Court sets aside assessment orders, restrains respondent from further action

The court allowed the TREVCs No.43 to 45 of 2007, setting aside the order passed by the STAT. The writ petitions were also allowed, and the assessment orders were set aside. The respondent was restrained from taking any action pursuant to the notice for October 2005 and from issuing any notices for the months of November 2005 onwards contrary to the court's decision.

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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.

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