1984 (2) TMI 94 - HC - Central Excise

Valuation - Cost of secondary packing consisting of the tin containers and corrugated fibre containers includible in the assessable value of biscuits

Issues Involved:
1. Entitlement to deduction on account of secondary packing.
2. Definition and interpretation of "value" under Section 4(4)(d)(i) of the Excise Act.
3. Durability and returnability of packing materials.
4. Impact of Supreme Court's decision in Union of India v. Bombay Tyre International Ltd.
5. Relevance of trade usage or established practice in determining returnability.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction on Account of Secondary Packing
The primary issue debated was whether the petitioner company, which manufactures biscuits, chocolates, and other cocoa products, is entitled to a deduction on the cost of secondary packing, such as tin containers and wooden and corrugated boxes. The petitioner argued that these packing materials should be excluded from the assessable value as they are durable and returnable. However, the Assistant Collector of Central Excise contended that the value of secondary packing should be included in the assessable value since there was no contract proving that the packing was returnable.

2. Definition and Interpretation of "Value" under Section 4(4)(d)(i) of the Excise Act
Section 4(4)(d)(i) of the Excise Act defines "value" as including the cost of packing, except for packing which is of a durable nature and is returnable by the buyer to the assessee. The petitioner argued that the tin containers and corrugated fibre containers used for secondary packing were durable and capable of being returned, thus their cost should be excluded from the assessable value.

3. Durability and Returnability of Packing Materials
The court examined the meaning of "durable" and "returnable." It was argued that "durable" means "able to exist for a long time," and "returnable" means "capable of being returned." However, the court concluded that for packing to be considered returnable, it must be a term of the contract between the manufacturer and the buyer. The court emphasized that the packing must be capable of being reused by the manufacturer, and there must be a contractual obligation for the buyer to return the packing.

4. Impact of Supreme Court's Decision in Union of India v. Bombay Tyre International Ltd.
The Excise Department relied on the Supreme Court's decision in Union of India v. Bombay Tyre International Ltd., which held that the cost of secondary packing necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate is includible in the value of the article. The court noted that the Supreme Court's observations did not consider the specific exclusion for durable and returnable packing under Section 4(4)(d)(i). Therefore, the court restricted the Supreme Court's observations to cases where the durability and returnability of packing do not arise.

5. Relevance of Trade Usage or Established Practice in Determining Returnability
The petitioner argued that the returnability of packing could also depend on the usage of trade or established practice, as indicated by the Supreme Court in a clarification regarding trade discounts. However, the court held that the returnability must be known at the time of removal of the goods and must be a term of the sale. The court emphasized that the obligation of the manufacturer to accept returned packing must be clear to avoid excise duty being levied multiple times on reusable packing.

Conclusion
The court concluded that the petitioner company failed to prove that the packing was returnable under the terms of the sale. The petitioner's argument that the packing was merely capable of being returned was insufficient. Therefore, the court discharged the rule with costs, holding that the petitioner company was liable to pay the demanded excise duty.

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