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Saturday, August 8, 2015

calls in question the assailability of judgment and order dated 6.9.2000 passed by the Customs, Excise and Gold Control (Appellate) Tribunal, New Delhi (for short ‘the tribunal’) in Appeal Nos. E/1073-1090/90-A, E/4285-4289/90-A, E/4293- 4294/91- A, E/4296-4322/91-A, whereby the tribunal has not accepted the letters dated 15.12.1970, 01.02.1971 and 02.04.1971 to bring out thearrangement for the return of durable packing, namely, gunny bags, for reuse as packing material for selling the soda ash in bulk. The tribunal has further opined that assessee’s effort to establish that there was an arrangement between the manufacturer and their customers to return the durable packing, namely, gunny bags, and accordingly the claim put forth by them that the value of gunny bags used for packing soda ash manufactured by them should be excluded in finding out the assessable value was unsustainable and hence, unacceptable.=Thus, with reference to the judgments referred to supra, it is safe to say that in the present case, the appellant has failed to establish any arrangement between itself and the buyers regarding the returnability of the used gunny bags. Therefore, the appellant is hereby directed to pay the total amount of the gunny bags which are excisable under the Act. The credit notes dated 12.3.1988 and 31.3.1988 cannot be relied upon in the facts and circumstances of the present case, since the credit notes relate to the year 1988, whereas the present case is concerned with the period 1981 to 1985. There is no independent evidence which can help establish the case of the appellant during that relevant period of time. Moreover, in most of the letters sent by the buyers to the appellant, the buyers send their own packing material and in case they cannot provide the appellant with a packing material, the appellant was required to send the soda ash in its own packing material on which packing charges have been incurred by the buyers. The counsel for the appellant had put forward a request for filing an application for additional documents before the CEGAT in Appeal No.E/1088/90-EB(WR) of 1990, under Rule 23 of Customs, Excise and Gold (Control) Appellate Tribunal (Procedure) Rules, 1982, with regard to its claim that there has been a deduction on account of packing in the durable and returnable gunny bags, the same have been produced before us for our perusal. The CEGAT has rightly not considered the same as they do not support the claim of the appellant that the gunny bags were reclaimed by the appellant under an arrangement between the appellant and the buyers for the return of the used gunny bags. Therefore, they have no bearing in justification of their claim that the gunny bags were actually returned. The concurrent finding of facts recorded by CEGAT at paras 5 and 6 of its judgment, on the basis of the facts pleaded and the evidence placed on record with regard to the returnability of the gunny bags are just and proper and the same cannot be refuted as they are backed by cogent and reasonable evidence. Therefore, the claim of the appellant cannot be sustained in the light of the provisions of the Act and the laws laid down by this Court in a catena of cases, as the same is marred by lack of proper and independent evidence. Therefore, the tribunal has rightly rejected the claim of the appellant so far as the exclusion of the cost of packing material with the value of soda ash is concerned and hence, it is liable to pay the tax liability for the same in the light of the findings and observations made in this judgment. The appeals are dismissed.

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOs. 7251-7302 OF 2000


M/s. Tata Chemicals Ltd.                     ... Appellant

                                   Versus

Collector of Central Excise, Ahmedabad  ... Respondent




                               J U D G M E N T


Dipak Misra, J.



