1. The question which has been seriously debated in this petition is whether the petitioner, which is a company, is entitled to a deduction on account of secondary packing, namely, the tin containers and the wooden and corrugated boxes in which packets of biscuits manufactured by the petitioner company are packed.
2. The petitioner company manufactures biscuits, chocolates and other cocoa products which are admittedly liable to excise duty under Tariff Items 1C and 1A under the Central Excises and Salt Act (hereinafter referred to as the 'Excise Act'). On 4th January, 1983 a demand notice was issued to the petitioner company by the Excise Department that company had not paid duty on the cost of secondary packing such as tins, corrugated boxes and wooden boxes, etc. used by them for packing of biscuits and, therefore, the petitioner company was liable to pay a sum of Rs. 1,27,031.97 as basic excise duty and Rs. 6351.34 as special excise duty. The correctness of this demand was contested before the Assistant Collector of Central Excise. According to the petitioner, the company sells biscuits in the wholesale market and at the factory gate duly packed in tins/corrugated boxes/cartons and, therefore, the entire value of the tins/corrugated boxes should be excluded from the assessable value. The company had also contended before the Assistant Collector that tins or corrugated boxes were returnable and durable in nature. The Assistant Collector took the view on the decision of the Madhya Pradesh High Court in Birla Jute . v. Union of India and others 1980 E.L.T. 593 that in order that the value of the packing should be excluded, the packing had to be returnable by the buyers under the terms of the sale and the assessee had not brought forth any contract wherein it was agreed upon between the assessee and the buyers that the packing would be returnable. The Assistant Collector, therefore, took the view that the value of the secondary packing is included in the assessable value of the items manufactured by the petitioner company. He also further ordered that deduction on account of durable and returnable packing in the case of tin containers is allowed only if the containers are actually returned by the buyers to the company. This order is challenged by the petitioner company in this petition.
3. At the time of the hearing of the petition, the petitioner company by an affidavit dated 12th February, 1984 made it expressly clear that the petitioner company was not claiming any deduction on account of tin containers which were used as primary packing for loose biscuits and further that the company was not claiming any deduction when loose biscuits were packed with grease proof paper and thereafter packed in a tin container. The claim in the petition was restricted to the deductibility of the cost of tin/corrugated containers which served as packing for biscuits which were primarily packed in a liner and thereafter in waxed paper which was known in the trade as E.W.P. (exclusively wrapped pack). Deduction was also claimed in respect of corrugated containers in which biscuits which were primarily packed in polythene bag or liner and then packed in a corrugated air tight carton. Those cartons were than packed in corrugated containers for the sake of convenience in handling and safe transportation. In respect of chocolates, the demand was restricted to corrugated containers in which were packed chocolates packed in aluminised foils and then in outer wrappers.
4. The main ground on which this exclusion of the cost of packing was sought by Mr. Hidayatullah appearing on behalf of the petitioner company was that the secondary packing consisting of the tin containers and the corrugated fibre containers was of a durable nature and was returnable by the buyer to the company as contemplated by sub-clause (i) of clause (d) of sub-section (4) of section 4 of the Excise Act. Section 4(4)(d) defines value as follows :-
'value', in relation to any excisable goods, -
(i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee.
Explanation :- In this sub-clause, 'packing' means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound.'
Mr. Hidayatullah contended that what was required for the purposes of excluding the packing was that the packing had to be durable and returnable. With regard to the word 'durable' the learned Counsel contended that the dictionarymeaning of the word 'durable' was 'able to exist for a long time'. The word 'returnable' must be construed as meaning 'capable of being returned' and, according to the learned Counsel, what was relevant and material for deciding whether the value of the tine containers and the corrugated fibre containers was excludible or not was whether these containers were capable of being returned. According to the learned Counsel, the tin containers and the corrugated fibre containers, when they were used for secondary packing, were both durable and capable of being returned and, therefore, in terms of the definition of 'value' reproduced above, the cost of such packing had to be excluded for the determination of value of the excisable goods.
5. Mr. Sethna appearing on behalf of the Department has contended that having regard to the decision of the Supreme Court in Union of India and others v. Bombay Tyre International Ltd. 1983 E.L.T. 1896, no question of deducting the cost of a primary packing can ever arise and, according to the learned Counsel, even the cost of secondary packing has been held to be non-deductible by the Supreme Court in the said case. Heavy reliance was placed by Mr. Sethna on paragraph 51 of the judgment in the Bombay Tyre International's case. In the Bombay Tyre International's case, the Supreme Court has observed with regard to the facts of the case before them that it was apparent that the cost of primary packing, that it to say, the packing in which the article is contained and in which it is made marketable for the ordinary consumer, for example a tube of toothpaste or a bottle of tablets in a cardboard carton, or biscuits in a paper wrapper or in a tin container, must be regarded as falling within section 4(4)(d)(i). This was conceded before the Supreme Court. The Supreme Court then observed that it was the cost of secondary packing which has raised dispute and then observed as follows :-
'Secondary packing is of different grades. There is the secondary packing which consists of larger cartons in which a standard number of primary cartons (in the sense mentioned earlier) are packed. The large cartons may be packed into even larger cartons for facilitating the easier transport of the goods by the wholesale dealer. Is all the packing, no matter to what degree, in which the wholesale dealer takes delivery of the goods to be considered for including the cost thereof in the 'value'? Or does the law require a line to be drawn somewhere We must remember that while packing is necessary to make the excisable article marketable, the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufactured article itself. It seems to us that the degree of secondary packingwhich is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate is the degree of packing whose cost can be included in the 'value' of the article for the purpose of the excise levy. In that extent, the cost of secondary packing cannot be deducted from the wholesale cash price of the excisable article at the factory gate.'
