VIJAYAWADA BOTTLING CO. LTD.versusCOLLECTOR OF CENTRAL EXCISE, GUNTUR

                     VIJAYAWADA BOTILING CO. LTD.                                A
                                         v.
-·             COLLECTOR OF CENTRAL EXCISE, GUNTUR

                              SEPTEMBER 2, 1997
                                                                                 B
             [S.C. AGRAWAL AND M. JAGANNADHA RAO, JJ.]

            Excise-Central Excises and Salt Act 1944-Section 4 and Tariff Item
     1-B of First Schedule-Manufacture and sale of Aerated Water (Maaza
     Mango) in retumable bottles by the assessee-Se1vice Charges incu"ed and C
     realised by assessee in connection with re- use of such bottles-Held, process
     undertaken not pmt of manufacturing process of aerated water-But, to be
     treated as a palt of process ofpackin~Hence, amount realised not includible
     in assessable value of aerated water-Matter remitted for verification of actual
     service charges and for re-dete1mination of assessable value.
                                                                                 D
            The appellant, a manufacturer of 'Maaza Mango' (mango drink
     falling under Tariff Item 1-B of the First Schedule to the Central Excise
     and Salt Act 1944), filed price-lists wherein amounts of Rs. 2.50 per crate
     towards rental and Rs. 3.00 per crate towards service charges were not
     included in the price of aerated water. The service charges incurred by the
     assessee pertained to the activities of unloading of empty bottle outside E
     the ·factory and sorting them brandwise, separating the defective bottles
     and thereafter, cleaning of bottles chemically in the factory wherein the
     bottles brought to the factory were placed in conveyors to automatic bottle
     washing plant from where they came out after washing. Then, the bottles
     were examined again in strong light to avoid contamination. The Assistant F
     Collector of Central Excise while according approval to the assessable
     value as shown in the price list included the said amount of rental .and
     service charges in the price. The stand of the Assistant Collector was
     affirmed by the Collector of Central Excise (Appeals). The Customs,
     Excise and Gold (Control) Appellate Tribunal held that rental charges G
     were includible in the assessable value and the matter was remitted to the
     Assistant Collector of Excise for the purpose of veril)'ing the actual rental
     charges of the bottles and re-determine the assessable value of aerated
     water. With respect to service charges, the Tribunal held that these charges
     collected by the appellant in respect of the activities undertaken related to
     manufacture of excisable goods in question and were therefore included in H
                                        675
    676                   SUPREME COURT REPORTS (1997] SUPP. 3 S.C.R.

A the assessable value of aerated water. Aggrieved, the assessee filed the
    present appeals.

          Allowing the appeals, the Court

          HELD : 1.1. The Tribunal was not right in holding that the service
B   charges claimed by the assessee is includible in the Assessable value. The
    process undertaken by the assessee relates to preparing the bottles used
    earlier to be re-used for the purpose of bottling of the aerated water
    produced by the appellant. Since the aerated water has to be supplied in
    packed bottles only, the activities for which the appellant was claiming
C   service charges related to the process of packing after the manufacture of
    aerated water. Since there is no dispute that the bottles are durable and
    returnable containers, the activities undertaken by the appellant is to· en-
    sure that the empty bottles that have been received back are available for
    re-use for bottling of aerated water and is to be treated as part of process
    of packing and not as part of the manufacturing process of aerated water.
D                                                                     [680-B-D]
          1.2. Since the matter as regards rental charges is already remitted to
    the Assistant Collector of Central Excise for purpose of verifying the actual
    rental charges of the bottles and to re- determine the assessable value of
    aerated water, it is directed that the Assistant Collector shall also verify the
E   actual service charges and re-determine the assessable value of aerated
    water after such verification, on necessary material to be furnished by the
    appellant. [680-F]

          CCE v. Ce11twy Spg. a11d Mfg. Co. Ltd., [1997] 11 SCC 709, relied on.

p         CCE v. lndia11 oxyge11 Ltd., [1988] 4 SCC 139 and CCE v. Ce11tury Spg.
    a11d Mfg. Co. Ltd., (1988) 37 ELT 277 (CEGAT), referred to.

          CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 11445-47
    of 1995.

G          From the Judgment and Order dated 8.5.92 of the Customs Excise
     & Gold (Control) Appellate Tribunal, New Delhi in F.O. No. 277 to 279
     of 1992-A.

          Ravinder Narain and Ms. Arnita Mitra for the Appellant.

