1980 (4) TMI 133 - HC - Central Excise

Valuation - Wholesale cash price and manufacturing cost and manufacturing profit - Ambit and scope

Summary

Issues Involved:
1. Inclusion of packing charges in the assessable value for excise duty.
2. Validity of orders passed by the Assistant Collector and the Appellate Collector.
3. Refund of excess excise duty paid due to inclusion of packing charges.

Detailed Analysis:

Issue 1: Inclusion of Packing Charges in the Assessable Value for Excise Duty
The petitioner, State of U.P., leased a glass factory and included packing charges in the value of glass bottles for excise duty. A Division Bench of the Mysore High Court in M/s. Alembic Glass Industries Ltd. v. Union of India ruled that packing charges should not be included in the assessable value. The petitioner sought to exclude packing charges from the assessable value and refund the excess duty paid.

The Assistant Collector rejected this request, stating that packing was necessary for delivering the bottles and was incidental to the completion of the manufactured articles. The Appellate Collector upheld this decision, noting that the petitioner admitted that no consignment was cleared without packing and that the value of packing charges was realized from customers. The wholesale price depended on whether the goods were delivered with or without packing.

The High Court analyzed Section 3(1) and Section 4 of the Central Excises and Salt Act, 1944. It noted that the "wholesale cash price" is the consideration a purchaser agrees to pay for goods in wholesale, including production and incidental costs. The Court referenced the Supreme Court's interpretation in A.K. Roy v. Voltas Ltd., which clarified that excise duty should be based on manufacturing cost and profit, excluding post-manufacturing costs like packing.

The Court found that the petitioner had been selling bottles on a wholesale basis, always packed in straw and gunny bags. There was no evidence that the petitioner sold bottles in unpacked condition at a lower price. The Court concluded that the petitioner was not made to pay excise duty on anything other than the wholesale cash price.

Issue 2: Validity of Orders Passed by the Assistant Collector and the Appellate Collector
The petitioner challenged the orders of the Assistant Collector and the Appellate Collector, which included packing charges in the assessable value. The Court found that the orders were valid based on the facts that the petitioner always delivered bottles in packed condition and included packing charges in the price list.

The Court noted a potential confusion in the Excise Authorities' stance, which suggested that packing charges must always be included in the assessable value. The Court clarified that if a manufacturer charges separately for packing, these charges should not be included in the assessable value. However, if the wholesale price includes packing, it forms part of the assessable value.

Issue 3: Refund of Excess Excise Duty Paid
The petitioner sought a refund of Rs. 6,19,304.05, claiming it had overpaid excise duty due to the inclusion of packing charges. The Court found no merit in this claim, as the petitioner failed to prove that it had agreed to sell bottles at a lower price without packing. The evidence showed that the petitioner always included packing in the wholesale price.

The Court referenced the Mysore High Court's decision in M/s. Alembic Glass Industries Ltd., which held that packing charges should not be included if they are separately shown and charged. However, this case did not apply to the petitioner's situation, where the price included packing charges.

Conclusion
The Court dismissed the petition, finding no merit in the petitioner's claims. The orders of the Assistant Collector and the Appellate Collector were upheld. The Court directed that future price lists should be scrutinized to ensure that only the wholesale price, excluding any separately charged packing costs, is used to determine the assessable value. Each party was directed to bear its own costs.