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PETITIONER: MAHALAKSHMI GLASS WORKS (P) LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE, BOMBAY

DATE OF JUDGMENT26/07/1988

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1988 AIR 1838            1988 SCR  Supl. (1) 587  1988 SCC  Supl.  601     JT 1988 (3)   563  1988 SCALE  (2)118

ACT:      Central Excises  and SaltAct, 1944: Section 4(4)(d)(i)- Assessing of  value in  relation to  excisable goods-Whether price includes cost of packing-Arrangement between buyer and assessee  for   return  of  such  packing  is  essential  to determine the includibility.

HEADNOTE:      The  appellant  manufactured  various  types  of  glass bottles which  were assessed  to duty  under Item No. 23A of the Central  Excise Tariff. It sold the glass bottles to the customers on  wholesale  basis  packed  in  gunny  bags  and cartons which  were durable and returnable. According to the appellant it  has been  paying duty  on glass bottles on the basis of  the assessable  value which  included the  cost of packing material,  namely, the  gunny bags  and cartons. The returned  gunny   bags  and  cartons  were  re-used  by  the appellant.      The appellant  submitted for  approval, price  list  in regard to  the glass  bottles  manufactured  by  it  showing separately the  price at  which the goods were actually sold and the  cost of  packing. Returning  the  price  list  duly approved, the Superintendent of Central Excise noted therein that the  price should  be inclusive  of the cost of packing and packing  charges in terms of Section 4(4)(d) of the Act. The appellant  was paying  duty on the cost of packing under protest and  lodged claims  of refund.  As the appellant did not receive  either the  refund or  any intimation rejecting the claim  for refund,  it filed  a writ petition before the High Court  which remanded  the case  back to  the Assistant Collector for deciding the matter after giving the appellant fair and adequate opportunity to adduce evidence.      The Assistant  Collector, after considering the written statements filed  by the  appellant rejected the appellant’s claim for  refund  and  demanded  duty  for  the  subsequent period. The  appellant filed  an appeal before the Collector of Central  Excise (Appeals)  which was rejected. The appeal filed before the Customs Excise and Gold (Control) Appellate Tribunal was  also dismissed.  This appeal under Section 35L of the Act is against the Tribunal’s judgment. 588

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    Dismissing the appeal, ^      HELD: 1.  In view  of the  facts of  the case,  and the expressions used  in Section  4(4)(d)(i) of  the Act,  there being no  evidence of  the agreement  that the  cartons  and gunny bags were returnable, the Tribunal was right in coming to the  conclusion that  the cartons and gunny bags were not returnable in the accepted sense of the term. [592G, B-C]      2.1  The   appellant  manufactured  glass  bottles  and delivered these  in two  types of  packing, namely,  in open crates and  in cartons  and gunny bags. So far as the crates were concerned,  the same  belonged to  the  appellant.  The customer was  billed for the cost of glass bottles only. The crates were  returnable to the appellant within 30 days. The revenue has  not included  the cost  of such  crates in  the assessable value. The revenue has also not included the cost of packing,  if any, supplied by the customer himself. There was no  dispute about these packings. So far as the packings in cartons  and gunny  bags were  concerned, it was noted by the Tribunal, that these belonged to the appellant but their cost was  realised from  the customer along with the cost of glass bottles.  It  cannot  be  said  that  the  packing  is returnable by  the buyer  to the assessee unless there is an arrangement between  them that  it shall be returned. Actual return  or  extent  of  return  is  not  relevant.  What  is necessary is  that  if  the  buyer  chooses  to  return  the packing, the  seller should  be obliged  to  accept  it  and refund the  stipulated amount.  In this  case there  was  no clause about  returnability of  the cartons  and gunny bags. [591B-F]      2.2. So far as the question of durability is concerned, there cannot  be such  controversy about  it, but a question has been raised as to what is the meaning and connotation of the word "returnable". What Section 4(4)(d)(i) excludes from computation in  cost of packing which is of a durable nature and is  returnable by the buyer to the assessee. The packing must be one which is returnable by the buyer to the assessee and obviously  that must be under an arrangement between the buyer and the assessee. It is not the physical capability of the packing  to be  returned which is the determining factor because, in  that event,  the words  "by the  buyer  to  the assessee" need  not have  found a place in the section; they would be superfluous. [592D-F      K. Radhakrishnaiah  v. Inspector  of Central Excise and others, [1987] 2 SCC 457 referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1037 of 1988. 589      From the  order dated  14.12.1987 of the Customs Excise and Gold  (Control) Appellate  Tribunal New  Delhi in Appeal No. 469/87A order No. 807/87-A      S.N. Kackar,  R.K.  Habbu,  P.G.  Gokhale,  Ms.  Sushma Manchanda and B.R. Agarwal for the Appellant.      The Judgment or the Court was delivered by      SABYASACHI MUKHARJI, J. This is an appeal under section 35 L  of the Central Excises and Salt Act, 1944 (hereinafter called ’the  Act’). The  Superintendent  of  Central  Excise returned the  price list  of the  appellant with  a covering letter satating  that the  price should include all the cost of  packing   and  packing   charges  in  terms  of  section 4(4)(d)(i) of the Act.

