1988 (7) TMI 59 - SC - Central Excise

Whether the price should include all the cost of packing and packing charges in terms of Section 4(4)(d)(i) of the Act? Held that - White interpreting this word, we must clear in mind that what section 4(4)(d)(i) excludes from computation is cost of packing which is of a durable nature and is returnable by the buyer to the assessee . The packing must be one which is returnable by the buyer to the assessee and obviously that must be under an arrangement between the buyer and the assessee. It is not the 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 found a place in the section; they would be superfluous. In the facts found and the expressions used in Section 4(4)(d)(i) of the Act which have been set out hereinbefore, there being no evidence of the agreement that the cartons and gunny bags were returnable, we are of the opinion that the Tribunal came to the correct conclusion. This appeal fails and is rejected accordingly.

Summary

Issues:
- Interpretation of Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944 regarding the cost of packing in excisable goods.
- Determination of whether the packing material is returnable by the buyer to the assessee.
- Assessment of the appellant's refund claim for duty paid on the cost of packing material.
- Analysis of the contract terms regarding the returnability of packing material.

Analysis:
The judgment pertains to an appeal under Section 35L of the Central Excises and Salt Act, 1944 concerning the inclusion of packing costs in the assessable value of glass bottles manufactured by the appellant. The appellant contended that it had been paying duty on the value of glass bottles inclusive of packing costs, asserting that the packing material, such as gunny bags and cartons, was returnable and durable. The dispute centered on the interpretation of Section 4(4)(d)(i) of the Act, which excludes the cost of packing that is of a durable nature and returnable by the buyer to the assessee. The appellant filed a writ petition in the High Court challenging the rejection of its refund claim amounting to Rs. 17 lakhs for a specific period.

The Assistant Collector initially rejected the refund claim and demanded duty for a subsequent period. The Collector of Central Excise (Appeals) upheld this decision, leading to an appeal before the Customs Excise and Gold (Control) Appellate Tribunal (CEGAT), which also dismissed the appeal. The Tribunal observed that while the crates used for packing were returnable, there was no evidence supporting the returnability of cartons and gunny bags. The Tribunal emphasized the requirement for an arrangement between the buyer and assessee for the packing to be considered returnable. Referring to a previous Supreme Court judgment, the Tribunal concluded that the cartons and gunny bags were not returnable as there was no contractual provision for their return.

The Supreme Court analyzed the meaning of "returnable" in Section 4(4)(d)(i) and emphasized the necessity of an agreement between the buyer and assessee for the packing to be deemed returnable. The Court highlighted that the physical capability of the packing to be returned was not the sole determining factor; rather, an arrangement for returnability was essential. Given the absence of evidence regarding the returnability of cartons and gunny bags, the Court concurred with the Tribunal's decision, ultimately rejecting the appeal.

In conclusion, the judgment clarifies the legal interpretation of returnability in the context of excisable goods' packing costs under Section 4(4)(d)(i) of the Act. The decision underscores the significance of contractual arrangements between buyers and assessees for packing material to be considered returnable, ultimately affirming the Tribunal's ruling and dismissing the appellant's appeal.