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TMI Blog2015 (8) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... period i.e. 1981 to 1985, the appellant shall be given the benefit. If he fails to establish the same, the adjudicating authority shall look into the consideration the actual return as has been directed in [2014 (9) TMI 149 - SUPREME COURT] - Decided in favour of assessee. As per Justice V. Gopala Gowda:- appellant has already charged for the value of the gunny bags from the customers by adding the same to the cost of soda ash. The fact that some of the customers of the appellant have returned the gunny bags out of several ones already sold between the period of 1971 to 1988, does not entitle it to get the benefit of exclusion of the cost of all the gunny bags which were not even returned to the appellant. - burden to prove that the value of the gunny bags is not inclusive and not excisable with the value of the soda ash, lies on the appellant and it has miserably failed to do so as is clear from the facts and circumstances of the case that the soda ash are sold in bulk in the gunny bags at the factory gate to the wholesale market and such packing is indispensible for the transport and preservation of soda ash. - appellant has also failed to establish an arrangement as per Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were not deductible and that the deduction/exclusions could only be in terms of specific provisions contained in Section 4 of the Central Excise Act, 1944 (for brevity, the Act ). On the basis of the aforesaid law laid down, the matters were remanded by this Court for reconsideration. 3. Be it noted, it was for the first period, that is, 1970-75, the matter was remanded to the Assistant Commissioner to decide the issue relating to exclusion/inclusion of cost of packing in determining the value of goods for payment of excise duty under Section 4 of the Act. The claim of the assessee was eventually rejected by order no. 194/2006-Ex-PB dated 14.2.2006 in appeal No. E-480/04. That compelled the assessee to prefer Civil Appeal No. 2988/2006. The said appeal has been disposed of by this Court vide judgment and order dated 21.8.2014. This Court had referred to certain paragraphs of the order passed by the tribunal and thereafter passed the following order:- The aforesaid paragraphs clearly demonstrate that the Tribunal has followed the reasoning that it had followed for the period 1981 to 1985. Mr. B.L. Narasimhan, learned counsel for the appellant would contend that the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the tribunal that has not accepted the documents holding that it did not show that there was any arrangement regarding returnability of gunny bags which would justify the exclusion of cost of gunny bags from the cost of soda ash; analysed the proposition of law stated in K. Radha Krishnaiah v. Inspector of Central Excise and others (1987) 2 SCC 457 and opined thus:- As we read the decisions in K. Radha Krishnaiah (supra) and Mahalakshmi Glass Works (P) Ltd. (supra), the Court was of the view that there must be an arrangement to the effect that the packing material must be returnable to the seller by the buyer. In such a case actual return would not have to be established. The reason for this is obvious. From the section it appears that if the packing material is obliged to be returned to the seller, the seller does not in fact transfer the title in the packing material to the buyer. The seller retains the property in the packing material. In such circumstances irrespective of the actual return of the packing material by the buyer to the seller, the seller, not having effect the sale of packing material, was not required to include the cost of packing material in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion, contrary to the ratios laid down in the cases of K. Radha Krishnaiah (supra) and Mahalakshmi Glass Works (P) Ltd. (supra). 5. In view of the aforesaid it referred the matter to be placed before the larger Bench by order dated March 23, 2006. The Constitution Bench vide order dated 4.8.2010 passed the following order:- In view of paragraphs 12 and 17 of the judgment of Three-Judge Bench of this Court in the case of Triveni Glass Limited vs. Union of India and Ors., reported in 2005(3) SCC 484, we are of the view that the assumption made in the referral order dated 23rd March, 2006 to the effect that the decision of this Court in Mahalakshmi Glass Works (P) Limited vs. Collector of Central Excise, Bombay, reported in 1988 (Supp) SCC 601, is erroneous. On the contrary, the judgment of this Court in Triveni Glass Limited (supra) in turn follows the judgment in Mahalakshmi Glass Works (P) Limited (supra). For the above reasons, the order of reference dated 23rd March, 2006, is set aside and consequently, the civil appeals will be heard by the appropriate Bench in accordance with law. All arguments on merits on both sides are kept open. 6. In view of the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. What is required for the purpose of attracting the applicability of the exclusionclause in Section 4(4)(d)(i) is that the packaging must be returnable by the buyer to the assessee. The question which has to be asked in each case is: Is the packing in this case returnable by the buyer to the assessee and obviously it cannot be said that the packing is returnable by the buyer to the assessee unless there is an arrangement between them that it shall be returned. 11. In Mahalakshmi Glass Works (supra), the assessee-appellant have been paying duty on the value of the glass bottles including the cost of gunny bags or the cartons in which these are packed at the time of sale. It had been paying duty on the glass bottles on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. After so stating, the Court dismissed the appeal as there have been no evidence of the agreement that the cartons and gunny bags were returnable. 