H          R. Mohan,. R.N. Verma and V.K. Verma for the Respondent.
                VDAYAWADABOTILINGCO.LTD.v. C.C.E.GUNTUR(S.C.AGRAWAL,J.]        677

              The Judgment of the Court was delivered by                             A
-·   .
                S.C. AGRAWAL, J. M/s. Vijayawada Bottling Co. Ltd., the appellant
         herein, is a manufacturer of 'MAAZA MANGO' (mango drink) falling
         under Tariff Item 1-B of the erstwhile First Schedule to the Central Excise
         Act, 1944. The appellant filed for approval a price list no. 17/1984-85 dated B
         August 6, 1984 in respect of the said product wherein the price was shown
         as Rs. 32 per crate of 24 bottles. In the said price list there was a note to
         the effect that the appellant was realising Rs. 2.50 ·per crate towards rental
         and Rs. 3.00 per crate towards service charges and the said amounts were
         not included in the price. The Assistant Collection of Central Excise,
         Vijayawada, issued notice dated August 17, 1984 requiring the appellant to C
         show cause why the said amount of rental and service charges should not
         be included in the price. The appellant submitted a reply to the said show
         cause notice. By order dated November 30, 1984, the Assistant Collector
         of Central Excise while according approval to the assessable value as shown
         in the price list included in the said amount of rental and service charge D
         in the price. The Collector of Central Excise (Appeals) by his order dated
         April 26, 1986 dismissed the appeal of the appellant and affirmed the order
         passed by the Assistant Collector. The appeal of the appellant before the
         Customs Excise and Gold (Control) Appellate Tribunal was first heard by
         a bench of two learned Members of the Tribunal (Shri V.P. Gulati and
         Miss S.V. Maruthi). In view of the decision of this Court· in Collector of E
         Central Excise V. Indian Oxygen Limited, (1988) 4 sec 139, both the learned
         Members held that rental charges were includible in the assessable value.
         There was, however, difference of opinion among the learned Members on
         the question whether service charges are includible in the assessable value.
         The Judicial Member (Miss S.V. Maruthi), relying upon the order of the F
         Tribunal in Collector of Central Excise v. Century Spg. and Mfg. Co. Ltd.,
         (1988) 37 ELT 277 held that the service charges that were claimed related
         to unloading, sorting out the branded bottles, separating the broken bottles
         before the bottles are sent to automatic bottle washing plant and that these
         activities do not relate to the manufacture of aerated waters which are the
         subject matter of the Excise duty and that in view of Section 4(4)( d) of the G
         Central Excise Act, 1944 (hereinafter referred to as 'The Act'), the entire
         cost relating to durable and returnable containers should be excluded
         which include these miscellaneous service charges. The Technical Member
         (Shri V.P. Gulati) was, however, of the view that service charges have to
         be included in the price for the purpose of arriving at the assessable value. H
    678                   SUPREME COURT REPORTS (1997] SUPP. 3 S.C.R.

A He held that the preparatory operations to ensure that the bottles are fit
    for bolting have to be considered a part of manufacturing process and the
    cost of the same has to be reckoned towards the manufacture of the
    appellant's product. In view of the difference of opinion among the two
    learned Members, the matter was referred to the third Member of the
B   Tribunal on the following point of difference.

            "Whether in the facts and circumstances of the case, the service
            charges do not relate to the manufacture of aerated water, as
            claimed by the appellants, and are therefore, to be excluded for
            arriving at the assessable value as held Member (Judicial) or these
c           relate to the manufacture of aerated water and are therefore, to
            be included for arriving at the assessable value as held by Member
            (Technical)."

          The third learned Member of the Tribunal (Shri P.C. Jain) agreed
D   with the view of the Technical Member and held that the service charges
    collected by the appellant in respect of the activities undertaken by them
    related to the manufacture of the excisable goods in question. In view of
    the majority opinion the Tribunal has held that the service charges, namely,
    for sorting out the printed bottles separating the broken bottles before they
    are sent to automatic bottle washing plant relate to manufacture of aerated
E   water and are includable in the assessable value of aerated water. The
    appeal of the appellant as r::gards service charges was, therefore, dis-
    missed, but the appeal was allowed in respect of the rental charges and the
    matter was remitted to the Assistant Collector to verify ihe actual rental
    charges and re- determine the assessable value_ of aerated water for deduct-
F   ing the same from the price of the aerated water. Feeling aggrieved by the
    decision of the Tribunal, relating to inclusion of service charges in the
    price, the appellant has filed this appeal.

