Important point
Under Section 4(4)(d)(i) of the Central Excise Act, the costs of packing which is of durable and returnable nature is to be excluded while calculating the assessable value.

Headnote:(i) Central Excise and Salt Act, 1944—Sections 4(4)(d)(i)—Assessable value—Manufacture of bottles for milk, soft drinks, medicines, hair oil, beer etc.—Demand of duty on packing undertaken by the assessee, manufacturer—Challenged by filing writ petitions—Show cause notices were issued on allegation that the assessee had not included the packing charges in the assessable value of its final product—According to the assessee, these bottles are delivered by it in loose condition at the factory gate in the course of wholesale trade—Assessee’s case that even where packing materials are being provided by it at the behest of the buyer, the same is invariably durable and returnable justifying its non-inclusion in the assessable value—Tribunal held that packing charges collected by the assessee are not includible in the assessable value of glass and glassware and that ‘initial packing charges’ towards packing of goods in durable and returnable containers is includible in the assessable value—Whether CEGAT’s view on the question of inclusion of packing charges is justified—(Yes).
       Held : Even though the statutory provision is clear and unambiguous a concept of primary and secondary packing was developed by this Court in the case of Union of India v. Bombay Tyre International Ltd. (1983 (14) ELT 1896). In this case, it was recognized that the degree of packing would vary from one class of excisable goods to another. It was held that packing may be necessary to make an article marketable. It was held that by including the cost of packing the legislature has sought to extend levy beyond the manufactured article itself. It was held that thus a strict construction must be put upon the said provision. It was held that only the cost of packing which was required to make the goods marketable would be includible in the value of goods. It was held that if any additional or special packing is provided, which packing is not generally required or provided as a normal feature, then the cost of such packing need not be included in the value of goods. The test which was laid down was that it is only the cost of packing ordinarily required for selling the goods in the course of wholesale trade to a whole buyer which would be includible and not the cost of any additional or special packing. (Para 10)
       Section 4(4)(d)(i) uses the expression ‘returnable’. As was observed by this Court in K. Radha Krishnaiah v. Inspector of Central Excise and Ors. (1987 (2) SCC 457), it is not 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 been used and would be superfluous. What is required for attracting applicability of the exclusion clause in Section 4(4)(d)(i) is that the packing must be returnable by the buyer to the assessee on the basis of an arrangement between the buyer and assessee under which packing is returnable by the buyer to the assessee. (Para 14)
       (ii) Central Excise and Salt Act, 1944—Section 11A—Limitation for filing show cause notice—Interim orders passed by High Court—Effect of—Difference between ‘levy’ and ‘collection’—When the High Court stayed only the recovery/collection of excise duty—No question of any stay on the levy—Tribunal held justified in holding that 24 show cause notices were barred by limitation. (Paras 16 and 17)

Judgment

Arijit Pasayat, J.—The Revenue is in appeal against the judgment rendered by the Customs Excise & Gold (Control) Appellate Tribunal, Bench, Calcutta (in short the ‘CEGAT’). Since there was a difference of opinion between the Member (Judicial) and the Member (Technical), the matter was referred to a third member i.e. another Member (Technical). By majority 108 appeals filed by the respondent (hereinafter referred to as the ‘assessee’) were allowed. There were essentially two issues involved. The first related to the question as to whether packing charges realized by the assessee from its customers in different situations for different types of packing would form part of assessable value of the final product or not to attract duty under the Central Excise and Salt Act, 1944 (in short the ‘Act’). Second question was whether some of the show-cause notices were issued beyond the period prescribed under Section 11A of the Act. The majority view was in favour of the assessee in respect of both the aforesaid issues.

2. Dispute arose in the following background:

The assessee is engaged in the manufacture of various types of glass bottles for milk, soft drinks, medicines, hair-oil, beer etc. The bottles manufactured by the assessee are used by the various manufacturers of the consumer products for packing of their goods. According to the assessee, these bottles are delivered by it in loose condition at the factory-gate in the course of wholesale trade. In a good number of cases its buyers want the goods to be packed in some sort of packing for safe transportation of the goods and to avoid the breakage etc. during transit, whereas in some cases, the buyers send their own packing materials like gunny bags, wooden cartons, wooden crates etc. In some cases, it buys the packing materials on behalf of its customers who reimburse the cost of the same. Wherever the packing material is supplied by the buyers viz, cardboard boxes and wooden crates etc. at their own cost, only ex-factory prices for the sale of the goods is being realized by it as the sale is in loose condition and it is the headache of the customers to provide any type of packing to ensure safe transportation of the goods. It only charges some extra sums termed as initial packing in lieu to the extra services rendered at the buyer’s request by way of labour charges etc. after putting the bottles in the boxes/crates supplied by its customers and also towards the costs of stores material and other related expenditure such as cost of pins, gum type, coir string and sutti etc. No initial packing charges were being realized by it prior to April, 1977 and also in those cases where the goods were delivered in loose condition without any packing whatsoever at the factory gate. It is also the assessee’s contention that even where the packing materials are being provided by it at the behest of the buyer, the same is invariably durable and returnable justifying its non-inclusion in the assessable value. Its price-lists were approved without the inclusion of packing charges, though these charges were reflected in the price-list depending upon the type of packing the customer opted for.

3. A show-cause notice dated 31.12.1970 was issued by the Department raising demand of duty on packing undertaken by the assessee during the period from 1st January to 31st March, 1974. Thereafter further show-cause notices (111 in total) were issued on the allegation that the assessee had not included the packing charges in the assessable value of its final product. The show-cause notices covered period upto 14.11.1975. The show-cause notices and subsequent demands made on the assessment memorandum of RT-12 Returns were the subject matter of challenge in Writ Petition No. 5002(W) of 1980 before the Calcutta High Court, wherein the assessee challenged the attachment of its goods by the Department by letter/order dated 9.4.1980. An interim order was passed on 30.4.1980 to which reference shall be made infr

Click Here to Read the rest of this document

2005 Supreme(SC) 443

Important pointUnder Section 4(4)(d)(i) of the Central Excise Act, the costs of packing which is of durable and returnable nature is to be excluded while calculating the assessable value.

Cases Referred (12)

Important point
Under Section 4(4)(d)(i) of the Central Excise Act, the costs of packing which is of durable and returnable nature is to be excluded while calculating the assessable value.