6. Mr. Sethna has vehemently contended before us that the test has now been laid down by the Supreme Court that if a secondary 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, then the degree of secondary packing which is necessary is the degree of packing whose cost can be included in the value of the article for the purpose of excise duty. In so far as the present case is concerned Mr. Sethna has contended that the tin containers and the corrugated fibre cartons are secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate and, therefore, the petitioner company was not entitled to have the value thereof excluded for the purposes of calculation of the excise duty.
7. How, if the matter had merely rested there, there might not have been much difficulty in holding that the degree of packing involved in the instant case is that degree of secondary packing which is necessary for putting the excisable article in the condition in which it is sold in the normal course to the wholesaler at the factory gate and in view of the observations of the Supreme Court reproduced earlier, there was no scope for arguing that in any case, the cost of this packing is deductible.
8. However, the definition of 'value' excludes by the very terms of it 'the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee'. This part of the clause in the definition of 'value' did not all for consideration before the Supreme Court at all. We must, therefore, restrict the observations of the Supreme Court only to such cases where the question as to whether the packing is of a durable nature and is returnable by the buyer to the assessee does not arise. It is also to be borne in mind that the definition of 'value' makes no reference to primary or secondary packing and while the value as defined includes the cost of packing when goods are delivered at the time of removal in a packed condition, the latter part of the definition specifically excludes the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee. The packing referred to in the last part of the definition in clause (i) is the same to which a reference has been made while using the words 'cost of such packing' and the packing is the same in which the goods are packed when they are delivered at the time of removal. Therefore, so far as the durability and the returnability is concerned, the question as to whether the packing was primary or secondary does not become very relevant. It may also be true that in so far as the wholesaler is concerned, it would be very rare that the primary packing even though of a durable nature will be returnable by the buyer under the terms of the sale though in a given case it may be so. For example, it may be that in the case of aerated waters, undisputably the glass bottle is a packing which is of a primary nature, but at the same time it is durable and may be returnable by the buyer to the assessee, in which case, if the conditions of clause (i) are satisfied, the cost thereof will have to be excluded.
9. The question, however, is what is the scope of the words 'of a durable nature and is returnable by the buyer to the assessee'. There are two characteristics of the packing referred to in this phrase. One is the durability and the other is the returnability. When the clause refers to a packing being requirement of being returnable by the buyer, what was obviously intended was that the durability must be of such a nature that the packing as capable of being re-used by the manufacturer. The possibility of re-use must, therefore, be established before a packing can be held to be of a durable nature.
10. When we come to the latter part of the definition, according to Mr. Hidayatullah, it is enough if it is shown that a packing is capable of being returned and, according to the learned Counsel, there could not be any obligation on the buyer to return and a consequent obligation on the manufacturer to accept the packing when it is returned. This contention, in out view, over-looks the fact that the words used by the legislature are 'is returnable by the buyer'. The words are not 'of a durable nature and returnable by the buyer'. The use of the word 'is' is relevant and is clearly an indication of a returnability, being a term of the contract between the manufacturer and the wholesaler. It is undoubtedly true that one of the dictionary meanings of the word 'returnable' is 'capable of being returned' as given in Webster's Third New International Dictionary. The learned Counsel contended that if these words are substituted for the word 'returnable' in the section, then all that we have today is to read in place of 'is returnable' the words 'is capable of being returned'. The proposition at first sight appears to be quite attractive. But, as already pointed out, in the context in which the word 'returnable' is used and is preceded by the word 'is' it positively indicates that there has to be a term of the contract which makes it obligatory on the manufacturer to accept the container or the packing when the same is returned if it is of a durable nature. By excepting the cost of packing which is of a durable nature and is returnable by the buyer, the Legislature was clearly giving effect to the principle that no excise duty would be leviable on a packing which was capable of being re-used because this would mean that the value of the same packing would be subject to excise duty more than once. We are, therefore, of the view that the cost of only such packing which is of a durable nature and is returnable under the terms of the contract between the manufacturer and the wholesaler is excludible from the value for the purposes of excise duty.
