A D.C. Council hearing on legislation that would require deposits on many beverage containers yesterday escalated the debate between the beverage and retail industry and proponents of a voter initiative slated to appear on the Nov. 3 ballot here.

Industry representatives told council members that the various bottle proposals would raise prices on beverages in the city, send business to where no deposits are required and work a hardship on small retailers who don't have space to store bottles.

Meanwhile, a group pressing for passage of the ballot question, Initiative 28, brought hundreds of cans and bottles they had collected from city streets to the District Building in an attempt to dramatize their claim that the measure would help reduce litter.

The two sides are locked in an intensifying battle that many observers view as a key test of public attitudes toward deposit legislation, which is in effect in nine states but has not passed in any other state since 1982.

Initiative 28 was placed on the ballot in March by deposit advocates after they obtained more than 17,000 voter signatures on a required petition. The two bills being considered by the Public Works committee were introduced earlier in the year by members of the D.C. Council. Previous attempts by the council to enact a deposit law have failed.

The initiative and the two bills discussed yesterday would require that merchants give customers refunds for beverage containers that are returned to stores.

Kwasi Holman, executive director of the D.C. Office of Business and Economic Development, estimated that the proposed legislation could reduce litter from beverage containers by up to 35 percent.

But Holman expressed fears about possible loss of business to Maryland and Virginia if deposits are required in the District.

Council Chairman David A. Clarke said that he would support deposit legislation if it were contingent on implementation of similar laws in areas of Maryland and Virginia that are adjacent to the District.

Retailers and the beverage industry have consistently resisted such legislation, fearing loss of sales and the inconvenience of handling returnable containers.

"This would just be another nail in the coffin of the food industry here in the District," said Melanie G. Pullen, spokeswoman for the Mid-Atlantic Food Dealers Association.

Proponents of the legislation, though, countered that industry has exaggerated some effects of deposits. "Nine states have deposit bills and none of them has repealed it," said Gene Karpinski of the U.S. Public Interest Research Group. "The reason is because it works."