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    The appellant,  a private limited company, manufactured various types  of glass  bottles which were assessed to duty under Item  No. 23A  of the Central Excise Tariff. According to the  appellant, it  sold to  the customers  on  wholesale basis the  glass bottles manufactured by it, packed in gunny bags  and  cartons  which  it  purchases  from  the  market. According to  the appellant further, it has been paying duty on the  value of  the glass  bottles including  the cost  of gunny bags  or the  cartons in which these are packed at the time of  sale.  It  appears,  therefore,  according  to  the appellant, that  it has been paying duty on glass bottles on the basis  of the  assessable value which included the costs of packing material, namely, the gunny bags and the cartons. The case  of the appellant further is that the glass bottles are normally  sold by  it in the packing consisting of gunny bags which  are durable  and returnable and in several cases the gunny  bags are  returned by  the buyers and are used by the appellant  again for  packing the  glass bottles.  It is only when  the customers  specifically ask  for delivered in cartons  instead   of  in  gunny  bags  that  the  appellant delivered the glass bottles packed in cartons which are also durable and  returnable. Towards  the end  of 1977 and early 1978 the  appellant submitted  price list  in regard  to the glass bottles  manufactured by  it for  approval by  showing separately the  price at which such goods were actually sold in  the  course  of  "wholesale  trade"  and  "the  cost  of packing". By  his  letter  dated  10th  January,  1978,  the Superintendent of  Central Excise  returned to the appellant the price  list duly  approved but  nothing therein that the price should be inclusive of the cost of packing and packing charges in  terms of  section 4(4)(d)  of the  Act.  Section 4(4)(d)(i) as it stood read as follows: 590           "(4) For the purposes of this section:           (a) ‘assessee’  means the  person who is liable to           pay the duty of excise under this Act and includes           his agent;           (b) ’place of removal’ means-           (i) & (ii) x x x           (c) xxx           (d) ’value’, in relation to any excisable goods,-           (i) where  the goods  are delivered at the time of           removal in  a packed  condition, includes the cost           of such  packing except  the cost  of the  packing           which is  of a durable nature and is returnable by           the buyer to the assessee.           Explanation:-In this  sub-clause, ’packing’  means           the wrapper,  container, bobbin, pirn, spool, reel           or wrap  beam or  any other  thing in  which or on           which the  excisable goods  are wrapped, contained           or wound,"      Since then  the appellant  has been  paying duty on the cost of  packing under protest and lodging claims of refund. The appellant,  however, did  not receive any refund nor any intimation that  the claims  of refund  are  or  were  being rejected. Various representations made by the appellant were in vain.  The Assistant  Collector of Central Excise wrote a letter dated  8th March, 1980 advising the appellant to file an appeal  before the  Appellate Collector  if the appellant felt aggrieved.  Feeling aggrieved,  the appellant  filed  a writ petition  under Article  226 of the Constitution in the High Court of Bombay. The High Court passed an interim order on 18th  July, 1984 remanding the case back to the Assistant Collector of  Central Excise  and to decide the matter after giving the appellant fair and adequate opportunity to adduce