11. It is undoubtedly true that a learned single Judge of the Karnataka High Court in T. T. Private Ltd. v. The Appellate Collector of Central Excise, Madras and another 1980 E.L.T. 687, has taken the view that the expression 'returnable' means that which can be returned or which should be in a returnable condition or capable of being returned. The learned Judge found support for his view in the decision of the Gujarat High Court in the case of Alembic Glass Industries Ltd., Baroda v. Union of India 1979 E.L.T.J 144. We may, however, point out that the judgment of the Gujarat High Court relied upon by the learned single Judge stands overruled by the Full Bench of the same Court in Ahmedabad Mfg. & Calico Pvt. Ltd. and others v. Union of India 1982 E.L.T. 821, in which dealing with the expression 'returnable by the buyer to the seller', the Full Bench in paragraph 18 observed as follows :-
'In the view that we are taking it is unnecessaryto draw a distinction between 'primary' packing and 'secondary' packing. We may mention that Counsel for the petitioners contended that in regard to the cost of packing which is of a durable nature and is returnable by the buyer to the assessee, the provision concerned [section 4(4)(d)(1) must be so construed that even if the contract does not provide for the return of the durable packing must be excluded. We are unable to agree with the submission in the face of the clear language of the provision. The expression 'returnable by the buyer to the seller' places the matter beyond the pale of controversy. 'Returnable' means returnable as per agreement between the buyer and the seller. What else can it mean When the cost of such packing is included in the price by the seller, it is obvious that it is so done in order that the durable packing is returned - it is a sort of a security for the return of the packing. The basic idea is that when by the contract of sale, the sale-price of the excisable article is to be packing factor and the packing is to be returned in specie, the cost of packing does not form a part of the sale price and cannot, therefore, included in the valuation for the purpose of computation of the levy.'
We are in respectful agreement with the view taken by the Full Bench of the Gujarat High Court.
12. We may also refer to the decision of the Madhya Pradesh High Court in Birla Jute . v. Union of India and others, 1980 E.L.T. 593. In that decision, the Division Bench while construing the definition of 'value' in section 4(4)(d)(i) has held that it is not necessary to get the benefit of the exception in the definition for the assessee to show that the packing material has been returned or the cost of the packing has been refunded because it is impossible to show at the stage of removal and 'All that is necessary is to show that the packing is returnable by the buyer to the assessee under the terms of the sale' and 'The question of actual return is entirely irrelevant'.
13. It was contended before us by Mr. Hidayatullah that this construction would not be beneficial to the Revenue because even if the packing is not returned to the manufacturer, though there is a term in the contract regarding returnability, the Revenue will be put to a great loss because for the purposes merely of excise duty, by merely relying on the contract, the cost of the packing will be excluded from the value. When the words of the statute are clear and are not, in our view, capable of any other construction, the consideration that the cost of the packing will wrongly get excluded, in our view, appears to be wholly irrelevant.
14. It need not be mentioned that the question whether in a given case, the packing is of a durable nature and is returnable by the buyer will have to be determined on the facts of each case and possibly in most cases on evidence with regard to the durability and returnability. It is not, therefore, possible to lay down whether in each case, the corrugated fibre containers or the wooden packing, as in the instant case, is of a durable nature or not. Mere assertion by the petitioners that these packings were of a durable nature would not be conclusive and if and when a question arises in a given case, these matters will have to be decided by the appropriate authorities on evidence, if necessary.
15. It was contended by Mr. Ganesh, now appearing on behalf of the petitioners, that when we are laying down a criterion that the returnability must be under the terms of the sale or the contract between the wholesaler and the manufacturer, this must also include the usage of trade. In other words, the contention is that the returnability could depend in the usage of any particular trade or business and reference was made to the observations of the Supreme Court in the order dated 15th November, 1983 in the Bombay Tyre International's case reported in 1983 E.C.R. 2233D. This order is in the nature of a clarification of the earlier decision dated 7th October, 1983. With regard to the trade discount, the Supreme Court observed as follows :-
'Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.'
According to Mr. Ganesh, the Supreme Court has clearly indicated that if discount was being given as a result of established practice, that was liable to be deducted from the value and consequently by analogy, the returnability must also be decided on the basis of established practice or trade usage.
16. Undoubtedly the Supreme Court has referred to the established practice of giving trade discount. But the Supreme Court also pointed out that the allowance and the nature of discount must be known at or prior to the removal of the goods. The value to be ascertained for the purposes of excise duty is the value at the time of removal of the goods. If there has to be some certainly with regard to the method and the manner by which allowance in respect of durable and returnable packing is to be given, the only way by which this can be done is to ascertain at the time of removal of the goods as to whether it is a term of the sale that the durable packing will be liable to be returned. It cannot be left to doubt as to whether in a given case, there is a practice or usage of returning the packings or not, because, as earlier pointed out, what is important is the obligation of the manufacturer to accept the returned packing which can be re-used and the price of such packing is left out of consideration because if the said packing is re-used, it will become liable to excise duty for the second time. We are, therefore, not satisfied that if it is not shown at the time of removal of the goods that under the terms of the sale, the packing was durable and liable to be returned, the price of such packing will still be excluded from the value.
17. In this petition, the company has proceeded on the footing that the packing is capable of being returned and not that it was returnable under the terms of the sale and, therefore, having regard to the view which we have taken, it is not possible to accept the contention of the petitioner company that they were not liable to pay the amount which was demanded. In this view of the matter, the petition must fail. The Rule is discharged with costs.