Supreme Court of India
M/S. TATA CHEMICALS LTD.versusTHE COLLECTOR OF CENTRAL EXCISE, AHMEDABAD
- Citation
- 2015 INSC 547
- Decided
- 6 August 2015
- Disposal
- Matter referred to larger bench
- Bench
- DIPAK MISRA
Holding
The cost of durable, returnable packing is includable in the assessable value unless a demonstrable arrangement obligating the buyer to return the packing to the seller is established; here, no such arrangement was proved, so the packing cost must be included.
Summary
Tata Chemicals sold soda ash in gunny bags and claimed that the cost of these durable, returnable bags should be excluded from the assessable value of the soda ash under Section 4(4)(d)(i) of the Central Excise Act, 1944. The revenue argued that no valid arrangement obligating buyers to return the bags to the seller existed, so the packing cost must be included. The Supreme Court examined the meaning of "returnable" and held that an arrangement, not merely the physical capability of return, is required for exclusion. The Court found that the letters issued by the appellant did not constitute a binding arrangement and that the appellant failed to prove that buyers were obliged to return the bags. Consequently, the cost of the gunny bags is includable in the assessable value and the appellant is liable to pay excise duty on it. The appeals were allowed, the lower orders set aside, and the matter remanded to the adjudicating authority for proper computation.
Issues considered
- The cost of durable, returnable packing material (gunny bags) is whether it should be excluded from the assessable value of soda ash under Sec. 4(4)(d)(i) of the Central Excise Act, 1944.
- Whether the letters dated 15‑12‑1970, 01‑02‑1971 and 02‑04‑1971 constitute a valid arrangement obligating buyers to return the gunny bags to the seller.
- The interpretation of the term "returnable" in the statutory provision – whether it requires an actual arrangement or merely physical capability.
- The burden of proof for establishing the existence of such an arrangement and the relevance of actual return of the packing.
- The applicability of precedents such as Mahalakshmi Glass Works, Triveni Glass, K. Radha Krishnaiah and Hindustan Polymers in the present factual context.
Legislation cited
- Central Excise Act, 1944s. 4(4)(d)(i)
Subjects
central exciseassessable valuepacking materialdurable packagingreturnablearrangementSection 4(4)(d)(i)excise dutygunny bagssoda ash
Judgment
[2015) 8 S.C.R. 1009
M/S. TATA CHEMICALS LTD. A
v.
THE COLLECTOR OF CENTRAL EXCISE,
AHMEDABAD
(Civil Appeal Nos. 7251-7302 of 2000) B
_.
AUGUST 6, 2015
,,
[DIPAK MISRA AND V. GOPALA GOWDA, JJ.]
Central Excise Act, 1944: s. 4(4)(d) - Co'Stof packing C
material/gunny bags returnable for reuse by the assessee-
seller- Inclusion in assessable value- Whetherthe price of
the gunny bags be included in the assessable value of the
soda ash for the purpose of levy of excise under the Act -
Per Dipak Misra, J - Once the existence of arrangement and
0
choice to return the pac~ing material for reuse are
established for the period in question, the packing cost
would not be included- Per II. Gopala Gowda, J - In order to
arrive at conclusion that the assessee is not liable to get the
exemption from payment of excise duty on· the packing E
material of soda ash, it has to be determined whether the
gunny bags which are used for packing soda ash by the
assessee were durable and returnable in nature and whether
the same were returned to the assessee for re~uselrepacking
of soda ash and it has to be further determined whether there F
was any arrangement, express or implied by the appellant
with its buyers of soda ash with regard to the returnabi/ity of
the used gunny bags to it- In view of difference of opinion,
matter referred to larger bench.
G
Referring the matter to Larger Bench, the Court
HELD: PER DIPAK MISRA, J. 1. The letters issued
by the assessee-seller spell out an arrangement
1009 H
1010 SUPREME COURT REPORTS [2015) 8 S.C.R.
A between the assessee and the buyers. Once the
existence of arrangement and choice to return the
packing material for reuse are established for the period
in question, the packing cost would not be included. If
the assessee succeeds in establishing the choice
B mentioned in the documents which is accepted to be an
arrangement, and is prevalent during the relevant
period, 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. [Para
C 20] [1032-D-H; 1033-A]
Mahalakshmi Glass Works (P) Ltd. v. Collector of
Central Excise (1988) Supp SCC 601: 1988 Suppl.
