1. As common questions of law and facts are involved in Appeals Nos.
422/79-A and 421/79-A, they will be disposed of by this common order.
2. In both these cases, proceedings under Section 36(2) of the Central Excises and Salt Act as it existed at the relevant time were initiated.
A notice was issued under the said Section to M/s. Ampro Food Products on 21 9-1979 and to M/s. Jivan Food Products on 4-1-1980. M/s. Ampro Food Products replied to the notice on 16-11-1979 and M/s. Jivan Food Products on 8-2-1980. Both these matters are now being dealt with by us as appeals preferred by the Department in terms of Section 35 P(2) of the Central Excises and Salt Act.
3. The brief facts leading to the said notices are that M/s. Jivan Food Products, respondent in Appeal No. 421/79-A filed nine price lists during the year 1978-79 on different days before the Assistant Collector, Central Excise, Hyderabad, claiming deduction of what they said to be secondary packing expenses from the assessable value of the biscuits manufactured by them. M/s. Ampro Food Products filed a consolidated price list for the excisable products manufactured by them for the year 1978-79 in Part I for determination of value under Section 4 of the Central Excises and Salt Act, 1944 (hereafter referred as the Act). In Column 9 of the said price list, against S1. Nos. 1 to 24, the assessee showed certain amounts against the abbreviation "S.P." which was claimed to mean secondary packing. The amount shown in Col. 10 against this alleged secondary packing represented the value of the material comprising corrugated board boxes or tins which formed the outer container within which smaller packets of biscuits are kept. In respect of Jivan Food Products also the cost of secondary packing claimed for deduction represented the cost of material comprising corrugated board boxes or tin containers forming the outer container within which similar packets of biscuits were kept. The Assistant Collector, Hyderabad, while approving the price list disallowed the deduction claimed towards the cost of secondary packing from the wholesale price declared for arriving at the assessable value under Section 4 of the Act. The assessees, now respondents before us, filed appeals before the Appellate Collector, Central Excise, Hyderabad who in his Orders-in- Appeal dated 3-10-1978 and 17-1-1979 passed orders allowing the appeal in respect of M/s. Ampro Food Products and rejecting 7 of the 9 appeals of M/s. Jivan Food Products as time-barred but allowing the appeals in respect of two price lists. In both cases, he directed the Assistant Collector to review his earlier price approval in terms of his orders which, inter alia, contained the following in the orders relating to M/s. Ampro Food Products.
"The records do not furnish any valid reason for not allowing deduction of costs of secondary packing for arriving at the assessable value." "In view of the foregoing, the price approval in respect of the afore- said first 24 items is hereby held as erroneous, and hence the Assistant Collector is hereby directed to review the price approval for the aforesaid 24 items and to fix the assessable value in their case after deduction of the cost of secondary packing." Similar orders were passed in respect of M/s. Jivan Food Products in the following terms :- "The variety "Jivan Glucose A.T.C. Cardboards" is claimed to be a new variety of biscuits. In the case of this variety deduction of 72 paise representing cost of secondary packing was claimed. However, the Assistant Collector disallowed this deduction. The representatives mentioned that this variety is identical in the matter of quality and packing to Ampro Glucose A.T.C. Cardboard Boxes which was listed in price list dated 28-3-1978. In respect of Ampro Biscuits of the aforesaid variety, the deduction was allowed in terms of the Order-in-Appeal No. 169/78 dated 3-10-1978. If, in the case of Jivan Glucose A.T.C. Cardboard Boxes, it is found that there is no difference in quality and packing between these biscuits and those of Ampro Biscuits, the deduction on account of the cost of secondary packing should be allowed." "In view of the foregoing, the Assistant Collector is hereby directed to compare the five varieties of biscuits recorded in the two price lists which he had approved on 19-10-1978 and 23-12-1978 with other five varieties of biscuits mentioned in the price list dated 28-3-1978. If he finds that in respect of quality and packing the five varieties mentioned in the afore- said three price lists are identical, then the deduction on account of cost of secondary packing should be allowe.l, for the reasons and in view of the circumstances recorded in the Order-in-Appeal No. 169/78 dated 3-10-1978." 4. It is these two orders in appeal which the Central Government sought to review and therefore issued notices under Section 36(2) of the Act.
Both these matters were posted for hearing after 30th October, 1984.
None was present on behalf of either party. Earlier too none was present when these appeals were posted. We, therefore, consider the matter on the basis of existing records which we perused in detail. We also heard Shri Mahesh Kumar, the learned representative for the appellants.
