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2015 (8) TMI 403 - SUPREME COURT

2015 (8) TMI 403 - SUPREME COURT - 2015 (326) E.L.T. 432 (SC) - Valuation of goods - Inclusion of cost of returnable gunny bags used for packing the excisable goods - 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 - Dissenting Judgment.

As per Justice Dipak Misra:- letters spell out an arrangement between the assessee and the buyers. The tribunal has not accepted the stand of the appellant .....

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hoice 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 [2014 (9) TMI 149 - SUPREME COURT] - Decided in favour of assessee.

As per Justice V. Gopala Gowda:- appellant has already charged for the value of the gunny bags from t .....

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y failed to do so as is clear from the facts and circumstances of the case that the soda ash are sold in bulk in the gunny bags at the factory gate to the wholesale market and such packing is indispensible for the transport and preservation of soda ash. - appellant has also failed to establish an arrangement as per 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 t .....

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e same - Decided against assessee. - Civil Appeal Nos. 7251-7302 of 2000 - Dated:- 6-8-2015 - Dipak Misra And V. Gopala Gowda, JJ. JUDGMENT Per 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 accep .....

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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 .....

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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 ju .....

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thorities, 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 auth .....

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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 (1989) 4 SCC 323 . 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 .....

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ions in Mahalakshmi Glass Works (P) Ltd. v. Collector of Central Excise 1988 (Supp) SCC 601, Triveni Glass Ltd. v. Union of India & Ors. (2005) 3 SCC 484 and Commissioner of Central Excise v. Hindustan National Glass & Industries Ltd. (2005) 3 SCC 489; adverted to the order of the tribunal that has not accepted the documents holding that it did not show that there was any arrangement regarding returnability of gunny bags which would justify the exclusion of cost of gunny bags from the co .....

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rom 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 t .....

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unal 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 irre .....

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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 t .....

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foresaid 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 Mahala .....

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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 find .....

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y 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 founda .....

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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 ret .....

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e 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 .....

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ottles. 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 Exc .....

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shnaiah (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 meani .....

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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 .....

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xpression 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 pac .....

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on, 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. H .....

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f Section 4(4)(d)(i) has been explained in the judgment of my learned Brother and I am in full agreement with him on this point. And again:- Where the manufacturer supplies his own container or drum but does not charge the customer therefor, then the price of the goods will also include the cost of the container. There will be no question of separate addition to the sale price nor can the assessee claim a deduction of the cost of packing from the sale price except where the container is a durabl .....

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dded 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 .....

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ecessity 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 .....

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rein has been followed in Triveni Glass Ltd. v. Commissioner of Central Excise, Guntur Civil Appeal Nos. 4852-4853 of 2005. 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 foundati .....

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tics, 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 con .....

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butors 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 .....

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sary ) 3 (note 2) 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 L .....

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nt 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 identif .....

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ontext, 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 t .....

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n 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 ou .....

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at - (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 c .....

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t 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 pack .....

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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 .....

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ing 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 .....

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elevant. 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 .....

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stablishing 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 rema .....

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l Excise and Salt Act, 1944 (hereinafter referred to as the Act ). 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 (1988) Supp SCC 601 , Triveni Glass Ltd. v. Union of India (2005) 3 SCC 484 and CCE v. Hindustan National Glass & Industries Ltd. (2005) 3 SCC 489 and K. Radha Krishnaiah v. Inspector of Central Excise (1987) 2 SCC 457 in support of his decision that the letters dated 15. .....

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ngement 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 tha .....

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llant for re-use/repacking of soda ash by the appellant. Secondly, it has to be further determined whether there was any arrangement, express or implied by the appellant with its buyers of soda ash with regard to the returnability of the used gunny bags to it in the light of the provisions provided under the Act and the legal principles laid down by this Court in a catena of cases. 4. To determine the same, letters dated 15.12.1970, 01.02.1971 and 02.04.1971 have to be scrutinized in proper pers .....

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ributors throughout the country will offer assistance, at nominal charge, for organising this operation as a customer service. 7. On such occasions when either the bulk movement of the material or the reuse of the bags is not possible, the customers will be offered free choice of any of the two following courses:- (a) They can send their own packing materials-jute cloth, plastic etc.-to our Works at Mithapur for use in packing the bulk Soda Ash. (b) They can authorize Tata Chemicals to use, on t .....

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EX-WORKS BASE PRICE 476.00 467.0 0 496.00 505.00 486.00 495.00 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 49.70 525.80 515.9 0 547.80 557.70 536.80 546.70 (* 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 Ta .....

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nd 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 .....

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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 .....

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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( .....

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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……… 6. 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 presen .....

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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 ille .....

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f 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. 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 at the factory gate as held by this Court in th .....

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sale 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 que .....

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apable of reaching the market without the type of packing concerned. Each case would have to be decided on its own facts. It must also be remembered that Section 4(4)(d) (i) specifies that the cost of packing is includible when the packing is not of a durable nature and returnable to the buyer. Thus, the burden to show that the cost of packing is not includible is always on the assessee. (emphasis laid by this Court) 9. Thus, in the light of the aforesaid decision, the burden to prove that the v .....

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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. 11. Hence, in these circumstances the appellant is bound to include the cost of t .....

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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 t .....

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id 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 .....

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y 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 norm .....

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ourt 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 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 .....

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