SCR 587; Triveni Glass Ltd. v. Union of India (2005) 3
D SCC 484: 2005 (2 ) SCR 223; CCE v. Hindustan
National Glass & Industries Ltd. (2005) 3 SCC 489:
2005 (2) SCR 744; K. Radha Krishnaiah v. Inspector
of Central Excise (1987) 2 SCC 457 - relied on .
•
E PER V. GOPALA GOWDA, J: 1. 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
F 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
G by the appellant with its buyers of soda ash with regard
to the returnability of the used gunny bags to it. [Para 3]
[1034-D-F]
2. By virtue of K. Radha Krishnaiah case, it is clear
H that the gunny bags used for packing soda ash by the
appellant have to be returnable in nature and the same
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1011
CENTRAL EXCISE, AHMEDABAD
has to be done under an arrangement between the buyer A
and the appellant. However, in the present case, with
reference to the stated letters, it is apparent that no such
express arrangement was made between the parties for
the return of the gunny bags for the reason that there
would be a deduction in the sale price, only when the B
gunny bags were returned to the appellants. If such an
arrangement is allowed to exist in the guise of
conditional returnability of the gunny bags which may
or may not be returned, th.)n the same~would run
contrary to the principles laid down by this Court in the C
cases of Mahalakshmi Glass Works (P) Ltd. and K. Radha
Krishnaiah. 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
0
and invalid and the same cannot be justified by the
appellant by taking the plea that the 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 E
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,
dces not entitle it to get the benefit of exclusion of the F
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 G
putting the excisable article in the condition in which it
is generally sold in the wholesale market at the factory
gate. 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 th~ appellant and it has miserably H
1012 SUPREME COURT REPORTS [2015) 8 S.C.R.
A 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
B has also failed to establish an arrangement as per Section
4(4)(d)(i) of the Act. 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 [Paras 6to 11) [1038-
C F-H; 1039-A-F; 1041-A-C, E-F]
Mahalakshmi Glass Works (P) Ltd. v. Collector of
Central Excise (1988)°Supp SCC 601: 1988 Suppl.
SCR 587; Triveni Glass Ltd. v. Union of India (2005) 3
D SCC 484: 2005 (2 ) SCR 223; CCE v. Hindustan
National Glass & Industries Ltd. (2005) 3 SCC 489:
2005 (2) SCR 744; K. Radha Krishnaiah v. Inspector
of Central Excise (1987) 2 SCC 457 - relied on.
E Case Law Reference
DIPAK MISRA, J.:
1988 Suppl. SCR587 relied on. Para 4
2005 (2) SCR 223 relied on. Para 4
F 2005 (2) SCR 744 relied on. Para 4
(1987) 2 sec 457 relied on. Para 4
PER V. GOPALA GOWDA, J.:
G 1988 Suppl. SCR 587 relied on. Para 2
2005 (2) SCR 223 · relied on. Para 2
2005 (2) SCR 744 relied on. Para 2
(1987) 2 sec 457 relied on. Para 2
H
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1013
CENTRAL EXCISE, AHMEDABAD
CIVILAPPELLATEJURISDICTION: CivilAppeal Nos. A
7251-7302 of 2000
From the Judgment and Order dated 06.09.2000 of the
Customs Excise and Gold.(Control)Appellate Tribunal, New
Delhi in Final Order Nos. 721to772/2000-AinAppeal No. E/ B
1073-1090/90-A, 4285-4289/90-A, E/4293-4294/91-A and El
4296-4322/91-A
Ravinder Narain, Rajan Narain, Ajay Aggarwal, Mallika
Joshi, Shravani Shekhar, Ruchika fortheAppellant. c
Mukul Rohtagi, AG, Rajiv Dutta, B. Krishna Prasad,
Rupesh Kumar, Arijit Prasad, A.T.M. Sampath for the
Respondent.