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evidence.      After considering  the written  statements filed by the appellant, the  Assistant Collector  passed an order on 29th April, 1986 rejecting the appellant’s refund claim for about Rs.17 lakhs  for the  period from  1st January, 1978 to 31st December,  1980  and  demanding  duty  for  the  period  6th January, 1981  to 31st  December, 1985  in terms of the bank guarantees executed  by the  appellant. There  was an appeal before the 591 Collector of Central Excise (Appeals). The Collector on 21st January, 1987  rejected the  appeal and  upheld the order of the Assistant  Collector.  The  appellant  filed  an  appeal before the  Customs  Excise  and  Gold  (Control)  Appellate Tribunal (hereinafter  called ’CEGAT’).  CEGAT dismissed the appeal. Aggrieved  thereby the appellant filed the appeal in this Court.      The Tribunal  noted  that  the  appellant  manufactured glass bottles.  It delivered  these in two types of packing, namely, in open crates and in cartons and gunny bags. So far as the  crates were  concerned, the  same  belonged  to  the appellant. The  customer was  billed for  the cost  of glass bottles only.  The crates  were returnable  to the appellant within 30  days. The  revenue has  not included  the cost of such crates  in the  assessable value.  The revenue has also not included  the cost  of packing,  if any, supplied by the customer himself. There was no dispute about these packings. So far  as the  packings hl  cartons  and  gunny  bags  were concerned, it was noted by the Tribunal, that these belonged to the  appellant but  their  cost  was  realised  from  the customer  along   with  the   cost  of  glass  bottles.  The appellant’s  case   was  that   these  packings   were  also returnable and in many cases they were actually returned and re-used by  the appellant.  There were no evidence about the durability of the cartons and gunny bags but nothing to show that these  were returnable.  The position  seems to  be  as follows. The  Tribunal has rightly applied the returnability test. In  K. Radha Krishnaiah v. Inspector of Central Excise and others, [1987] 2 S.C.C. 457, this Court observed that it cannot be  said that  the packing is returnable by the buyer to the  assessee unless there Is an arrangement between them that it  shall be  returned. Therefore, such arrangement has been established.  Actual return  or extent of return is not relevant. What  is necessary is that if the buyer chooses to return the  packing, the  seller should be obliged to accept it and  refund the  stipulated amount.  In this  case  after examining the  facts, the  Tribunal found  that there was no clause about  returnability of  the cartons  and gunny bags. The appellant  invited the  attention of the Tribunal to the following clause  in their  standard contractor. It reads as follows:           "6. All  packing cases,  other than such as may be           supplied or paid for by buyer, shall be returnable           in good  order and  condition within 30 days after           receipt. "      The Tribunal  was of  the view  that the  above  clause related to cases". It could have meant only the crates which belonged to  the appellant  and for  which the customers had not paid anything. The 592 property in  the crates  having remained  with the appellant all along,  the buyers were naturally obliged to return them to their rightful owners. But that was not the case with the cartons and  gunny bags.  The buyers  pay for  these and the property in these pass on to the buyers. They could be asked

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to return  them to  the appellant  only under a term of sale and on payment of the agreed amount and not for the free. No such contract or agreement was forthcoming. The Tribunal was not convinced  that in  the normal course of business anyone could be  asked to  part with  its property, and in addition incur return  freight therefor  too for  nothing.  In  those circumstances, the  Tribunal held that the cartons and gunny bags were  not returnable in the accepted sense of the term. The Tribunal  further noted  that since the statute insisted on the  packing  being  returnable,  in  addition  to  being durable, the  authorities  are  bound  to  see  whether  the transaction fulfilled  the tests of returnability as per the Supreme Court and High Court judgments.      In that  view of the matter, the Tribunal dismissed the      appeal.      As noted  above, this  Court has considered the meaning of the  expression "returnable"  in the  Section in K. Kadha Krishnaiah’s case  (supra). This  Court held  that so far as the question  of durability  is concerned,  there cannot  be such controversy about it, but a question has been raised as to  what   is  the  meaning  and  connotation  of  the  word "returnable". Does  it  mean  physically  capable  of  being returned or does it postulate an arrangement under which the packing is  return able.  While interpreting  this word,  we must bear in mind that what section 4(4)(d)(i) excludes from computation is  cost of packing which is of a durable nature and is  "returnable by  the  buyer  to  the  assessee".  The packing must  be one which is returnable by the buyer to the assessee and  obviously that  must be  under an  arrangement between the  buyer and  the assessee. It is not the physical capability of  the packing  to  be  returned  which  is  the determining factor because, in that event, the words "by the buyer to  the assessee"  need not  have found a place in the section; they would be superfluous.      In that  view of  the matter we are of the opinion that in the  facts found  and the  expressions  used  in  section 4(4)(d)(i) of  the Act which have been set out hereinbefore, there being  no evidence  of the  agreement that the cartons and gunny  bags were  returnable, we are of the opinion that the Tribunal  came to  the correct  conclusion. This  appeal fails and is rejected accordingly. G.N.                               Appeal dismissed. 593