S.H. Sheth, J.
1. Alembic Glass Industries Limited is the petitioner. The petitioner is manufacturing glass and glassware which fall under Tariff Item No. 23A in the First Schedule to the Central Excises and Salt Act, 1944. The petitioner has got a factory at Baroda in the State of Gujarat. The glass and glassware produced by the petitioner company are purchased by wholesale buyers. Anyone can buy the petitioner-Company's products in wholesale. Amongst the buyers the excisable goods produced by the petitioner-Company are manufacturers of medicines, producers of oil, manufacturers of chemicals and milk Dairies. It is the case of the petitioner-Company that it is not necessary that glass and glassware manufacturing by it should be sold in packed condition. According to them they can be sold in naked condition. The petitioners next contend that in some cases their buyers supply the packing material and sometimes they purchase the packing material from the market, pack the goods in it and sell them to their wholesale buyers. The petitioner-Company's buyers sometimes require a particular kind of packing, as for example, in cartons or in corrugated sheets. Others are satisfied with ordinary packing consisting of buy or straw padding in gunny bags. The petitioner further contends that under tariff item 17 in First Schedlue to the Central Excises and Salt Act, 1944, excise duty is leviable on packing materials themselves. It is further alleged that the cost of packing material is borne by the buyer and that the petitioner show the price of the excisable goods and the price of packing materials separately in its price-list. It next alleged that price of packing material is not identifiable with the value of the excisable goods and that, therefore, excise duty cannot be levied on the composite price of the excisable goods as well as the packing material. Next the petitioner alleges that packing material is not a part of the manufacturing process. In other words, according to them, it is not incidental to manufacture. The petitioner further avers that packing is done for the safety of the goods during transportation and that no further manufacturing process is applied to a packing material. After amended Section 4 of the Central Excises and Salt Act, 1944, came into force on October 1, 1975, the Central Excise authorities started assessing the excise duty on the composite price of excisable goods as well as packing material and did not approve the price-list submitted by the petitioner showing the price of excisable goods alone.
2. The petitioner, therefore, filed this petition in which two reliefs are claimed : -
(1) Definition of the expression 'value' given in Clause (d) of Sub-section (4) of Section 4 of the Central Excises and Salt Act, 1944, is beyond the legislative competence of Parliament under Article 246 of the Constitution read with Entry 84 in the Union List; and
(2) any collection of excise duty on the basis of this definition is without authority and bad in law and it is hit by Article 265 and Article 31.
In order to examine the first contention which has been raised on behalf of the petitioner, it is necessary to reproduce the definition on 'value' given in Section 4 (4) (d) of the Central Excises and Salt Act. It is in the following terms : -
'(d) '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 the 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;
(ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale.'
Let us now analyse this definition- This definition in terms excludes from the value of excisable goods the cost of packing which is of a durable nature and which is returnable by the buyer to the assessee. The expression 'returnable' used in the definition suggests that actual return of the packing material of a durable nature by the buyer is not of any great consequence. In other words, what is excluded from the value of the excisable goods is the cost of packing which is of a durable nature and which can be returned by the order to the assessee irrespective of whether the returns it or not. Excluding such cost of packing, the cost of other packing is required to be included in the value of the excisable goods in order to find out its assess the value for the purpose of collecting excise duty.
3. Now packing material may originate, broadly speaking, from three sources: (i) the buyer may supply the packing material and the manufacturer may pack his excisable goods in it and deliver them to the buyer; (ii) the manufacturer may buy it from the market, pack the goods in it and deliver it to the buyer; and (iii) the manufacturer may himself manufacture it, pack the goods in it and deliver to the buyer. So far as the last category is concerned, it can be sub-divided into two parts; packing material which a manufacturer manufactures may be an integral part of the process of manufacture of excisable goods of it may not be such an integral part of the manufacturing process applied to the excisable goods. It is quite probable that the packing material manufacturing by a manufacturer may itself be subject to duty of excise. It may as well be not subject to it. We have to consider this aspect in detail because it is not necessary for us to do in this case. In this case it is undisputed on record that either the petitioner Company's buyers supply the packing material or the petitioner-Company purchases packing materials from the market packs the excisable goods in them and delivers them to its buyers. Therefore, the question which has arisen before us is whether the cost of packing material supplied by the buyer to the manufacturer or the cost of packing material purchased by the manufacturer from the market for the purpose of packing the excisable goods in it and delivering it to its buyer can be included in the assessable value of the excisable goods. Ordinarily the measure or standard of assessable value which the Parliament prescribes cannot be called in question unless while doing so it has entranced upon a forbidden field. We shall revert to this aspect a little later.