The Judgments & Order of the Court were delivered by D
DIPAK MISRA, J. 1. 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') E
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 F
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 G
bags used for packing soda ash manufactured by them should
be excluded in finding out the assessable value was ·
unsustainable and hence, unacceptable.
H
1014 SUPREME COURT REPORTS [2015) 8 S._C.R.
A 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 evidenf.
proceedings for the entire period were taken in three
B 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
C 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.
0
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
E 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
F 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
G Tribunal has followed the reasoning that it had followed
for the period 1981 to 1985. Mr. B.L. Narasimhan,
learned counsel forthe appellant would contend thatthe
claim of the assessee before the authorities we
absolutely different inasmuch as two contentions were
H raised before the authorities, namely, that excise duty
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1015
CENTRAL EXCISE, AHMEDABAD [DIPAK MISRA, J.]
was not leviable on the packing materials supplied by A
the buyer, and the second, the same was durable and.,
returnable, but, the Tribunal has adverted to the sei::on_d
aspect by expressing its view on the basis of the deci~i<;>n. ·
rendered by it pertaining to the assessment years 1981
to 1985 and not adverted to the issue that no levy could_ B
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.
c
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. D
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
E
could no~ have been impsed. The said contention is
absolutely correct is view of the law laid down in Mis.
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 F
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. G
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.
1
(1989) 4 sec 323 H
1016 SUPREME COURT REPORTS [2015] 8 S.C.R.
A 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.
B Collector of Central Excise', 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
C 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. lnspectorofCentral Excise and others5 and opined thus:-
D "As we read the decisions in K. Radha Krishnaiah
(supra) and Mahalakshmi Glass Wolks (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
E 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
F 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
G
case, there was no obligation on the part of the buyers to
2 1988 (Supp) sec 601
3 (2005) 3 sec 484
4 (2005) 3 sec 489
H 5 (1987)2SCC457
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1017
CENTRAL EXCISE, AHMEDABAD [DIPAK MISRA, J.]
return the gunny bags and the assessee-seller clearly A
indicate that only ifthe 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 bag's0 ;
formed part of the prices and were otherwise includible'- <
in the value of the goods. There would be a deduction of B
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, c
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
D
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 E
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·
F
also contended and in fact it had only claimed a reduction
in the value of the soda ash cin the basis of gunny bags
·actually returned. Nevertheless on the basis of the'.
decision in Triveni Glass Ltd. (supra), it contends that··
G
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." H
1018 SUPREME COURT REPORTS [2015] 8 S.C.R.
A 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
B of the buyer to return the packing material, butthere 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
C opinion, contrary to the ratios laid down in the cases of
K. Radha Krishnaiah (supra) and Mahalakshmi Glass
Woms (P) Ltd. (supra).
5. In view of the aforesaid it referred the matter to be
D 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 12and17 ofthejudgmentofThree-
E 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 23'd March, 2006 to the effect
that the decision of this Court in Mahalakshmi Glass
F Works (P) Limited vs. Collector of Central Excise,
Bombay, reported in 1988 (Supp) SCC 601, is
erroneous. On the contrary, the judgrnent of this Court in
Triveni Glass Limited (supra) in turn follows the judgment
in Mahalakshmi Glass Works (P) Limited (supra).
G
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
H sides are kept open."
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1019
CENTRAL EXCISE, AHMEDABAD [DIPAK MISRA, J.]
6. In view of the aforesaid chronology of events, I am A
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 B
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 C
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 D
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 E
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 F
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. :
G
9. Sectior:i 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
H
in a packed condition, includes the cost of such packing
1020 SUPREME COURT REPORTS [2015] 8 S.C.R.
A exceptthe 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.
B 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
c packing is returnable. While interpreting this word, we
must bear in mind that what Section 4(4) (cf)(1) 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
D 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
E 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)(cf)(1)
is that the packaging must be returnable by the buyer to
the assessee. The question which has to be asked in
F 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."