5. The facts of the case show that the issue involved here is whether or not the tin containers etc. in which the biscuits are packed constitute secondary packing or not. In somewhat identical replies to the notices issued by the Government in the course of review, the respondents argued that the packing used by them in the form of tins, etc., constitute secondary packing. They argued that under Section 4 of the Act only cost of initial packing can be taken into account in arriving at assessable value and when sale price shows that the cost of secondary packing also is included in the value, it should be deducted.
The respondents further argued that tin containers or corrugated boxes, etc. are the constituents of secondary packing. They submitted that biscuits are first and primarily packed in packets and then a certain number of such packets are kept in tins, corrugated boxes, etc. These inside packets are made up of polythene bags and constitute primary packing, the packing referred to in Section 4(4)(d)(i). The respondents argued that the tins, corrugated boxes, etc. in which such initially packed goods are kept constitute the additional or secondary packing which in terms of the explanation under Section 4(4)(d)(i) does constitute packing.
6. Enlarging on the arguments, the respondents further submitted in their reply to the Show Cause Notices that the word "packing" is defined in the explanation to the Section 4(4)(d)(i) wherein it is stated that picking means, the wrapper, the container or any other thing in which or on which the excisable goods are wrapped contained or wound. The respondents, therefore, argued that this language refers to initial, primary or immediate packing which is different from additional, secondary or outer packing, that is also resorted to. The former performs the primary function of packing manufactured goods whereas the latter may be necessary for marketing or transporting of the excisable goods which have already been fully manufactured.
7. Referring to the third ground raised in the Show Cause Notice that since packing in tin containers and corrugated boxes is the normal form of delivery at the factory gate in wholesale lots, the value of such containers would form part of the assessable value, the respondents submitted that the reference to delivery and time of removal are intended only to ascertain whether the excisable goods are delivered in packed condition or un-packed condition and not to determine that the packing found should be included in the assessable value. The respondents therefore argued that only initial packing should be included in assessable value if such packing was not of permanent nature and is returnable by the buyer to the assessee. (The respondents were obviously referring to the durable nature and returnability mentioned in Section 4(4)(d)(i) of the Act. They relied on several judgments of the High Courts in support of their arguments. These judgments are as follows :- 1. Malwa Vanaspati and Chemical Co. Ltd., Indore v. Union of India (1979 E.L.T. 243).Geep Flash Light Industries Ltd., Allahabad v. Union of India (1979 E.L.T. 391).
3. Alembic Glass Industries Ltd. v. Union of India and Ors. (1978 E.L.T. 444).
8. In sum, the respondents' argument is that their goods (biscuits) were fully manufactured without packing and the cost of packing is neither manufacturing cost nor manufacturing profit on which excise duty can be levied. Further, even if reference is made to Section 4 of the Act only initial or primary packing can be included and not the secondary packing. As summed up by the respondents, primary packing in their case consisted of packing in polythene paper, etc. while secondary packing consisted of containers, corrugated boxes and paper wrappers.
9. Shri Mahesh Kumar, the learned representative for the appellants submitted that the question raised in these appeals, as to whether or not tin containers, etc. are secondary packing has been covered by decisions of this Tribunal and also by a decision of the Bombay High Court. He cited Order No. 375/1984 of this Tribunal, in Appeal No.99/77 decided on 6-6-1984 (Lucky Biscuits Co., Patna v. Collector of Central Excise, Patna). He also cited a Bombay High Court decision [reported in 1984 (17) K.L.T. 39 Bombay] in the matter of Sathe Biscuits and Chocolate Company Ltd. and Anr. v. Union of India and Ors.
He too referred to the judgment of the Supreme Court in the matter of Union of India and Ors. Etc. Etc. v. Bombay Tyre International Ltd., Etc. Etc. (1983 E.L.'I 1896). Shri Mahesh Kumar submitted that the case law cited by him was conclusive as the Supreme Court has taken a decision in 1983 in respect of Section 4 and this decision was considered by the Bombay High Court in the judgment relating to Sathe Biscuits and therefore the earlier case law which has been relied upon by the respondents is no more applicable. He further submitted that the question of returnability has not been raised by the respondents either before the Assistant Collector or before the Appellate Collector. Even in the repiy to the Government's Show Cause Notice under Section 36(2), the respondents merely referred to the provisions of the Act but never claimed that the packing used by them was returnable. Therefore, this question cannot be considered by the Tribunal, according to the submissions of Shri Mahesh Kumar.
