2005 (2) TMI 130 - SC - Central Excise

Whether the costs of wooden crates, in which the sheet glass is packed, is includible in the assessable value of sheet glass? Held that - There is no necessity that the crates must be actually returned. So long as there is an obligation on the seller to take back the crates, if the buyer chooses to return them, it is sufficient. The term in the contract, set out above, imposes an obligation on the Appellants to take back the wooden crates and to pay the stipulated amount to the buyer if the buyer chooses to return them. Wooden crates merely consist of planks of wood which are nailed together. Therefore, even if they are dismantled by the buyer and the planks are returned to the Appellants the Appellants would be in a position to use them again. In our view, the High Court was wrong in holding that the wooden crates are not durable or returnable. The answer to the question therefore has to be in favour of the Appellants. It is held that, in view of the specific term in the bills/invoices, the wooden crates are durable and returnable packing whose costs is not to be included in the value of glass sheets. Appeal allowed of assessee.

Summary

Issues:
1. Whether the costs of wooden crates are includible in the value of glass sheets?
2. Whether the wooden crates can be considered as "durable and returnable packing"?

Analysis:

Issue 1:
The appeal questioned whether the costs of wooden crates should be included in the assessable value of sheet glass under Section 4 of The Central Excises and Salt Act, 1944. The statutory provision mandates that the cost of packing is generally included in the value of goods unless the packing is durable and returnable. The appellants argued that the wooden crates' costs should not be included, as they claimed the special packing was not necessary for marketability. The Collector (Appeals) initially allowed the appeal, ruling that the wooden crates' costs were not essential for marketability. However, the Assistant Collector included the costs in the price list, leading to a writ petition in the High Court. The High Court ultimately held that the costs of wooden crates were includible in the value of glass sheets, as they were necessary for wholesale trade marketability.

Issue 2:
The second issue revolved around whether the wooden crates qualified as "durable and returnable packing." The appellants relied on a clause in their bills/invoices stating that the wooden crates were of durable and returnable nature, refundable upon return intact. Case precedents, including Mahalakshmi Glass Works (P) Ltd. v. Collector of Central Excise, emphasized that an obligation for the seller to accept returned packing is crucial, regardless of actual return. The High Court, however, found no evidence of actual return of wooden crates and defined "durable" as intended for repeated use, requiring the buyer to return the packing to the seller. The Supreme Court disagreed with the High Court's interpretation, stating that an obligation to accept returns is sufficient. The wooden crates, being simple planks, could be reused even if dismantled by the buyer. Therefore, the costs of wooden crates were held to be non-includible in the value of glass sheets based on the contractual obligation to accept returns.

In conclusion, the Supreme Court set aside the High Court's judgment, allowing the appeal on the second issue regarding the wooden crates' durability and returnability. The Court held that the wooden crates were durable and returnable as per the contractual terms, and their costs should not be included in the value of glass sheets.