G
11. In Maha/akshmi Glass Wor.ks (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
H duty on the glass bottles on the basis of assessable value which
MIS. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1021
CENTRAL EXCISE, AHMEDABAD [DIPAK MISRA, J.]
included the costs of packing material, namely, the gunny bags A
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 B
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 C
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 D
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 E
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 thatthere
was no clause about the returnability of the cartons and gunny
bags. This Court, in appeal, while relying upon the principle in F
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 G
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 H
1022 SUPREME COURT REPORTS (2015] 8 S.C.R.
A 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
B 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"
c need not have found a place in the section, they would
be superfluous."
After so stating, the Court dismissed the rtppeal as
there have been no evidence of the agreement that the cartons
D 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
E 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
F of Section 4. It overlooks the use of the expression "cost"
in relation to packing in the crause (1) 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, fhe clear implication of the use
G 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
H a provision would make the provision really unworkable,
MIS. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1023
CENTRAL EXCiSE, AHMEDABAD [DIPAK MISRA, J.]
since in making the assessment of the seller, there is no A
machinery for ascertaining the "cosf' of the packing which
might be supplied by the buyer. Such a contention further
overlooks the scheme of clause (1) whereunder durable
pa~king returnable by the buyer has to be excluded. It
would create an absurd situation if durable packing B
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." c
Ranganathan, J., in his concurring opinion, expressed
the view thus:- "'
- ~.
"In construing Section 4(4)(d)(i), all that has to be seen is D
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 E
necessary, by addition to the sale price, except only where
the p~cking 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, F
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 G
occur. The proper interpretation to be placed on ~he 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."
1 r ')I H
1024 SUPREME COURT REPORTS [2015] 8 S.C.R.
A · 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
B container. There will be no question of separate addition
to the sa)e 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
C 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
D 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."
E Verma, J., in his concurring opinion, ruled that:-
"The "cost of such packing" referred in Section 4(4) (d)(1)
does not include within its ambit the cost of packing not
incurred by the manufacturer when the packing is supplied
F 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
G "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
H said case, a three-Judg~ Bench has held thus:-
MIS. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1025
CENTRAL EXCISE, AHMEDABAD [DIPAK MISRA, J.]
"We have considered the submission of the parties. In A
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 B
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 c
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
D
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 E
the value of glass sheets."
The principle stated therein has been followed in
Triveni Glass Ltd. v. Commissioner of Central Excise,
Guntut8.
F
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· G
by Mr. Ravinder Narain, learned counsel for the appellanl on
the foundation that the letters clearly spell out the arrangement;
•"'ltl ·~·
that there has been responses by the dealers and that the
6 Civil Appeal Nos. 4852-4853 of 2005
H
1026 SUPREME COURT REPORTS (2015] 8 S.C.R.
A 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
B 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
C 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
D 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.
E 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.
F 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
G 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
H following courses:-
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1027 ·
CENTRAL EXCISE, AHMEDABAD [DIPAK MISRA, J.]
(a) They can send their own packing materials-jute cloth, A
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 s
accruing at the point of packing Soda Ash.
)()()()()( )()()()()( )()()()()(
""b I
9. If and when and at the customer's own option, the use
of packing material is involved in connecting the bulk- c
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
D
A Cost of packing material P (note 1)
B. Charges for branding I ) 3 (note 2)
Packing and stitching if )
and when necessary ) E
. 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 F
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 c.urrent stocks of packing
materials with Tata Chemicals, the value of P for Light G
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% sh<?,uld be H
1028 SUPREME COURT REPORTS [2015) 8 S.C.R.
A 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.
B 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
c (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
D
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:-
E (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) Theywantto authorise Tata Chemicals to use bags
F 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:-
G
"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 Mithapurfor use in
H packing the bulk Soda Ash. While we would be pleased
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1029
CENTRAL EXCISE, AHMEDABAD [DIPAK MISRA, J.]
to receive such packing materials from our customers, A
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:-
B
Gunny bags
Soda Ash Light 39" x 26.1/2" L Twills,
WIP 2.1/2 lbs./44'.'hd.,
8 x 8 Plain Unbranded c
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
D
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 E
drawn my attention to letter dated 2.4.1971. I think it appropriate
to reproduce the communication in entirety:-
"Dear Sirs,
F
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. G
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 H
1030 SUPREME COURT REPORTS [2015] 8 S.C.R.
A bags would, now that we have a price for bulk Soda Ash,
result in considerable saving to our customers.
