1990 (12) TMI 90 - HC - Central Excise

Summary

Issues Involved:
1. Inclusion of the cost of gunny bags in the value of cement for excise duty.
2. Applicability of the exception under Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944.
3. Validity of proceedings initiated under Rule 10 of the Central Excise Rules, 1944 after its amendment and omission.

Issue-Wise Detailed Analysis:

1. Inclusion of the Cost of Gunny Bags in the Value of Cement for Excise Duty:

The primary issue in the petition was whether the cost of gunny bags used for packing cement should be included in the value of the cement for the purpose of excise duty under Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944. The court noted that the cement could only be sold in packed condition, with gunny bags being the primary packing material. It was established that for determining the value of excisable goods, the normal price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade must be considered. The court concluded that since the cement was marketable only when packed in gunny bags, the cost of these bags should be included in the value of the cement for excise duty purposes.

2. Applicability of the Exception under Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944:

The petitioner argued that the cost of gunny bags should be excluded from the value of the cement as the bags were of durable nature and returnable by the buyer to the assessee. The court emphasized that to benefit from the exception under Section 4(4)(d)(i), the assessee must demonstrate that the packing material is durable and returnable, there is an agreement for the return of such packing material, and the cost of such packing material is either not included in the price or is refunded to the buyer upon return. The court referred to the Supreme Court's interpretation in K. Radha Krishaiah v. Inspector of Central Excise, which clarified that the packing must be returnable under an arrangement between the buyer and the assessee. In the present case, the petitioner failed to show any agreement or arrangement for the return of gunny bags, and thus, the exception did not apply.

3. Validity of Proceedings Initiated Under Rule 10 of the Central Excise Rules, 1944 After Its Amendment and Omission:

The petitioner contended that the proceedings initiated under the old Rule 10 should come to an end as Rule 10 was amended with effect from 6-8-1977 and later omitted. The court discussed the judgments in Mahendra Mills Ltd. v. Union of India and Amit Processors Pvt. Ltd. v. Union of India, which held that proceedings under the old Rule 10 could not be continued after its omission. However, the court also considered the contrary view in M/s. Torrent Laboratories Pvt. Ltd. v. Union of India, which distinguished between the amendment and repeal of rules, suggesting that the proceedings could continue under the new provisions. The court ultimately referred this issue to a Larger Bench for a definitive resolution, questioning whether notices issued or actions taken under the substituted or omitted Rule 10 would stand discharged or terminated upon its substitution or omission.

Conclusion:

The court concluded that the cost of gunny bags should be included in the value of cement for excise duty purposes as the petitioner failed to demonstrate an arrangement for the return of the bags. The court also deferred the final decision on the validity of proceedings under the old Rule 10, pending a decision by a Larger Bench on the matter. The court directed the office to place the matter before the learned Chief Justice for appropriate orders.