      In this  batch  of  appeals,  the  appellant  calls  in  question  the
assailability of judgment and order dated 6.9.2000 passed  by  the  Customs,
Excise and Gold Control (Appellate) Tribunal,  New  Delhi  (for  short  ‘the
tribunal’)  in  Appeal  Nos.  E/1073-1090/90-A,  E/4285-4289/90-A,   E/4293-
4294/91- A, E/4296-4322/91-A, whereby the  tribunal  has  not  accepted  the
letters dated  15.12.1970,  01.02.1971  and  02.04.1971  to  bring  out  the
arrangement for the return of  durable  packing,  namely,  gunny  bags,  for
reuse as packing material for selling the soda ash in  bulk.   The  tribunal
has further opined that assessee’s effort to establish  that  there  was  an
arrangement between the manufacturer  and  their  customers  to  return  the
durable packing, namely, gunny bags, and accordingly the claim put forth  by
them that the value of gunny bags used for packing soda ash manufactured  by
them  should  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 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 of the assessee before the  authorities  we  absolutely  different
inasmuch as two contentions were  raised  before  the  authorities,  namely,
that excise duty was not leviable on the packing materials supplied  by  the
buyer, and the second,  the  same  was  durable  and  returnable,  but,  the
Tribunal has adverted to the second aspect by expressing  its  view  on  the
basis of the decision rendered by it  pertaining  to  the  assessment  years
1981 to 1985 and not adverted to the issue that  no  levy  could  have  been
imposed on packing material, if it is supplied  by  the  purchaser  and  the
said fact proven to the satisfaction of the authorities  that  it  has  been
used for packing.

Learned counsel for the appellant fairly submitted that he does  not  intend
to press the issue with regard to  durability  and  returnability.   He  has
confined his submission with regard to levy of excise duty  on  the  packing
material supplied by the buyer.

Mr. Rohtagi, learned Attorney General, we must appreciably  state  submitted
with all fairness at his  command  that  as  far  as  the  first  aspect  is
concerned, if the packing materials are supplied  by  the  buyer,  the  levy
could not have been impsed.  The said contention is  absolutely  correct  is
view of the law laid down  in  M/s.  Hindustan  Polymers  Vs.  Collector  of
Central Excise[1].


As the Tribunal has not adverted to the said facet,  we  allow  this  appeal
and remand the matter to the Tribunal exclusively  for  delineation  on  the
said issue.   Accordingly, the order of the Tribunal is  set  aside  to  the
said limited extent. We may hasten to clarify,  our  setting  aside  of  the
order would not have no effect whatsoever for the assessment years  1981  to
1985.



4.    It is necessary to mention here that for the subsequent  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[2], Triveni Glass Ltd. v.   Union  of  India  &  Ors.[3]  and
Commissioner of Central Excise v.  Hindustan  National  Glass  &  Industries
Ltd.[4]; 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[5] 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 cost of  excisable  goods.   In  the  present  case,
there was no obligation on the part of the buyers to return the  gunny  bags
and the assessee-seller clearly indicate that only if  the  gunny  bags  are
actually returned would the buyers be entitled to a deduction of  the  value
of the gunny bags.  Therefore value of the gunny bags  formed  part  of  the
prices and were otherwise includible in  the  value  of  the  goods.   There
would be a deduction of the sale price only if the gunny bags were  returned
by the customers  to  the  assessee.   The  Tribunal  rightly  came  to  the
conclusion that there was in fact no such arrangement between the  appellant
and its customers that the packing material shall be returned.  The  letters
show request, recommendation and urging of the customers  by  the  assessee,
all of which were open to  the  customers  concerned  to  either  accept  or
reject.  If we were to  hold  that  such  an  arrangement  would  allow  the
appellant to exclude the cost of the packing material from the value of  the
goods as a matter of course and irrespective of the customers returning  the
gunny bags, it would run contrary to the language of  the  section  and  the
decisions in K. Radha Krishnaiah (supra) and  Mahalakshmi  Glass  Works  (P)
Ltd. (supra).  The basis for making an exception in the statute  in  respect
of durable and returnable packing material would also cease to justify  such
an exception.

“We may, also note at this stage that the appellant has also  contended  and
in fact it had only claimed a reduction in the value of the soda ash on  the
basis of gunny bags actually returned.  Nevertheless on  the  basis  of  the
decision in Triveni Glass Ltd. (supra), it  contends  that  irrespective  of
the actual return of the gunny bags, the Tribunal was bound to  exclude  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 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 aforesaid  chronology  of  events,  I  am  required  to
adjudge whether the finding recorded by the tribunal  is  justified  in  the
backdrop of the letters  issued  by  the  assessee.   The  tribunal,  as  is
noticeable, has  held  that  there  has  been  no  arrangement  between  the
manufacturer  and  their  customers  to  return  the  durable  packing  and,
therefore, the claim put forth by the assessee that the value of gunny  bags
used for packing soda  ash  manufactured  by  them  should  be  excluded  in
finding out the assessable value is untenable.