12. In Hindustan Polymers (supra), a three-Judge Bench was dealing with the concept of value of excisable goods under Section 4(4)(d)(i). Sabyasachi Mukharji, J. (as His Lordship then was) opined that:- The contention that the value of packing materials including those supplied by the buyer, has to be included in the value of the goods, is repugnant to the very scheme of Section 4. It overlooks the use of the expression cost in relation to packing in the clause (i) of Section 4(4) (d) of the Act. The word cost has a definite connotation, and is used generally in contradistinction to the expression value . Thus, the clear implication of the use of the word cost is that only packing cost of which is incurred by the assessee i.e. the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the manufacturer. If the manufacturer supplies the drums and charges the customers separately therefor, then, under Section 4(4)(d)(i), the cost of the drums to the buyer has to be added to the price except where the packing is of durable nature and is to be returned to the manufacturer. If on the other hand, the manufacturer asks the customer to bring his own container and does not charge anything therefor then the cost (or value) of the packing cannot be notionally added to, or subtracted from, the price at which the goods have been sold by the manufacturer. Verma, J., in his concurring opinion, ruled that:- The cost of such packing referred in Section 4(4)(d)(i) does not include within its ambit the cost of packing not incurred by the manufacturer when the packing is supplied by the buyer and not the manufacturer. This construction of the expression cost of such packing in Section 4(4) (d)(i) of the Act clearly excludes in these matters the question of its addition to the price of goods recovered by the manufacturer from the buyer for determining the value in relation to the excisable goods for computing the duty payable on it. 13. Learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... errupted success. In order to eliminate or to reduce the cost of packing materials, we were strongly motivated by the consumer interest because the packing materials can count for nearly 10% of the bulk price of Soda Ash and were guided by the fact that in several developed countries as much as 90% of the Soda Ash is sold in bulk. In terms of the national interest, another powerful incentive lay in the need for conserving the jute supplies both for the domestic demand from the agricultural sector and for export. xxxxx xxxxx xxxxx 6. Until the bulk movement of Soda Ash becomes more sidle possible and acceptable, we would strongly urge our customers to reclaim the used bags and return the sound ones back to our Works at Mithapur for reuse. Such cyclic uses of bags, in the interim, would once again result in substantial benefit to the consumer as there will be no cost of packing material involved. Our distributors throughout the country will offer assistance, at nominal charge, for organizing this operation as a customer service. 7. On such occasions when either the bulk movement of the material or the reuse of the bags is not possible, the customers will be offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities directly or in the court. 10. At the time of placement of orders, the customers are requested to specify whether:- (a) They want Soda Ash to be dispatched in bulk. (b) They want the material to be packed in their own bags new or used, or (c) They want to authorise Tata Chemicals to use bags from their own stock, on their account, at actual cost at the point of packing. 15. In this context, reference to letter dated 1.2.1971 is pertinent. The relevant part of the same is as follows:- We invite your attention to our Circular No. CON/G-50/70 dated 15th December 1970, wherein we had agreed that customers could send their own packing materials jute, cloth, plastic etc. to our Works at Mithapur for use in packing the bulk Soda Ash. While we would be pleased to receive such packing materials from our customers, to avoid problems with the Excise and the Railway authorities and to facilitate the filling of the product at our Works at Mithapur, we shall be glad if the customers send unbranded bags only of the following specifications:- Gunny bags Soda Ash Light 39 x 26.1/2 L Twills, WIP 2.1/2 lbs./44 hd., 8 x 8 Plain Unbranded So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me by the assessee-appellant that it is circulated to all the dealers and that there has been responses from the buyers to the letters circulated by the assessee. It is put forth by him that communications from the buyers were brought on record before the tribunal by way of an affidavit and invoices were also brought on record. The letters clearly show the obligation of the assessee-appellant to take back the packing materials. Learned counsel has also taken me through the billing from which it is clear that in addition to the bulk prices of soda ash, the packing material was also required and in such cases as per the formula set out in the letter, the cost of packing material has been shown and charged and in that event, the value of the packing material is zero. That apart, submits Mr. Ravinder Narain, learned counsel for the appellant that when the appellant has demonstrably stated that it is obliged to accept such packing material for reuse, the test laid down in the decision Triveni Glass Limited, 2005 (supra) is met with. Certain responses issued by buyers namely, All India Glass Works Pvt. Ltd., The Cawnpore Chemical Wokrs Private Ltd., The Alembic Glass Industries Ltd., ATI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the existence of the arrangement for the period in question. Once the existence arrangement and choice to return the packing material for reuse are established for the period in question in view of the second decision in Triveni Glass Limited (supra), the packing cost would not be included. If the assessee succeeds in establishing the choice mentioned in the documents which I have accepted to be an arrangement, and is prevalent during the relevant period i.e. 1981 to 1985, the appellant shall be given the benefit. If he fails to establish the same, the adjudicating authority shall look into the consideration the actual return as has been directed in Civil Appeal No. 2988 of 2006 on 21.8.2014. 