2005 (3) TMI 123 - SC - Central Excise

Whether packing charges realized by the assessee from its customers in different situations for different types of packing would form part of assessable value of the final product or not to attract duty under the Central Excise and Salt Act 1944 (in short the Act )? Whether some of the show cause notices were issued beyond the period prescribed under Section 11A of the Act? Held that - The CEGAT with reference to the factual background has come to the conclusion that the packing was not necessary for the concerned excisable articles in the condition in which it is generally sold in the wholesale market at the factory gate. The findings are factual and cannot be termed to be perverse in any manner to warrant interference. Section 4(4)(d)(i) uses the expression returnable .It is not 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 been used and would be superfluous. What is required for attracting applicability of the exclusion clause in Section 4(4)(d)(i) is that the packing must be returnable by the buyer to the assessee on the basis of an arrangement between the buyer and assessee under which packing is returned by the buyer to the assessee. Coming to the question of limitation it is to be noted that there is a conceptual difference between levy and collection . The difference between levy and collection was noticed with reference to Section 3 of the Act which is the charging provision. It was held that levy and collection are two distinct and separate steps. When the High Court had stayed only the recovery/collection there was no question of any stay on the levy. Appeal dismissed.

Issues Involved:
1. Inclusion of packing charges in the assessable value of final products under the Central Excise and Salt Act, 1944.
2. Limitation period for issuing show cause notices under Section 11A of the Act.

Detailed Analysis:

1. Inclusion of Packing Charges in Assessable Value:

The primary issue was whether the packing charges realized by the assessee from its customers for different types of packing should form part of the assessable value of the final product, thereby attracting duty under the Central Excise and Salt Act, 1944. The assessee contended that the bottles were delivered in loose condition at the factory gate and that packing was done only at the customer's request for safe transportation. The packing materials were often provided by the customers or purchased by the assessee on their behalf. The assessee argued that the packing was durable and returnable, justifying its non-inclusion in the assessable value. The CEGAT, by majority, concluded that the packing charges collected by the assessee were not includible in the assessable value of glass and glassware, but 'initial packing charges' for packing in durable and returnable containers were includible.

The Revenue argued that the language of Section 4(4)(d)(i) clearly mandated the inclusion of packing charges unless the packing was of a durable and returnable nature. The Supreme Court noted that the statutory provision was clear and unambiguous, and the cost of packing necessary to make goods marketable was includible. The test was whether the packing was necessary for the goods to be sold in the wholesale market at the factory gate. The CEGAT's factual findings that the packing was not necessary for the marketability of the goods were upheld by the Supreme Court, distinguishing the case from the Hindustan Safety Glass Works Ltd. case where packing was necessary even for movement within the factory.

2. Limitation Period for Issuing Show Cause Notices:

The second issue was whether some of the show cause notices were issued beyond the period prescribed under Section 11A of the Act. The assessee argued that 24 out of 111 show cause notices were barred by the six-month limitation period. The adjudicating authority and the appellate authority had contradictory views on whether the assessments were provisional or final. The CEGAT found that the interim orders of the High Court did not restrain the issuance of show cause notices, and the factual situation showed that 77 notices were issued within time, indicating no restraint on issuing notices.

The Supreme Court emphasized the conceptual difference between 'levy' and 'collection', noting that the High Court's interim orders only stayed the collection, not the levy of duty. The plea of the Revenue that the assessments were provisional was rejected, as there was no order under Rule 9B of the Central Excise Rules establishing provisional assessments. The Supreme Court upheld the CEGAT's conclusion that 24 show cause notices were barred by limitation.

Conclusion:

The Supreme Court dismissed the appeals filed by the Revenue, upholding the CEGAT's findings that:
1. Packing charges collected by the assessee are not includible in the assessable value of glass and glassware.
2. 'Initial packing charges' for durable and returnable containers are includible in the assessable value.
3. 24 show cause notices involving duty of Rs. 66,34,680.27 are barred by limitation.

The Court reiterated that the burden to show that packing costs are not includible is on the assessee and that the factual findings of the CEGAT were not perverse. The appeals were dismissed without any order as to costs.

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