7.    It is submitted by  Mr.  Ravinder  Narain,  learned  counsel  for  the
appellant that the controversy has to be appreciated  regard  being  had  to
the applicability of the word “value” as employed in Section  4(4)(d)(i)  of
the Act in relation to excisable goods  and  the  interpretation  placed  by
this Court on various authorities in the backdrop of the letters  that  have
been brought on record.  It is also  his  submission  that  the  concept  of
durability and returnability has to be understood  on  the  bedrock  of  the
propositions laid down by the decisions of this Court.  Additionally, it  is
canvassed by him that  once  it  is  established  that  there  has  been  an
arrangement,  the  authorities  can  be  asked  to  appreciate   the   other
documents, regard being had to the period in question to  find  out  whether
the arrangement was in vogue during that period.

8.    The aforesaid submissions have  been  seriously  controverted  by  Mr.
Mukul Rohtagi, learned Attorney General, on the foundation that the  letters
cannot form the basis of an arrangement and  they  are  fundamentally  self-
serving documents.

9.    Section 4(d) which defines “value” reads as follows:-

“(d)  “value”, in relation to any excisable goods -

(i)   where the goods are delivered at the  time  of  removal  in  a  packed
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
exclusion[pic]clause 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  basis  of  assessable  value
which included the costs of packing material, namely,  the  gunny  bags  and
the cartons.  It was contended before  the  adjudicating  authority  by  the
assessee that the glass bottles are normally  sold  by  it  in  the  packing
consisting of gunny bags which are durable and  returnable  and  in  several
cases the gunny bags are returned by the buyers and reused by the  appellant
again for packing the glass bottles.  It was also brought to the  notice  of
the said authority that only when the customers ask for delivery in  cartons
instead of gunny bags, the appellant deliver the  glass  bottles  packed  in
cartons which are durable and returnable.  When  the  assessee  submitted  a
price list in regard to the glass bottles manufactured by  it  for  approval
by showing separately the price at which such goods were  actually  sold  in
the course of “whole-sale trade” and “the cost of  packing”,  Superintendent
of Central Excise returned to the assessee the price list duly approved  but
noting therein that price should be inclusive of the  cost  of  packing  and
the packing charges in terms of Section  4(4)(d)(i)  of  the  Act.   On  the
basis of the said communication, the assessee paid the  duty  under  protest
and, thereafter, lodged claims for refund.  When  it  did  not  receive  any
payment or any intimation,  the  litigation  commenced.    When  the  matter
arrived before the tribunal, the tribunal relied  on  the  authority  in  K.
Radha Krishnaiah (supra) and opined that  there  was  no  clause  about  the
returnability of the cartons and gunny bags.  This Court, in  appeal,  while
relying upon the principle in K. Radha Krishnaiah case ruled that:-

“As noted above, this Court has considered the  meaning  of  the  expression
“returnable” in the section in K. Radha Krishnaiah  case.  This  Court  held
that so far as 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 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 seller, is to  be  included.  The
use of the expression “cost” could not obviously be by way of  reference  to
packing for which the cost is incurred by the buyer. It has to be  borne  in
mind that such a provision  would  make  the  provision  really  unworkable,
since in making the assessment of the seller,  there  is  no  machinery  for
ascertaining the “cost” of the  packing  which  might  be  supplied  by  the
buyer. Such  a  contention  further  overlooks  the  scheme  of  clause  (i)
whereunder durable packing returnable by the buyer has to  be  excluded.  It
would create  an  absurd  situation  if  durable  packing  supplied  by  the
assessee and returnable to the  assessee  is  not  to  be  included  in  the
assessable value but  a  durable  packing  supplied  by  the  buyer  to  the
assessee and returnable to the buyer  is  made  a  part  of  the  assessable
value.”


