1975 (7) TMI 74 - HC - Central Excise

Packing is not a process of manufacture - Valuation - Cost of packing - Valuation - Effect of method or manner of marketing or delivery - Refund of amount illegally collected as excise duty

Issues Involved:
1. Whether the packing of glassware is a process incidental or ancillary to the completion of the manufacture of glass and glassware.
2. Whether the cost of packing and packing materials can be included in the assessable value of glassware under Section 4(a) of the Central Excises and Salt Act, 1944.
3. Whether a mistake of law can form the basis for a refund claim under Section 72 of the Contract Act and when such a mistake is considered discovered.
4. Whether the petitioners are entitled to a refund of amounts collected without the authority of law.
5. Whether the court should exercise its discretion in favor of the petitioners regarding the claim for a refund.

Detailed Analysis:

1. Packing as an Incidental or Ancillary Process:

The court held that the manufacture of glass and glassware is complete before it is packed for delivery and transport. The judgment emphasized that packing cannot be considered part of the manufacturing process. This conclusion was supported by the precedent set in First Appeal No. 257 of 1972, where it was determined that packing is not an ancillary process to the manufacture of vegetable oil, and by analogy, the same applies to glassware.

2. Inclusion of Packing Costs in Assessable Value:

The court ruled that the cost of packing and packing materials cannot be legally included in arriving at the wholesale cash price of the excisable goods. This point was also covered by the Division Bench judgment in First Appeal No. 257 of 1972, which rejected the contention that packing costs should be included in the assessable value of excisable goods. The court noted that the relevant Item 23A of the First Schedule does not mention packing, thereby reinforcing that packing is not part of the manufacturing process.

3. Mistake of Law and Refund Claims:

The court examined whether the amounts collected by the Excise authorities under a mistake of law could be refunded under Section 72 of the Contract Act. It was held that the amounts collected as excise duty on packing charges were indeed collected under a common mistake of law. However, the court noted that the petitioners had passed on these costs to their customers, complicating the issue of entitlement to a refund.

4. Entitlement to Refund:

The court acknowledged that the amounts collected by the Excise authorities were without the authority of law. However, it also noted that the petitioners had already recovered these amounts from their customers. Therefore, while the respondents had no legal right to retain the money, the petitioners also had no right to claim it back since they had not borne the cost themselves.

5. Court's Discretion on Refund:

The court decided against exercising its discretion to order a refund to the petitioners. The judgment highlighted that justice did not favor the petitioners, as they had not suffered a financial loss themselves. The court was not inclined to enrich the petitioners unjustly by ordering a refund of nearly Rs. 12 lakhs, which had been passed on to the respondents but initially collected from the petitioners' customers.

Conclusion:

The court concluded that the packing of glassware is not an incidental or ancillary process to its manufacture, and the cost of packing cannot be included in the assessable value of excisable goods. Although the amounts were collected under a mistake of law, the petitioners were not entitled to a refund as they had already recovered these costs from their customers. The court thus quashed the impugned decisions of the Assistant Collector but denied the refund claim for the period from 1962 to December 18, 1972.

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