4. Let us first examine some of the definitions given in the Central Excises and Salt Act, 1944. Section 2(d) defines 'Excisable goods' so as to mean goods specified in the First Schedule as being subject to a duty of excise and includes salt. There is no doubt or dispute about the fact that glass and glassware which the petitioner-company manufactures fall under Entry 23A in the First Schedule to the said Act, Section 2(f) is very material for the purpose of this case. It defines 'manufacture' in the following terms: - .
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This long definition of 'manufacture' makes it clear beyond any doubt two propositions. Firstly, process of manufacture includes any process incidental or ancillary to the completion of a manufactured product. The second proposition which is made clear is that wherever the Parliament wanted to include in the process of manufacture certain incidental or ancillary processes, it has said so as for example, in sub-clause (i) of Clause (f) and in sub-clause (ia) of Clause (f).
5. Mr. Patel has invited our attention to Section 2(k) which defines the expression 'wholesale dealer'. It is not necessary to make any reference to it because for the purpose of deciding this case nothing turns upon it. Mr. Patel has invited our attention to Section 3 and emphasized the fact that this section which is the charging section levies a duty of excise on all excisable goods other than salt. This aspect he has emphasized with reference to several kinds of goods specified in the First Schedule. In other words, according to him, when Section 3 is read in light of item 23A in the First Schedule, it is very clear that the width and amplitude of Section 3 is to impose or to levy only upon glass and glassware the excise duty. According to him, therefore, Section 4 by artificially definding the valuation of excisable goods cannot go beyond the charging section and levy excise duty on something which does not form a part of the value of the excisable goods. He has in particular emphasised the fact that in case of glass and glassware packing material is absolutely independent of the excisable goods.
6. He has invited our attention in that behalf to the decision of the High Court of Bombay in Ogale Glass Works v. Union of India, (1975) 79 Bom. L.R. 37. In that case Ogale Glass Works Limited were manufacturers of glass and glassware. The price-lists approved by the Excise authorities included the cost of packing and the petitioners in that case from 1962 to 1972 paid whatever amount were demanded from time to time by the Excise authorities. Thus the petitioners paid a duty of about Rs. 12 lakhs. A part of this payment represented legitimate excise duty on the excisable goods, namely, glass and glassware But it also included a payment purporting to be excise duty on the cost of packing and packing materials. In D cc' 1972 the petitioner in that case made a representation to the Excise a thorities ; that revised price-lists should be approved in accordance with the law by excluding the packing charges They were embodened to make that application because of the decision of the Mysore High Court in t he case of Messers Alembic Glass Industries Limited. The Excise authorities refused to comply with the request of the petitioner. Therefore, they filed a writ petition in the High Court of Bombay for directions to the Central Excise authorities to repay the excess illegal recoveries made by them on such packing charges from 1962 to 1972. They further contended that they had paid the excise duty on packing charges under common mistake since the inception.
7. The High Court of Bombay held that the cost of packing and packing materials could note legally included in arriving at the wholesale cash price of the excisable goods manufactured by the petitioners. It was further held that the method or manner of marketing, delivering' or transporting excisable goods which have been fully manufactured can never by itself determine the assessable value of such excisable goods under Section 4 of the Central Excises and Salt Act, 1944. It was further held by the High Court of Bombay that packing of glass and glassware is not a process incidental or ancillary to the completion of its manufacture. Therefore, the cost of packing and packing material cannot be included in the value of glass and glassware for the purpose of levy and collection of excise duty.