      Ranganathan, J., in his concurring opinion, expressed the view thus:-

“In construing Section 4(4)(d)(i), all that has to be seen  is  whether  the
goods are delivered in packed condition. If this  question  is  answered  in
the affirmative, then, in  respect  of  the  goods  so  sold,  the  cost  of
packing, whether incurred by the manufacturer or by the supplier, has to  be
automatically included in the assessable value if necessary, by addition  to
the sale price, except only where the  packing  is  of  durable  nature  and
returnable to the manufacturer.  He reminded us  of  the  oft-quoted  truism
that, in tax matters, one has to look at what is said and that there  is  no
question of any intendment, implication, equity or liberality in  construing
the taxing provision. I agree with Mukharji, J. that this contention  cannot
be accepted. The principle referred to by the learned  Attorney  General  is
unexceptionable but the words of a statute have to be read  in  the  context
and setting in which 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 [pic]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 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 the appellant has commended me  to  the  authority
in Triveni Glass Limited (supra).  In the said  case,  a  three-Judge  Bench
has held thus:-

“We have considered the submission of the parties.  In  our  view,  the  law
laid down by this Court in Mahalakshmi Glass Works (P) Ltd. is  the  correct
law. 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  second  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
cost is not to be included in the value of glass sheets.”


      The principle stated therein has been followed in Triveni  Glass  Ltd.
v. Commissioner of Central Excise, Guntur[6].

14.   From the aforesaid proposition of law, it is  graphically  clear  that
there has to be an arrangement for the return of the packing  material.   In
the case at hand, the tribunal has ruled, after referring  to  the  letters,
that there has been no arrangement.  The said  finding  has  been  seriously
challenged by Mr. Ravinder Narain, learned counsel for the appellant on  the
foundation that 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
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  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 packing the bulk Soda Ash.

(b)   They can authorise Tata Chemicals to use,  on  their  behalf,  packing
materials from their stocks at actual cost accruing at the point of  packing
Soda Ash.

                     xxxxx       xxxxx            xxxxx

9.    If and when and at the customer’s  own  option,  the  use  of  packing
material  is  involved  in  connecting  the  bulk-priced  Soda  Ash  to  the
customer, we will separately bill the following charges in addition  to  ex-
Works bulk prices arrived at under (8) above:
                                        Rs./Tonne

A.    Cost of packing material          P    (note 1)

B.    Charges for branding / )    3     (note 2)
      Packing and stitching if    )
      and when necessary          )

C.    “Refundable” excise contingency R (note 3)



NOTE 1:     When the customer accepts deliveries in  bulk  and/or  furnishes
his own packing material (used or new) the value  of  P  will  obviously  be
zero.  If Tata Chemicals are requested to furnish new  packing  material  on
the customer’s account, then  P  will  equal  the  actual  cost  of  packing
material that Tata Chemicals incur at the point of packing –  on  the  basis
of current stocks of packing materials with Tata Chemicals, the value  of  P
for Light Soda Ash is estimated at Rs.46.00 and Dense and Medium Dense  Soda
Ash ant Rs.52.00.”

Note 3      We have been legally advised  on  good  authority  that  the  ad
valorem excise duty at 10% should be applicable only  on our basic  ex-Works
price of Soda Ash in bulk and not on the packing material if  and  when  the
use of packing material is involved at the customer’s  option  and  account.
This position has, however, to be yet established  clearly  and  fully  with
the excise authorities.   Only  in  the  event  of  excise  authorities  not
accepting this position readily and Tata 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 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

Soda Ash Dense         39” x 26.1/2” L Twills,
                       WIP 2.1/2 lbs./44”x26.1/2”hd.,
                       8 x 8  Plain Unbranded

Soda Ash Dense Medium  39” x 26.1/2” L Twills,
                             WIP 2.1/2 lbs./44”hd.,
                             8 x 8  Plain Unbranded”

16.   Learned counsel appearing for the appellant has drawn my attention  to
letter  dated  2.4.1971.   I  think  it   appropriate   to   reproduce   the
communication in entirety:-
“Dear Sirs,
                       Soda Ash – Packing

You will have noted from the newspaper reports that  due  to  the  political
upheaval in East Pakistan, the prices of jute bags are  rising  sharply  and
are expected to up still further.

