
the bottle is returned. If the bottle is not returned, the deposit is retained C
as liquidated damages for the loss of the bottle. There is a clear intention
not to sell the bottle. Hence, we are of the view that the deposit cannot be
considered as price of the bottles.

We are of the view that the High Court was in error in holding that
the crates and the bottles were sold along with the beer. In the facts of this D
case, the deposits could not be treated as the price of the bottles and the
crates.

We, therefore, set aside the judgments under appeal dated 17.2.1987
and 4.4.1994. The appeals are allowed. There will be no order as to costs. E
CA. Nos. 892-94 of 1991.

SEN, J, Following the decision in Civil Appeal Nos. 8479-8482 of
1994 (United Breweries Limited v. State of Andhra Pradesh), these appeals
~~ F
Mr. B. Sen, appearing on behalf of the respondents has drawn our
attention to clause (ff) of sub-rule (4) of Rule 6 of the Karnataka Sales Tax
Rules, 1957, which specifically provides :-

"6(4). In determining the taxable turnover, the amount specified in
G
clauses (a) to (n) shall, subject to the conditions specified therein,
be deducted from the total turnover as determined under clauses
(a) to (e) of sub-rule (1)-

(a) .... H
706 SUPREME COURT REPORTS [1997] 2 S.C.R.

A to

(l) ....

(ft). all amounts falling under the head charges for packing; that is
to say, the cost of packing materials and cost of Labour for packing
-
B in respect of goods not liable to tax at the hands of the assessee,
whether or not such amounts are specified and charged for by the
dealer separately;"

Mr. B. Sen has contended that this is an additional ground why
-
appeals should be dismissed in this case.
c
The appeals are dismissed. No order as to costs.

S.V.K.I. Appeal Nos. 8479-82/94 allowed.
Appeal Nos. 892-94/91 dismissed.

D

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