8. This decision makes it clear that in case of glass and glassware, the packing material does not constitute a process incidental or ancillary to the completion of the manufactured product. Indeed the aforesaid decision of the High Court of Bombay was rendered on the basis of old Section 4, which has now been amended. At the time the expression 'value' was not defined by Parliament. The amended section defines that expression and includes in the value of the excisable goods the cost of packing which otherwise would not have been included in it. The question, therefore, is whether the cost of packing could be included in the value of the excisable goods by Parliament competently under Entry 84 of the Union List.
9. Mr. Patel has argued that cost of packing is a post-manufacturing or non-manufacturing operation. According to him excise duty on packing material overreaches Entry 84 of the Union List of Section 3 of the Central Excises and Salt Act and is, therefore, a bad in law. In that context he has invited our attention to Entry 17 in First Schedule which according to him, read in light of Section 3, provides for levy of excise duty on packing material. We may, however, state that reference to is not at all helpfull because it refers to paper packing and not packing in wooden cartons and such other things in which generally glass and glassware are packed. He has also submitted that packing services are rendered free of charge by the petitioner-Company to its buyers. That fact has been disputed on behalf of the respondents in the affidavit-in-reply.
10. Now let us examine the nature of the excise duty which is collected on the cost of packing and packing material which either a buyer supplies or which a manufacturer from the market purchases and in which he packs his excisable goods for delivery to his buyers. It cannot be gainsaid that packing material which the buyer supplies or which a manufacturer purchases from the market has nothing whatsoever to do with the manufacturing process of the excisable goods nor is it in any way incidental or ancillary to that manufacturing process. In fact not an iota of manufacturing process Incidental or otherwise can by any stretch of imagination be applied to the supply of packing material by the buyer or purchase of packing material by the manufacturer from the market. Therefore, in our opinion, the packing material which the buyer supplies or the manufacturer purchases from the market is so independent of the manufacturing process of the excisable goods and so divorced from it that it is not even within a reasonable distance from the manufacturing process applied to the excisable goods. We concur in this behalf in the view expressed by the High Court of Bombay in the case of Oglae Glass Works (supra). Now if the packing material supplied by a buyer or purchased by a manufacturer from the market has nothing whatsoever to do with the manufacturing process applied to the excisable goods, so what is the nature of the tax which the manufacturer pays to the Central Excise authorities on the cost of packing or packing material ?
11. In any case it is not excise duty firstly because the packing material is not manufactured by the manufacturer as an integral and in severable part of its product. Therefore, the question of manufacturing costs and manufacturing profits in respect of such packing material does not arise so far as the manufacturer is concerned. Therefore, there cannot be any assessable value in respect of such packing material and the tax collected is not excise duty within the meaning of Entry 84 in the Union List. Therefore, the tax collected on the price of such packing material is not excise duty. It may also be noted that in such a case whoever manufactured the packing material from whom the manufacturer of excisable goods purchased it must have paid excise duty if otherwise it was subject to excise duty. When the manufacturer purchases in the open market and supplies it to his buyer who pays the manufacturer its price, the tax collected on this activity will partake of the character of purchase tax of sales tax. It would be purchase tax if it is levied on purchase by the buyer or the petitioner from the market and it would be sales tax if there is levy on the sale thereof by the manufacturer of the excisable goods to his buyer. It is clear, therefore, that the impost on packing material under the aforesaid circumstances falls under Entry 84 in the State List. Obviously, therefore, the Parliament cannot levy and collect it.
12. Excise duty can be levied on excisable goods. Indeed it can be levied at different stages at which the goods undergo transaction and new goods or commodities are brought into existence. Change of identity or emergence of a new article or commodity of the test for levying excise duty afresh. Where the packing material is purchased by the manufacturer from the market and is used for packing the excisable goods, there is no change or identity of goods or does a new article emerge which may attract the levy of a fresh excise duty. Similarly, if a buyer supplies packing material to the manufacturer of excisable goods, the packing material also supplied by the buyer does not undergo any change of identity nor does it give birth to a new excisable commodity. Therefore, levy of excise duty on the manufacturer or excisable goods after the manufacturer of packing material paid it when he cleared them from his factory would mean payment of excise duty twice. There is no provision in the Central Excises and Salt Act, 1944 for levying excise duty twice on the same article or commodity which has not changed its identity and which has not become a new marketable commodity.