We have been recommending over the  last  few  years  to  our  customers  to
return our 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.

In the interest of our consumers and conservation of jute supplies  we  once
again very strongly urge the return of our used bags  to  Mithapur  for  re-
use.  May we, therefore, request that  you  give  this  matter  your  urgent
consideration and arrange for the return of the used bags  to  Mithapur  for
packing your further supplies?

While returning the bags please remember that -

(1)   you should return to us only our Soda Ash bags and  not  the  bags  of
other manufacturers.

(2)   the bags should be in good condition so that  we  are  able  to  bring
them into re-use.

(3)   The bags should be returned to Mithapur, freight paid.”


17.   The contents of the aforesaid letters are to  be  appreciated  in  the
proper context and on  the  bedrock  of  authorities,  I  have  referred  to
hereinabove.  The decision in Triveni Glass Limited, 2005 (supra) which  has
been approved by the Constitution Bench clearly lays down  that  it  is  not
the physical capability of packing to be returned which is  the  determining
factor 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 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.,  ATIC  Industries
Limited, Ashok Silicate Industries, Ultramarine & Pigments Limited  and  The
Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. have been  brought  on  record.   He
has also drawn my attention to  number  of  endorsements  which  shows  that
empty bags have been returned by the buyers and in fact the reference is  to
the “empty bags” supplied by the appellant which have been returned  to  the
appellant for refilling and reuse, is in consonance with  the  letter  dated
29.12.1970.

18.   Be it clarified, an arrangement need not be in a particular  form,  it
can be oral or in writing by way of an agreement or can be ascertained  from
communication or letters exchanged.  When oral  it  has  to  be  proved  and
established and when in writing it should be genuine and not  a  camouflage,
but an arrangement cannot be ignored and treated as non est  because  it  is
by means of written communications.

19.   In Hindustan Polymers (supra), it has been clearly held that  when  an
arrangement per se exists for return of durable packaging by  the  buyer  to
the manufacturer, then whether or not the packaging  was  in  fact  returned
would be inconsequential.  More importantly, it was  held  therein  that  if
the durable packaging was supplied by the buyer  to  the  assessee  and  was
returnable to the buyer, the cost of durable  packaging  would  not  form  a
part of the assessable value.  To treat value of  the  durable  supplied  by
the buyer as a part of the assessable value, it was observed,  would  result
in  an  absurd  situation.   In  this  context,  it  was  held  that  proper
contextual interpretation was required to be placed on the words of  Section
4(4)(d)(i), as literal  interpretation  would  lead  to  difficulties.   The
letter dated 2nd April, 1971 in this context is relevant.

20.   In view of the  aforesaid  analysis,  I  arrive  at  the  irresistible
conclusion that the letters spell out an arrangement  between  the  assessee
and the buyers.  The tribunal has not accepted the stand  of  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 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.



                                             .............................J.
                                                               [Dipak Misra]

New Delhi
August 06, 2015



                                                                  Reportable

                        IN THE SUPREME COURT OF INDIA
           CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOs. 7251-7302 OF 2000



M/S. TATA CHEMICALS LTD.                 ………APPELLANT

                                      Vs.

THE COLLECTOR OF CENTRAL EXCISE,
AHMEDABAD                              ………RESPONDENT



                               J U D G M E N T


     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  issues  urged  on  behalf  of  the
parties. My learned brother has also adverted  to  the  relevant  provisions
under  Section  4(4)(d)(i)  of  the  Central  Excise  and  Salt  Act,   1944
(hereinafter referred to as “the Act”).

