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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 ..... d be excluded in finding out the assessable value was unsustainable and hence, unacceptable. 2. The controversy, to be appreciated, requires narration of certain background facts. Dispute with regard to these gunny bags between the assessee and revenue have arisen for the period from 1970 to 1985. As is evident, proceedings for the entire period were taken in three compartments, namely, 1970-75, 1976-1980 and 1981-1985. Initially the dispute related to payment of duty of excise on the value of goods manufactured i.e. soda ash, after exclusion of post-manufacturing expenses. Subsequently, it was settled as a proposition that post-manufacturing expenses as such 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt period, i.e. 1976-1980, the matter is still subjudice before the adjudicating authorities and I am not concerned with the same. The present batch of appeals relates to the period 1981-1985. It is apt to note here that when the batch of appeals was listed before a three-Judge Bench, it referred to Section 4(4)(d) of the Act and letters issued by the appellant; took note of the decisions in Mahalakshmi Glass Works (P) Ltd. v. Collector of Central Excise 1988 (Supp) SCC 601, Triveni Glass Ltd. v. Union of India & Ors. (2005) 3 SCC 484 and Commissioner of Central Excise v. Hindustan National Glass & Industries Ltd. (2005) 3 SCC 489; adverted to the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the cost of the gunny bags from the value of the soda ash in all cases where there was an arrangement to return the packing materials as a matter of law." After so stating, the three-Judge Bench proceeded to observe as follows:- "The decision in Triveni Glass Ltd. (supra) does appear to suggest that even if there is no obligation on the part of the buyer to return the packing material, but there is an obligation on the part of the seller to accept the packing material if the buyer chooses to return it, then in all cases the cost of the packing material must be excluded from the cost of the excisable goods. This view is, in our opinion, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee." 10. Section 4(d)(i) uses the word "returnable". The said word fell for consideration before a two-Judge Bench in K. Radha Krishnaiah (supra). While interpreting the said term, the Court held thus:- "Does it mean physically capable of being returned or does it postulate an arrangement under which the packing is returnable. While interpreting this word, we must bear in mind that what Section 4(4)(d)(i) excludes from computation is cost of packing which is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question of durability is concerned, there cannot be such controversy about it, but a question has been raised as to what is the meaning and connotation of the word "returnable". Does it mean physically capable of being returned or does it postulate an arrangement under which the packing is returnable? While interpreting this word, we must bear in mind that what Section 4(4)(d)(i) excludes from computation is cost of packing which is 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." 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 M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h they occur. The proper interpretation to be placed on the words of Section 4(4)(d)(i) has been explained in the judgment of my learned Brother and I am in full agreement with him on this point." And again:- "Where the manufacturer supplies his own container or drum but does not charge the customer therefor, then the price of the goods will also include the cost of the container. There will be no question of separate addition to the sale price nor can the assessee claim a deduction of the cost of packing from the sale price except where the container is a durable one and is returnable 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 op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the letters clearly spell out the arrangement; that there has been responses by the dealers and that the benefits were availed accordingly. To appreciate the factual controversy, it is appropriate to reproduce the relevant paragraphs from the letter dated 15.12.1970:- 4. At this stage, it will be relevant to recall several attempts that we have made in the past to encourage and promote the cyclic use of jute bags and to introduce cheaper and alternative packing materials like cloth, plastics, etc. Unfortunately, these attempts have so far met with only limited and interrupted 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 acceptab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemicals having to contest this in the court, we shall recover R which will equal additional excise duty, if any, which the excise authorities might impose on account of the use of packing material (used and/or new) furnished either directly by the customer or, at his request, by Tata Chemicals on his account. Such recoveries as Tata Chemicals might be compelled to make on this account shall be refunded to the clearly identifiable end-users after Tata Chemicals succeed in securing a favourable verdict either from the excise 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor but the condition that if the buyer chooses to return the packing, the seller is obliged to accept it and refund the stipulated amount. The question whether the packing is actually returned or not has no relevance. It must be manifest that it is the obligation of the assessee to take back the packing items from the purchaser. The tribunal has interpreted the letters treating them that they do not meet the nature and character of an "arrangement". It is urged before 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appellant on the ground that it is not an arrangement and on that basis has remanded the matter to the adjudicating authority for computation of the actual amount of duty payable by the appellant. Once I accept that it has the nature and character of an arrangement, then the authority is required to ascertain from the record whether the buyers continued to have a choice to return the packing material for reuse. I need not indicate the method of verification 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 appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of soda ash, it has to be determined whether the gunny bags which are used for packing soda ash by the appellant were durable and returnable in nature and whether the same were returned to the appellant for re-use/repacking of soda ash by the appellant. Secondly, it has to be further determined whether there was any arrangement, express or implied by the appellant with its buyers of soda ash with regard to the returnability of the used gunny bags 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th, 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 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 ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a ash by the 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 buyers does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 the cartons and gunny ..... X X X X Extracts X X X X X X X X Extracts X X X X
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