10. We have considered the arguments put forth by both sides. Having traversed the facts at some length, we can straightaway define the issue before us. This issue would be whether tins, card board boxes, etc., in which the initially packed goods are kept constitute additional or secondary packing and whether or not the value of such packing should be excluded from the assessable value of goods under Section 4 of the Act.
11. The respondents did cite several decisions of the High Court in support of their arguments and also advanced an argument that the cost of packing being neither manufacturing cost nor manufacturing profit cannot be included in the assessable value. This argument was obviously taken from the judgment in what is known as Voltas case. However, the position has substantially changed since the respondents in these appeals submitted their replies to the Government's Show Cause Notices.
This change has been the result of the judgment of the Supreme Court in the matter of Union of India and Ors. Etc. Etc. v. Bombay Tyre International Ltd. Etc. Etc. (1983 E.L.T. 1896). This judgment considered several aspects of Section 4 but insofar as the present appeals are concerned, paragraph 51 thereof is relevant, it is in these terms :- " ...It is relevant to note that the packing, of which the cost is included, is the packing in which the goods are wrapped, contained or wound when the goods are delivered at the time of removal. In other words, it is the packing in which it is ordinarily sold in the course of wholesale trade to the wholesale buyer. The degree of packing in which the excisable article is contained will vary from one class of articles to another. From the particulars detailed before us by the assesses, it is apparent that the cost of primary packing, that is to say, the pricking in which the article is contained and in which it is made marketable for the ordinary consumer for example a tube of tooth paste or a bottle of tablets in a carboard carton, or biscuits in a paper wrapper or in a tin container, must be regarded as falling within S. 4(4)(d)(i)," 12. In the instant appeals, the price lists have been filed in Part I, meaning thereby that there are sales at the factory gate. Therefore, the ratio of the Supreme Court judgment is equally applicable to the facts of the present appeals and it has to be held that the degree of secondary packing that has been used was necessary for putting the excisable article in the condition in which it was generally sold in the wholesale market at the factory gate and the cost of this packing cannot be excluded from the value for the purpose of excise levy.
13. The Bombay High Court had considered the question of inclusion of the cost of secondary packing consisting tin containers and corrugated fibre containers in the assessable value with reference to Section 4(4)(d)(i) of the Act. [1984 (17) E.L.T. 39 (Bom.) Inre.-Sathe Biscuits and Chocolate Company Ltd. and Anr. v. Union of India and Ors].
Reference was made to this judgment by the learned Appellant, especially to paras 4 to 7 thereof. This judgment considered the Supreme Court judgment cited earlier, and followed the same. As this judgment directly related to tin containers and corrugated fibre containers used as secondary packing for biscuits, it confirms the finding we have already given in the light of the Supreme Court's decision. However, the Bombay High Court judgment also makes a reference to the expression "packing of a durable nature and returnable by the buyer to the assessee" and examined the scope of the same. In the appeals before us, the appellants did not directly make a claim that their packing was returnable. However, they did make an indirect reference to the same and we would like to dispose of the same without brushing it aside on the ground that it has not been raised by the respondents before the lower authorities. The Bombay High Court in their judgment have clearly held that in the con- text in which the word "returnable" is used and is preceded by the word "is", it positively indicates that there has to be a term or contract which makes it obligatory on the manufacturer to accept container or packing when the same is returned if it is of durable nature. It has not been the case of the respondents that their packing materials are returnable because of a contract or a legal agreement. Therefore, such an argument would not be acceptable even if it were otherwise valid. The learned departmental representative also cited this Tribunal Order No. 375/84-A dated 6-6-1984 (Lucky Biscuits Co., Patna v. Collector of Central Excise, Patna), in support of his argument. In that matter, the appellants M/s. Lucky Biscuits Co. Ltd., argued that the carboard cartons or wooden cases were returnable and hence their cost should not be included in the assessable value. It was also argued that the cost of large size tin containers, cartons or wooden cases described as secondary packing material should not be included in the assessable value. Dismissing the appeal the learned Bench referred to the Supreme Court judgment mentioned earlier and decided that this judgment gave a specific and direct authority for inclusion of such type of packing material which is in the nature of essential packing for a commodity like biscuits packed in loose form or in small packets which without the help of the secondary packing like large sized tin containers cannot obviously be marketed or despatched from the factory gate. This judgment further strengthens our finding that the cost of secondary packing which the Assistant Collector initially ordered to be included in the assessable value is indeed to be included according to law.
14. For the reasons stated above, we accept the two appeals filed by the Revenue and set aside the impugned Orders of the Appellate Collector. Consequently, the orders of the Assistant Collector are restored.