   My learned brother Judge has also  referred  to  the  decisions  of  this
Court in the cases of Mahalakshmi Glass  Works  (P)  Ltd.  v.  Collector  of
Central Excise[7], Triveni Glass Ltd.  v.  Union  of  India[8]  and  CCE  v.
Hindustan National Glass & Industries Ltd.[9] and  K.  Radha  Krishnaiah  v.
Inspector of Central Excise[10] in support of his decision that the  letters
dated 15.12.1970, 01.02.1971 and  02.04.1971  and  the  credit  notes  dated
12.3.1988 and 31.3.1988, spell out an arrangement between the  assessee  and
the buyers. He has further opined that once the existence of an  arrangement
is established and there is a choice on the  buyer  to  return  the  packing
material for reuse, then the cost of packing shall not be included.  He  has
further held that if  the  assessee  succeeds  in  establishing  the  choice
mentioned  in  the  documents  which  this  Court  has  accepted  to  be  an
arrangement and the same is prevalent during the relevant  period  of  time,
i.e.1981 to 1985, the appellant shall  be  given  the  benefit.  My  learned
brother after arriving at the abovementioned  conclusion  has  remanded  the
matter to the adjudicating authority for  adjudication  in  accordance  with
the principles laid down by this Court.

     I respectfully dissent with the said view taken by my  learned  brother
Judge by giving the following reasons:

     The main issue of dispute in the  present  batch  of  appeals  is  that
whether the price of the gunny bags should be  included  in  the  assessable
value of the soda ash for the purpose of levy of excise under the Act?

  In order to arrive at an irrefutable conclusion that the appellant is  not
liable to get the exemption from payment  of  excise  duty  on  the  packing
material 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.

    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:-

They can send their own packing materials-jute cloth,  plastic  etc.-to  our
Works at Mithapur for use in packing the bulk Soda Ash.



They  can  authorize  Tata  Chemicals  to  use,  on  their  behalf,  packing
materials from their stocks at actual cost accruing at the point of  packing
Soda Ash.


8.  Against the background of what  has  been  explained  in  the  preceding
paragraphs, our prices of Soda Ash, Light and Dense, are hereby revised  and
re-fixed, effective from 21 December, 1970 as follows :-

               SODA ASH                     (RUPEES PER TONNE)
|            |        LIGHT           |         DENSE         |   MEDIUM DENSE      |
|BASIS       |CURRENT     |REVISED*    |CURRENT     |REVISED   |CURRENT   |REVISED   |
|            |BAGGED      |BULK        |BAGGED      |BULK      |BAGGED    |BULK      |
|            |EX-WORKS    |EX-WORKS    |EX-WORKS    |EX-WORKS  |EX-WORKS  |EX-WORKS  |
|            |            |            |            |          |          |          |
|BASE PRICE  |476.00      |467.00      |496.00      |505.00    |486.00    |495.00    |
|LOADING     |2.00        |2.00        |2.00        |2.00      |2.00      |2.00      |
|EXCISE DUTY |47.80       |46.90       |49.80       |50.70     |48.80     |49.70     |
|            |525.80      |515.90      |547.80      |557.70    |536.80    |546.70    |


(* Effective 21 December 1970)

These prices are exclusive of sales tax and other levies, if any.

It will be noticed that to the  extent  that  the  customers  avail  of  the
option, being afforded to them under our pricing policy  of  eliminating  or
reducing the cost of the packing material, the average price  of  Tata  Soda
Ash, F.O.R., Mithapur basis, can be marginally lower than hitherto.”

Letter dated 1.2.1971, reads thus:
“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 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.”


