THE STATE OF TAMIL NADU versus MC. DOWELL AND COMPANY LTD. MADRAS

Citation: [1997] 2 S.C.R. 685 · Decided: 04-03-1997 · Supreme Court of India · Bench: A.M. AHMADI · Disposal: Dismissed

Judgment (excerpt)

THE STATE OF TAMIL NADU 
v. 
MC. DOWELL AND COMPANY LTD. MADRAS 
MARCH 4, 1997 
[A.M. AHMADI, CJ. SUHAS C. SEN AND 
. SUJATA V. MANOHAR, JJ.] 
Sales Tax: 
A 
B 
Assessee--Disflibutor of liquor-Deposit Amount collected for bot-
C 
Iles-Refunded on retum-Deposit amount included in Sales tumover for 
imposing sales tax-Held, no sale of bottles took place-No resale on retum 
of bottles-Not liable to sales tax on sale of bottles. 
The respondent-assessee was a distributor of liquor for United 
Breweries Ltd., the principal. The assessee had to deposit certain amounts -D 
for taking delivery of the liquor in bottles. On return of bottles, the deposit 
amount was refunded. The assessee in turn collected deposits at the same 
rate from its customers and refunded the amount on return of bottles. The 
assessing authority included the deposit amount in the Sales turnover and 
impose tax. 
On appeal the Tribunal took the view that deposit amount could not 
be taxed. High Court upheld the stand taken by the Tribunal. Hence the 
present appeal. 
Dismissing the appeal, this Court 
HELD : 1. The High Court was right in holding that there was no 
sale of bottles in the first instance and when the bottles were returned no 
resale took place. The assessee was just a middleman. No question of sale 
E 
F 
of bottles could arise. When the assess collected the bottles, it paid a 
deposit to its principal. When in its turn, it supplied the bottles to its G 
customers, it obtained a deposit from its customers. On return of bottles 
by the customers, the assessee had refunded the entire amount of deposit 
received. Thereafter, the assessee had returned all the bottles to its prin-
cipal. The Principal had-then returned the deposit amount to the assessee. 
Hence not question of any sale of bottles arose. (687-H, 688-A, D-F] 
H 
-085 
686 
SUPREME COURT REPORTS 
(1997] 2 S.C.R. 
A 
2. Assuming that sale of bottles took place when the bottles with bear 
were supplied by the manufacturer to the wholesalers and again by the 
wholesaler to the customers, then it had to be held that sale of bottles also 
took place when the consumers returned the bottles to the dealers. Thus 
consumers will be liable to pay sales tax on the return of bottles by taking 
B back the deposits. There being a single point tax on sale of bottles, the 
charge of tax if any would fall on the first sale by the Principal. The 
assessee being a middleman could not be made liable to pay sales tax on 
'sale' of bottles to the retailers or the consumers. [688-G-H, 689-A] 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3172 of 
C. 1988 Etc. 
From the Judgment and Order dated 5.2.85 of the Madras High 
Court in T.C. No. 2200 of 1984. 
A.K. Ganguli, V. Krishnamurthy and T. Harish Kumar for the 
D Appellant. 
H.N. Salve, Sunil Gupta, Ms. A.K. Verma for the JBD. & Co. for the 
Respondent. in C.A. No. 3172/88, 4445/84 and 3174-76/88. 
E 
The following Judgment of the Court was delivered; 
SEN, J. This appeal arises from a judgment of the High Court at 
Madras on a sales tax revision case. Mc. Dowell and Company Ltd. is· 
primarily a distributor of liquor for United Breweries Limited (hereinafter 
referred to as "U.B."). It was customary for the bills issued to the assessee 
F by U .B., the principal, to show the price, the tax payable thereon and the 
deposits for bottles in which the liquor was sold separately. The assessee 
in its turn, similarly charged its customers. The rate of deposit at which the 
assessee was charged by U .B. and the rate at which the assessee charged 
its customers were the same. The same procedure was followed year after 
G year. From time to time, the rate of deposit was enhanced due to shortage 
of empty bottles. In the sale notes, it was specifically stated "Entry bottle 
deposit is refundable .against the return of the bottles at the Brewery. The 
freight on return of empties and breakages will be on your (Purchaser's) 
account". In the copies of the bills issued as against the assessee, the price 
H of liquor was separately shown and the sales tax was added to it. There-
' ' 
STATE v. MC. DO WELLAND CO. LTD. [SEN, J.] 
687 
after, with reference to the number of bottles supplied, a separate charge A 
was made as deposits at the rate of 40 paise per bottle or Rs. 4.80 per 
dozen of bottles. The question that came up for consideration was whether 
these deposits were liable to be treated as part of he assessee's sales 
turnover for the purposes for levy of 

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