21. Resultantly, the appeals are allowed and the orders passed by the forums below are set aside and the matter is remanded to the adjudicating authority for adjudication in accordance with the principles stated hereinabove. There shall be no order as to costs. Per V. Gopala Gowda, J. JUDGMENT I have gone through the judgment of my learned brother Judge, Justice Dipak Misra, wherein certain relevant facts have been adverted to by my learned brother on the contentious legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ags to it in the light of the provisions provided under the Act and the legal principles laid down by this Court in a catena of cases. 4. To determine the same, letters dated 15.12.1970, 01.02.1971 and 02.04.1971 have to be scrutinized in proper perspective. The relevant portions of the above dated letters are extracted hereunder: Letter dated 15.12.1970, reads thus: 6. Until the bulk movement of Soda Ash becomes more sidle possible and acceptable, we would strongly urge our customers to reclaim the used bags and return the sound ones back to our Works at Mithapur for reuse. Such cyclic uses of bags, in the interim, would once again result in substantial benefit to the consumer as there will be no cost of packing material involved. Our distributors throughout the country will offer assistance, at nominal charge, for organising this operation as a customer service. 7. On such occasions when either the bulk movement of the material or the reuse of the bags is not possible, the customers will be offered free choice of any of the two following courses:- (a) They can send their own packing materials-jute cloth, plastic etc.-to our Works at Mithapur for use in pack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Excise and the Railway authorities and to facilitate the filing of the produce at our Works at Mithapur, we shall be glad if the customers send unbranded bags only of the following specifications :- GUNNY BAGS SODA ASH LIGHT 39 x26.1/2 , L Twills, WIP 2.1/2 lbs./44 hd., 8x8 Plain Unbranded. SODA ASH DENSE 36 x26.1/2 , L Twills, WIP 2.1/2 lbs./44 x26.1/2 hd. 8x8 Plain Unbranded SODA ASH DENSE MEDIUM 39 x26.1/2 , L Twills, WIP 2.1/2 lbs./44 hd., 8x8 Plain Unbranded We shall be grateful if you will ensure that the bags sent by you to our works at Mithapur for filing Soda Ash, conforms to the above specifications. Letter dated 2.4.1971, reads thus: We have been recommending over the last few years to our customers to return our used Soda Ash bags to our Works at Mithapur for refilling of the product on their account. We have further pointed out that such cyclic use of jute bags would, now that we have a price for bulk Soda Ash, result in considerable saving to our customers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant have to be returnable in nature and the same has to be done under an arrangement between the buyer and the appellant. However, in the present case, with reference to the above stated letters, it is apparent that no such express arrangement has been made between the parties. This is so because the value of the gunny bags have been included in the final sale price of the soda ash and a careful perusal of the above stated letters would clearly go to show that no express arrangement has been made by the appellant with the buyers for the return of the gunny bags for the reason that there would be a deduction in the sale price, only when the gunny bags were returned to the appellants. If we allow such an arrangement to exist in the guise of conditional returnability of the gunny bags which may or may not be returned, then the same would run contrary to the principles laid down by this Court in the cases of Mahalakshmi Glass Works (P) Ltd.(supra) and K. Radha Krishnaiah (supra). The exclusion of the cost of the packing material from the value of the goods, irrespective of the customers returning the same to the appellants is illegal and invalid and the same cannot be justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble condition. Another way of testing would be to see whether the goods are capable of reaching the market without the type of packing concerned. Each case would have to be decided on its own facts. It must also be remembered that Section 4(4)(d) (i) specifies that the cost of packing is includible when the packing is not of a durable nature and returnable to the buyer. Thus, the burden to show that the cost of packing is not includible is always on the assessee. (emphasis laid by this Court) 9. Thus, in the light of the aforesaid decision, the burden to prove that the value of the gunny bags is not inclusive and not excisable with the value of the soda ash, lies on the appellant and it has miserably failed to do so as is clear from the facts and circumstances of the case that the soda ash are sold in bulk in the gunny bags at the factory gate to the wholesale market and such packing is indispensible for the transport and preservation of soda ash. 10. The appellant has also failed to establish an arrangement as per Section 4(4)(d)(i) of the Act. Mere suggestion of the same in the above dated letters, regarding the return of used gunny bags to the appellants by the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gunny bags. The appellant invited the attention of the Tribunal to the following clause in their standard contract. It read as follows: 6. All packing cases, other than such as may be supplied or paid for by buyer, shall be returnable in good order and condition within 30 days after receipt. 6. The Tribunal was of the view that the above clause related to cases . It could have meant only the crates which belonged to the appellant and for which the customers had not paid anything. The property in the crates having remained with the appellant all along, the buyers were naturally obliged to return them to their rightful owners. But that was not the case with the cartons and gunny bags. The buyers pay for these and the property in these pass on to the buyers. They could be asked to return them to the appellant only under a term of sale and on payment of the agreed amount and not for the free. No such contract or agreement was forthcoming. The Tribunal was not convinced that in the normal course of business anyone could be asked to part with his property, and in addition incur return freight therefore too for nothing. In those circumstances, the Tribunal held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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