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PETITIONER: M/S VIJAYAWADA BOTTLING CO. LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE, GUNTUR

DATE OF JUDGMENT:       02/09/1997

BENCH: S. C. AGRAWAL, M. JAGANNADHA RAO

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.C AGRAWAL, J.      M/s. Vijayawada Bottling Co. Ltd, the appellant herein, is a  manufacturer of  ‘MAAZA MANGO’  [mango drink}  falling under Tariff Item 1-B of the erstwhile First Schedule to the Central Excise Act, 1994. The appellant filed for approval a price list no. 17/1984-85 dated August 6, 1984 in respect of the said  product wherein the price was shown as Rs.32/- per crate of 24 bottles. In the said price list there was a note to the  effect that the appellant was realising Rs. 2.50 per crate towards  rental and  Rs.3.00 per crate towards service charges and  the said amount were not included in the price. The  Assistant  Collector  of  Central  Excise,  Vijayawada, issued notice  dated August 17, 1984 requiring the appellant to show  cause why  the said  amount of  rental and  service charges should  not be  included in the price. The appellant submitted a  reply to  the said  show cause notice. By order dated November  30, 1984, the Assistant Collector of Central Excise while  according approval  to the assessable value as shown in  the price  list included  in the  said  amount  of rental and  service charge  in the  price. The  Collector of Central Excise  (Appeals) by  his order dated April 26, 1986 dismissed the appeal of the appellant and affirmed the order passed  by  the  Assistant  Collector.  The  appeal  of  the appellant before  the  Customs  Excise  and  Gold  (Control) Appellate Tribunal was first heard by a bench of two learned Members of  the Tribunal  [Shri V.P.  Gulati and  Miss  S.V. Maruthi]. In view of the decision of this Court in Collector of Central  Excise vs.  Indian Oxygen  Limited 1988  (4) SCC 139, both  the learned Members held that rental charges were includable in  the assessable  value.  There  was,  however, difference of  opinion among  the  learned  Members  on  the question whether  service  charges  are  includable  in  the assessable value.  The Judicial  Member [Miss S.V. Maruthi], relying upon  the order  of the  Tribunal  in  Collector  of Central Excise  vs. Century  Spg. and Mfg. Co. Ltd. 1988(37) ELT 277  held that  the service  charges that  were  claimed related  to  unloading  sorting  out  the  branded  bottles. separating the broken bottles before the bottles are sent to automatic bottle  washing plant and that these activities do

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nor relate  to the  manufacture of  aerated waters which are the subject  matter of  the Excise  duty and that in view of Section 4(4)(d) of the Central Excise Act, 1994 (hereinafter referred to  as ‘The  Act’), the  entire  cost  relating  to durable and  returnable containers  should be excluded which include these  miscellaneous service  charges. The Technical Member [Shri  V.P. Gulati]  was, however,  of the  view that service charges  have to  be included  in the  price for the purpose of  arriving at  the assessable  value. He held that the prepuratory  operations to  ensure that  the bottles are fit  for   bottling  have   to  be   considered  a  part  of manufacturing process  and the  cost of  the same  has to be reckoned towards the manufacture of the appellant’s product. In view  of the  difference of opinion among the two learned Members, the  matter was referred to the third Member of the Tribunal on the following point of difference:      "Whether   in    the   Facts    and      circumstances  of   the  case,  the      service charges  do not  relate  to      the manufacture of aerated water as      claimed by  the appellant, and are,      therefore,  to   be  excluded   for      arriving at the assessable value as      held  Member  (Judicial)  or  these      relate  to   the   manufacture   of      aerated water  and are,  therefore,      to be  included for arriving at the      assessable value  as held by Member      (Technical)"      The third  learned Member  of the  Tribunal  [Sri  P.C. Jain] agreed  with the view of the Technical Member and held that the  service charges  collected  by  the  appellant  in respect of  the activities undertaken by them related to the manufacture of  the excisable  goods in question. In view of the majority  opinion the Tribunal has held that the service charges,  namely,   for  sorting  out  the  printed  bottles separating the  broken  bottles  before  they  are  sent  to automatic bottle  washing plant  relate  to  manufacture  of aerated water  and are includable in the assessable value of aerated water.  The  appeal  of  the  appellant  as  regards service charges  was, therefore,  dismissed, but  the appeal was allowed  in respect of the rental charges and the matter was remitted to the Assistant Collector to verify the actual rental charges  and re-determine  the  assessable  value  of aerated water  for deducting  the same from the price of the aerated water.  Feeling aggrieved  by the  decision  of  the Tribunal, relating  to inclusion  of service  charges in the price, the appellant has filed this appeal.      Section 4  of the  Act makes provision for valuation of excisable goods  for the  purpose of charging of excise duty in case  where under the Act duty of excise is chargeable on any excisable goods with reference to value. For the purpose of Section  4, the  expression "value"  is defined in clause (d)  of   Section  4(4).  The  relevant  part  of  the  said definition is produced as under:      "(4)(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.