  The same have to be referred to in the  light  of  the  decision  of  this
Court in the case of K. Radha Krishnaiah  v.  Inspector  of  Central  Excise
(supra), wherein this Court has held thus:
“The only question which arises in this special  leave  petition  is  as  to
what is  true  meaning  and  scope  of  the  word  “returnable”  in  Section
4(4)(d)(i) of the Central Excises and Salt Act,  1944.  If  the  packing  is
durable  and  returnable  then  its  cost  is  liable  to  be  excluded   in
computation of the assessable value of the goods for the purpose  of  excise
duty. So far as 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. What is required for the  purpose  of  attracting
the applicability of the exclusion clause 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. Here in  the  present
case it is not the contention of the petitioner  that  there  was  any  such
arrangement for return of  the  packing  by  the  wholesale  buyers  to  the
petitioner nor is there any evidence to that effect. The excise  authorities
were,  therefore,  right  in  not  excluding  the   cost   of   packing   in
determination of the assessable value of the goods………”





  With reference to the above decision, it is amply  clear  that  the  gunny
bags used for packing soda 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  be
justified by the appellant by taking  the  plea  that  the  above  mentioned
letters indicate that there is an arrangement between the parties to  return
the used gunny bags to the appellant.

  Further, the 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.

  The test for the determination of inclusion or exclusion of the  value  of
the gunny bags from the overall value of the soda ash can be ascertained  on
the basis of whether such packing is necessary  for  putting  the  excisable
article in the condition in which it is  generally  sold  in  the  wholesale
market at the factory gate as held by this Court  in  the  case  of  CCE  v.
Hindustan National Glass & Industries Ltd.,(supra),  which reads thus:
“12. In Govt. of India v. Madras Rubber Factory Ltd.  it  was,  inter  alia,
held as follows:

“The test is: whether packing, the cost whereof is sought to be included  is
the packing in which it is ordinarily sold in  the  course  of  a  wholesale
trade to the wholesale buyer.  In  other  words,  whether  such  packing  is
necessary for putting the excisable article in the condition in which it  is
generally sold in the wholesale market at the factory gate. If it  is,  then
its cost is liable to be included in the value of the goods; and  if  it  is
not, the cost of such packing has to  be  excluded.  Further,  even  if  the
packing is ‘necessary’ in the above sense, its value will  not  be  included
if the packing is of a durable nature and is returnable by the buyer to  the
assessee. We must also emphasise that whether in a given  case  the  packing
is of such a nature as is contemplated by the aforesaid  test,  or  not,  is
always a question of fact to be decided  having  regard  to  the  facts  and
circumstances of a given case.”

After analysing various decisions, the position was succinctly summed up  by
this Court in Hindustan Safety Glass Works case as follows:

“14. We are in complete agreement with the above conclusions.  The  question
is not for what purpose the  packing  is  done.  The  test  is  whether  the
packing is done in order  to  put  the  goods  in  a  marketable  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)


  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.

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 not establish the terms and conditions  that  are  prerequisites
for establishing  an  arrangement  of  return  of  the  gunny  bags  to  the
appellant. Further, the above dated letters also  suggest  that  the  buyers
send their own packing materials  for  the  soda  ash  for  which  no  extra
charges are incurred on them.

Hence, in these circumstances the appellant is bound to include the cost  of
the gunny bags that are provided by it in the overall value of the soda  ash
as per the provisions of the Act. Reliance has been placed in  the  case  of
Mahalakshmi Glass Works (P) Ltd. v. Collector  of  Central  Excise  (supra),
wherein this Court has held thus:
“5. The Tribunal noted that the appellant  manufactured  glass  bottles.  It
delivered these in two types of packing,  namely,  in  open  crates  and  in
cartons and gunny bags. So far  as  the  crates  were  concerned,  the  same
belonged to the appellant. The customer was billed for  the  cost  of  glass
bottles only. The crates were returnable to the appellant  within  30  days.
The revenue has not included the cost  of  such  crates  in  the  assessable
value. The revenue has also not  included  the  cost  of  packing,  if  any,
supplied  by  the  customer  himself.  There  was  no  dispute  about  these
packings. So far as the packings in cartons and gunny bags  were  concerned,
it was noted by the Tribunal, that  these  belonged  to  the  appellant  but
their cost was realised from the customer  along  with  the  cost  of  glass
bottles. The appellant’s case was that these packings were  also  returnable
and in many cases they were actually returned and reused by  the  appellant.
There was no evidence about the durability of the  cartons  and  gunny  bags
but nothing to show that these were returnable. The position seems to be  as
follows: The Tribunal has rightly applied  the  returnability  test.  In  K.
Radha Krishnaiah v. Inspector of Central Excise this Court observed that  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.
Therefore, such arrangement has been established. Actual  return  or  extent
of return is not relevant. What is necessary is that if  the  buyer  chooses
to return the packing, the seller should be obliged to accept it and  refund
the stipulated amount. In this case after examining the facts, the  Tribunal
found that there was no clause about returnability of the cartons 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 the cartons and gunny bags were not  returnable  in  the  accepted
sense of the term.  The  Tribunal  further  noted  that  since  the  statute
insisted on the packing being returnable, in addition to being durable,  the
authorities are bound to see whether the transaction fulfilled the tests  of
returnability as per the Supreme Court and High Court judgments.”

