2006 (3) TMI 55 - SC - Central Excise

Valuation (Central Excise) - Alleged that packing material not includible in the cost of product -Return of packing is obligatory transfer of title in case packing material not take place to buyer

Summary

Issues:
Whether the value of gunny bags should be included in the assessable value of soda ash for excise levy under the Central Excise and Salt Act, 1944.

Analysis:
The appellant, a soda ash manufacturer, argued that the cost of gunny bags should not be included in the value of soda ash based on correspondence with customers urging return of used bags for reuse. They relied on Section 4(4)(d) of the Act, stating that the cost of packing material, if returnable and durable, should not be included in the goods' value. Citing previous court decisions, the appellant contended that an arrangement for return of packing material excludes its cost from the goods' value.

The Tribunal rejected the appellant's argument, stating that the correspondence did not establish a return arrangement for gunny bags. The Court interpreted 'returnable' as requiring an obligation for the buyer to return the packing material, irrespective of actual return. In the absence of such an obligation, the cost of packing material should be included in the goods' value. The Court emphasized that the seller must retain ownership of the packing material for the exclusion to apply.

The appellant claimed a reduction in soda ash value only for returned gunny bags but argued for a blanket exclusion based on Triveni Glass Ltd. decision. However, the Court disagreed with Triveni Glass Ltd., stating that an obligation for the seller to accept returned packing material without a buyer obligation to return does not warrant a cost exclusion. As the Triveni Glass Ltd. decision was by a Bench of three Judges, the matter was referred to a larger Bench due to the Court's disagreement.

In conclusion, the Court held that the cost of gunny bags should be included in the value of soda ash unless there is a clear arrangement obligating buyers to return the packing material to the seller. The decision in Triveni Glass Ltd. was referred to a larger Bench for further consideration.