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    Explanation. -  In this  sub-clause      "packing"   means    the   wrapper,      container,  bobbin,   pirn,  spool,      reel or  warp  beam  of  any  other      thing in  which  or  on  which  the      excisable   goods    are   wrapped,      contained or wound;"      In the  case of Collector of Central Excise vs. Century Spg.  and   Mfg.  Co.   Ltd.  [supra],   the  assessee   was manufacturer of  liquid Chlorine  which was  supplied to the customers in Tonners and Cylinders made of steel, which were accepted  as   a  durable  and  returnable  containers.  The assessee claimed  deduction  of  Rs.100/-  in  the  case  of Tonners (800  to 1,000  Kgs, capacity)  and Rs. 150/- in the case of  cylinders (20 to 100 Kgs. capacity) towards cost of packing on  account  of  maintenance  of  Cylinders/Tonners, service charges  etc. The Tribunal found that the department accepts that  the containers were durable and returnable and that their cost is not includible in the assessable value of chlorine as per Section 4(4)(d)(i). The Tribunal, therefore, hold that  the cost has to be the full cost of packing which should take  in not  only the  initial purchase price of the container but  also the  further expenses on its maintenance and repairs.  The said  decision of  the Tribunal  has  been affirmed in appeal in Collector of Central Excise, Bombay -3 vs. M/s  Century Spg and Mfg Co. Ltd. (Civil Appeal No. 4207 of 1988), decided on July 15, 1997.      In the  present case,  as recorded by the Tribunal, the fact that  the bottles  are returnable  and durable  are not disputed. Before  the Tribunal  it was  pointed out that the service charges pertain to the following activities:      "After  unloading   of  the   empty      bottles at  a place about 100 yards      outside the  factory,  the  bottles      are  sorted  brandwise,  (sometimes      the bottles  get mixed with bottles      of other manufacturers which are to      be  separated).   Thereafter,   the      bottles  are   examined   for   any      defects which  are also  separated.      Cleaning of  the  bottles  is  done      chemically. There  are then  loaded      in the  trolleys,  brought  to  the      factory and  placed in conveyors to      automatic bottle washing plant from      where they  come out after washing.      Bottles  are   examined  again   in      strong     light      to      avoid      contamination."      The process  referred to above relates to preparing the bottles that  were used earlier to be reused for the purpose of bottling  of the aerated water produced by the appellant. Since the aerated water has to be supplied in packed bottles only, the  activities for  which the  appellant was claiming service charges  related to the process of packing after the manufacture of  aerated  water.  We  find  it  difficult  to appreciate how  these activities can be treated as a part of the manufacturing  process of  aerated water. Since there is no dispute  that the  bottles  are  durable  and  returnable containers, the  activities referred  to above undertaken by the appellant  to ensure  that the  empty bottles which have been received  back are  available for reuse for bottling of aerated water,  have to  treated as  part of  the process of packing and  not as  part of  the manufacturing  process  of aerated water.  The position is not very different from that

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in the  case of  Century Spg.  & Mfg. Ltd. (supra) where the durable and returnable containers were used again for supply of gas  and it  was held  that charges  for maintenance  and repairs of  such  containers  were  not  includible  in  the assessable value  of the  gas. We  are, therefore, unable to uphold the  view of  the majority  in the  Tribunal that the service charges claimed by the appellant have to be included in the assessable value.      In the  result, the  appeals are  allowed, the impugned judgment of  Tribunal holding that service charges @ Rs.3.00 per rate  claimed by the appellant are to be included in the assessable value  is  set  aside.  Since  the  matters  have already been  remitted to  the Assistant Collector of Excise for the  purpose of  verifying the  actual rental charges of the bottles  and re-determine  the assessable  value of  the aerated water,  it is  directed that the Assistant Collector of Excise  shall also  verify the actual service charges and re-determine the assessable value of the aerated water after such verification. The appellant would furnish the necessary material in  order to  enable  the  Assistant  Collector  to ascertain the actual service charges. No order as to costs.