Thus, with reference to the judgments referred to supra, it is safe  to  say
that in the  present  case,  the  appellant  has  failed  to  establish  any
arrangement between itself and the buyers  regarding  the  returnability  of
the used gunny bags. Therefore, the appellant is hereby directed to pay  the
total amount of the gunny bags  which  are  excisable  under  the  Act.  The
credit notes dated 12.3.1988 and 31.3.1988 cannot  be  relied  upon  in  the
facts and circumstances of the present case, since the credit  notes  relate
to the year 1988, whereas the present case  is  concerned  with  the  period
1981 to 1985. There is no independent evidence which can help establish  the
case of the appellant during that relevant  period  of  time.  Moreover,  in
most of the letters sent by the buyers to the  appellant,  the  buyers  send
their own packing material and in case they  cannot  provide  the  appellant
with a packing material, the appellant was required to send the soda ash  in
its own packing material on which packing charges have been incurred by  the
buyers. The counsel for the appellant had put forward a request  for  filing
an  application  for  additional  documents  before  the  CEGAT  in   Appeal
No.E/1088/90-EB(WR) of 1990, under Rule  23  of  Customs,  Excise  and  Gold
(Control) Appellate Tribunal (Procedure) Rules, 1982,  with  regard  to  its
claim that there has been a deduction on account of packing in  the  durable
and returnable gunny bags, the same have been produced  before  us  for  our
perusal. The CEGAT has rightly not  considered  the  same  as  they  do  not
support the claim of the appellant that the gunny  bags  were  reclaimed  by
the appellant under an arrangement between the appellant and the buyers  for
the return of the used gunny  bags.  Therefore,  they  have  no  bearing  in
justification of their claim that the gunny  bags  were  actually  returned.
The concurrent finding of facts recorded by CEGAT at paras 5 and  6  of  its
judgment, on the basis of the facts  pleaded  and  the  evidence  placed  on
record with regard to the returnability of  the  gunny  bags  are  just  and
proper and the same cannot be refuted as  they  are  backed  by  cogent  and
reasonable evidence.

Therefore, the claim of the appellant cannot be sustained in  the  light  of
the provisions of the Act and the laws laid down by this Court in  a  catena
of cases, as the same is marred by lack of proper and independent evidence.

Therefore, the tribunal has rightly rejected the claim of the  appellant  so
far as the exclusion of the cost of packing material with the value of  soda
ash is concerned and hence, it is liable to pay the tax  liability  for  the
same in the light of the findings and observations made  in  this  judgment.
The appeals are dismissed.





                                        …………………………………………………………J.
                            [V.GOPALA GOWDA]



New Delhi,
August 6, 2015


-----------------------
[1]


       (1989) 4 SCC 323
[2]     1988 (Supp) SCC 601
[3]     (2005) 3 SCC 484
[4]     (2005) 3 SCC 489
[5]     (1987) 2 SCC 457
[6]     Civil Appeal Nos. 4852-4853 of 2005
[7]

       (1988) Supp SCC 601
[8]    (2005) 3 SCC 484
[9]    (2005) 3 SCC 489
[10]   (1987) 2 SCC 457

-----------------------
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