          Section 4 of the Act makes provision for valuation of excisable goods
    for the purpose of charging of excise duty in cases where under the Act
G   duty of excise is chargeable on any excisable goods with reference to value.
    For the purpose of Section 4, the expression "value" is defined in clause
    (d) of Section 4( 4). The relevant part of the said definition is produced as
    under:

H            "(4)( d) "value" in relation to any excisable goods,-
           VlJAYAWADABOTILINGCO. LTD. v. C.C.E. GUNTIJR [S.C.AGRAWAL,J.)      679

             (i)   where the goods are delivered at the time of removal in a 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.

             Explanation - In this sub-clause "packing" means the wrapper,
             container, bobbin, pim, spool, reel or warp beam or any other thing B
             in which or on which the excisable goods are wrapped, contained
             or wound;"

           In the case of Collector·of Centi·a/ Excise v. Centwy Spg. and Mf Co.
    Ltd. (supra), the assessee was manufacturer of liquid Chlorine which was         C
    supplied to the customers in Tonners and Cylinders made of steel, which
    were accepted as a durable and returnable containers. The assessee
    claimed deduction of Rs. 100 in the case of Tonners (800 to 1,000 Kgs.
    capacity) and Rs. 150 in the .case of cylinders (20 to 100 Kgs. capacity)
    towards costs of packing on account of maintenance of Cylinders(fonners,
    service charges etc. The Tribunal found. that the department accepts that        D
    the containers were durable and returnable and that their cost is not
    includible in the assessable value of chlorine as per Section 4(4)( d)(i). The
    Tribunal, therefore, held that the cost has to be the full cost of packing
    which should take in not only the initial purchase price of the container
    but also the further expenses on its maintenance and repairs. The said           E
    decision of the Tribunal has been affirmed in appeal in Collector of Central
    Excise, Bomaby-3 v. Mis Century Spg. and Mfg. Co. Ltd., (Civil Appeal No.
    4207 of 1988) decided on July 15, 1997.

            In the present case, as recorded by the Tribunal, the fact that the
    bottles are returnable and durable are not disputed. Before the Tribunal         F
    it was pointed out that the service charges pertain to the following ac-
    tivities:

            "After unloading of the empty bottles at a place about 100 yards
            outside the factory, the bottles are sorted brandwise, (sometimes G
            the bottles get mixed with bottles of other manufacturers which
            are to be separated): Thereafter, the bottles are examined for any·
            defects which are also separated. Cleaning of the bottles is done
            chemically. These are then loaded in the trolleys, brought to the
            factory and placed in conveyors to automatic bottle washing plant
            from where they come out after washing. Bottles are examined H
]
    680                  SUPREME COURT REPORTS [1997) SUPP. 3 S.C.R.

A           again in strong light to avoid contamination."

           The process referred to above relates to preparing the bottles that
    were used earlier to be reused for the purpose of bottling of the aerated
    water produced by the appellant. Since the aerated water has to be
    supplied in packed bottles only, the activities for which the appellant was
B   claiming service charges related to the process of packing after the
    manufacture of aerated water. We find it difficult to appreciate how these
    activities can be treated as a part of the manufacturing process of aerated
    water. Since there is no dispute that the bottles are durable and returnable
    containers, the activities referred to above undertaken by the appellant co
C   ensure that the empty bottles which have been received back are available
    for reuse for bottling of aerated. water, have to be treated as part of the
    process of packing and not as part of the manufacturing process of aerated
    water. The position is not very different from that in the case of Centwy
    Spg. & Mfg. Ltd. (supra) where the durable and returnable containers were
    used again for supply of gas and it was held that charges for maintenance
D   and repairs of such containers were not includible in the assessable value
    of the gas. We are, therefore, unable to uphold. the view of the majority in
    the Tribunal was not right in holding that the service charges claimed by
    the appellant have to be included in the assessable value.

E         In the result, the appeals arc allowed, the impugned judgment of
    Tribunal holding that service charges @ Rs. 3.00 per crate claimed by the
    appellant arc to be included in the assessable value is set aside. Since the
    matters have already been remitted to the the Assistant Collector of Excise
    for the purpose of verifying the actual rental charges of the bottles and re-
    determine the assessable value of the aerated water, it is directed that the
F   Assistant Collector of Excise shall also verfy the actual service charges and
    re-determine the assessable value of the aerated water after such verifica-
    tion. The appellant would furnish the necessary material in order to enable
    the Assistant Collector to ascertain the actual service charges. No order as
    to costs.

    R.D.                                                       Appeals allowed.
                                                                                    ·---