2013 (1) TMI 1009 - HC - VAT and Sales Tax

Court Rules Rental Charges for Bottles & Crates Taxable in Sale Price

The High Court held that the rental charges collected by the manufacturer for bottles and crates should be taxed as part of the sale price of soft drinks ... - Issues Involved:1. Taxation of Rental Charges on Bottles and Crates2. Applicability of Section 5E of the AP General Sales Tax Act, 19573. Applicability of Section 6C of the AP General Sales Tax Act, 19574. Applicability of Section 6 of the AP VAT Act, 2005Summary:1. Taxation 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 u/s 5E of the AP General Sales Tax Act, 1957. The Tribunal held that the manufacturers collected deposits for bottles and crates, which were returned by the end customers, and these deposits were merely for security. The Tribunal concluded that the segregation of rental charges from the sale price was a colorable device to avoid tax, and therefore, the entire amount should be taxed as part of the sale price of the soft drinks.2. Applicability of Section 5E of the AP General Sales Tax Act, 1957:The Tribunal's decision was challenged on the grounds that there was a transfer of the right to use the bottles and crates, making it assessable u/s 5E of the Act. The High Court found that the bottle is used only for storing the contents (soft drinks) and must be returned to the manufacturer, indicating a transfer of the right to use. Therefore, the rental charges should be taxed u/s 5E of the Act.3. Applicability of Section 6C of the AP General Sales Tax Act, 1957:Section 6C of the Act 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 High Court observed that this section applies only if the packing material is sold with the goods. Since the bottles are returned to the manufacturer, Section 6C does not apply in this case.4. Applicability of Section 6 of the AP VAT Act, 2005:For the period April to July 2005, the assessing officer under the AP VAT Act, 2005, taxed the entire turnover, including rental charges for bottles and crates, at 12.5%. The High Court held that the bottles and crates constitute packing material, and such turnover is liable to be taxed at 4% u/s 4(8) of the AP VAT Act, 2005, r/w Item No.90 of Schedule-IV. The assessing officer's view that the total consideration, including both categories, should be taxed at 12.5% was incorrect.Conclusion:The High Court allowed the TREVCs and writ petitions, setting aside the Tribunal's order and the assessment orders under the AP VAT Act, 2005. The High Court restrained the respondents from taking any action contrary to its decision. No costs were awarded.