In the interest ot:our consumers and conservation of jute
supplies we once again very strongly urge the return of
B 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?
c 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
D 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
E 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
ncit the physical capability of packing to be returned which is
F 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
G 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
H by the assessee. It is put forth by him that communications
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1031
CENTRAL EXCISE, AHMEDABAD [DIPAK MISRA, J.]
. from the buyers were brought on record before the tribunc:il by A
way of an affidavit and invoicesiwere 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 . B
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 C
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
0
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 endorsement$ E
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.
F
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 G
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 H
1032 SUPREME COURT REPORTS [2015) 8 S.C.R..
A 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
B 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
C 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
D 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
E 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
F 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),
G 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
H same, the adjudicating authority shall look into the
MIS. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1033
CENTRAL EXCISE, AHMEDABAD
consideration the actual return as has been directed in Civil A
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 B
accordance with the principles stated hereinabove. There shall
be no order as to costs.
V. GO PALA GOWDA, J. 1. I have gone through the
judgment of my learned brother Judge, Justice Dipak Misra, c
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 Ad"). o
2. 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', Triveni
Glass Ltd. v. Union of lndia2 and CCE v. Hindustan National E
Glass & Industries Ltd. 3 and K. Radha Krishnaiah v.
Inspector of Central Excise• in support of his decisio_n that
the letters dated 15.12.1970, 01.02.1971and02.04.1971 and
the credit notes dated 12.3.1988 and 31.3.1988, spell out an
arrangement between the assessee and the buyers. He has F
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 G
this Court has accepted to be an arrangement and the same
is prevalent during the relevant period of time, i.e.1981to1985,
1
(1988) Supp sec so1
2
(2005) 3 sec 484
3
(2005) 3 sec 489 H
• (1987) 2 sec 457
1034 SUPREME COURT REPORTS [2015] 8 S.C.R.
A 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.
B 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
c included in the assessable value of the soda ash for the
purpose of levy of excise under the Act?
3. 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
0
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. S~condly, it has
E to be further determined whetherthere was any arrangement,
express or implied by the appellant with its buyers of soda ash
with regard to the returnability of ttie 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.
F
4. To determine the same, letters dated 15.12.1970,
01.02.1971and02.04.1971 have to be scrutinized in proper
perspective. The relevant portions of the above dated letters
are extracted hereunder:
G 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
H sound ones back to our Works at Mithapur for reuse.
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1035
CENTRAL EXCISE, AHMEDABAD [V. GOPALA GOWDA, J.]
Such cyclic uses of bags, in the interim, would once again A
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. B
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 choLce of any of the two
following courses:- C
(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.
D
(b) 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 E
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:-
SCIJAASH (RLl1'ES PER ID~
F
G
EXaSE 47.80 4600 149.aJ I50.70 148.80 43.70
llJTY i 1 I 1
r• Effective 21 December 1970) .H
1036 SUPREME COURT REPORTS · (2015] 8 S.C.R.
A 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
B 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, r§ads thus:
c "We invite your attention to our Circular No.CON/G-50/
70 dated 151h 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
D
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
E send unbranded bags only of the following
specifications :-
GUNNY BAGS
i
: SODA ASH LIGHT ' 39"x26.1/2", L Twills,
F '
' WIP 2.1/2 lbs./44"hd.,
' 8x8 Plain Unbranded.
SODA ASH DENSE I 36"x26.1t2",
. i L Twills, VI/IP
I 2.1/2 lbs144"x26.1/2"hd.
G
r-- - -·· --
: 8x8 Pl<iin Ul}branded
' SODA ASH DENSE MEDIUM 39"x26.1/2", L Twills,
WIP 2. 1/2 lbs./44 "hd.,
8x8 Plain Unbranded
H
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1037
CENTRAL EXCISE, AHMEDABAD [V. GOPALAGOWDA, J.]
We shall be grateful if you will ensure that the bags sent A
by you to our works at Mithapur fer filing Soda Ash,
conforms to the above specifications."
Letter dated 2.4.1971, reads thus:
·. B
"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 c
Soda Ash, result in considerable saving to our
customers." ·
5. The same have to be referred to in the light of the
decision of this Court in the case of K. Radha Krishnaiah v.
0
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 E
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
F
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 G
returnable. While interpreting this word, we must bear in
mind that what Section 4(4)(a')(1) 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 .H
'- -
1038 SUPREME COURT REPORTS [2015] 8 S.C.R.
A 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
B 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
c 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
D
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, theref9re, right in not
E excluding the cost of packing in determination of the
assessable value of the goods ......... "
6. With reference to the above decision, it is amply clear
that the gunny bags used for packing soda ash by the appellant
F 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
G 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
H deduction in the sale price, only wht:!n the gunny bags were
M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1039
CENTRAL EXCISE, AHMEDABAD (V. GOPALA GOWDA, J.]
returned to the appellants. If we allow such an arrangement to A
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 B
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 0appellant by
taking the plea that the above mentioned letters. indicate that
there is an arrangement between the parties to return the used C
gunny bags to the appellant.
7. 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 D
the appellant have returned the gunny bags out of several ones
already sold between the period of 1971to1988, 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.
E
8. 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 F
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. oflndia v. Madras Rubber Factory Ltd. it G
was, inter alia, held as follows:
"v
''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 H
1040 SUPREME COURT REPORTS [2015] 8 S.C.R.
A 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 atthe factory gate. If it is,
then its cost is liable to be included in the value of
B the goods; and if it is not, the cost of such packing
has to be excluded. Further, even ifthe 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
c 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."
D
After analysing various decisions, the position was
succinctly summed up by this Court in Hindustan Safety
Glass Works case as follows:
E "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
F 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
G 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 l::id by this Court)
H
M/S. TATACHEMICALSLTD. v. THECOLLECTOROF 1041
CENTRAL EXCISE, AHMEDABAD [V. GOPALA GOWDA, J.)
9. Thus, in the light of the aforesaid decision, the burden A
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 1i>old in
bulk in the gunny bags at the factory gate to the wholesale B
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 thEfAct. Mere C
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 D
also suggest that the buyers send their own packing materials
for the soda ash for which no extra charges are incurred on
them.
11. Hence, in these circumstances the appellant is E
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: F
"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 G
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, H
1042 SUPREME COURT REPORTS [2015] 8 S.C.R.
A 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
B 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
c r.eturnable. 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
D
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
E 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
return ability of the cartons and gunny bags. The appellant
invited the attention of the Tribunal to the following clause
F 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."
G 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
H
MIS. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1043
CENTRAL EXCISE, AHMEDABAD [V. GOPALA GOWDA, J.]
buyers were naturally obliged to return them to their rightful A
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 B
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 c
and gunny bags were not returnable in the accepted
sense.ofthe 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
D
see whether the transaction fulfilled the tests of
returnability as per the Supreme Court and High Court
judgments."
12. Thus, with reference to the judgments referred to
supra, it is safe to say that in the present case, the appellant E
has failed to establish any arrangement betweeri 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. F
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 1981to1985. There
is no independent evidence which can help establish the case G ·
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, t11e appellant
was required to send the soda ash in its own packing material H
1044 SUPREME COURT REPORTS (2015) 8 S.C.R.
A 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
B (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
C 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
D 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
E reasonable evidence.
13. 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
F marred by lack of proper and independent evidence.
14. Therefore, the tribunal has rightly rejected the claim
oHhe 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
G findings and observations made in this judgment. The appeals
are dismissed.
H
. M/S. TATA CHEMICALS LTD. v. THE COLLECTOR OF 1045
CENTRAL EXCISE, AHMEDABAD
ORDER A
In view of the differeence of opinion between us, the
Registry is directed to place the matter before Hon'ble the Chief
.,Justice of India, so that an appropriate Bench could. be
8
cQnstituted for hearing the matter.
Devika Gujral Matter referred to Larger Bench.
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