13. Support is lent to this view by a decision of the Supreme Court in South Bihar Sugar Mills v. Union of India, A.I.R. 1968 S.C. 922 in which the principle which the Supreme Court has laid down in the context of the Excise Act is that the Act charges duty on manufacturer of goods and that the word 'manufacturer' implies a change but every change in the raw materials is not manufacturer. It has been further observed in that decision that there must be such a transformation that a new and different article must emerge having a distinctive name, character or use.
14. It has been argued by Mr. Vakil on behalf of the respondent that the levy of excise duty on packing material under the aforesaid circumstances is not a tax on sale or purchase. It has been argued by him that a tax levied on the first sale may be in addition to the tax on manufacturing costs and manufacturing profits. According to him, therefore, it is covered by Entry 97 in the Union List We are unable to accept this argument on account of the reasons which we have stated earlier. In our opinion, for the reasons stated above it amounts to purchase tax or sales-tax.
15. It has next been argued by Mr. Vakil that the Parliament may levy tax on something more than the manufacturing goods and manufacturing profits. In our opinion, it cannot be done if it entrances upon the State List. Parliament cannot levy in the name of duty of excise within the meaning of the Entry 84 in the Union List something which falls under the State List and which is beyond its legislative competence.
16. It has also been argued by him that packing costs are no post-manufacturing costs and post manufacturing profits. In our opinion, they certainly enjoy that character because they have nothing to do with the manufacturing process or activity and they are incurred after manufacturing process or manufacturing activity is over or complete. Reliance has been placed on the unreported decision of this Court in Special Civil Application No. 858 of 1974 decided by Mr. Justice J.B. Metha, and Mr. Justice M.P. Thakkar, on September 9, .1976 That decision hits no application to the instant came because this Court in that case was concerned with marketing expenses included in the assessable value of excisable goods. In that case this Court upheld the contention that marketing expenses could be included in the assessable value of excisable goods. The question which has been put to us in an over-simplified form is : If marketing expenses can be included in the excisable value of excisable goods, why can the cost of packing material not manufactured by the manufacturer of excisable commodity not be as an integral and inseverable part of its manufacturing process'? The reason which this Court gave while upholding that argument strike down the very basis of the argument which Mr. Vakil has advanced before us. According to this Court marketing costs may in a given case have relation to manufacturing costs when they are required to be put in the stream of trade. Secondly, packing costs are relatablc to posts manufacturing operations only after the goods have been purchased and after they have entered in the stream of trade and await delivery. Relying upon Rule 9 of the Central Excise Rules he has argued that packed condition is a part of the manufacturing process This argument hold good even for a moment where the buyer supplies the packing material to the manufacturer of excisable goods or the manufacturer of the excisable goods purchases the packing material from the market in order to pack his goods. Rule 9, therefore, has no application to the instant case.
17. The next argument which he has advanced that manufacture is complete when excisable goods are packed and delivered and that until then the manufacturing activity in respect of the excisable goods is not complete. This is too wide an argument to be accepted. It is not so in all cases where the buyer supplies the packing material or the manufacturer of excisable commodity purchases it from the market. It can never be said that the manufacture of excisable goods is complete only when it is packed and delivered.
18. Mr. Vakil has then pressed into service Article 250 of the Constitution. The arguments which he has advanced in support of this contention are the same which he advanced in special Civil Application No. 119 of 1975. The contention based on Article 250 has not been pleaded by the respondents in their affidavit-in-reply. Obviously, therefore, the petitioner did not have an opportunity to meet this contention. Under these circumstances the petitioners cannot be taken by surprise. For the reasons stated by us in Special Civil Application No. 119 of 1975-we reject this contention.
19. In the result we are of the opinion that so far as the definition of 'value' given in Section 4(4)(d) of the Central Excises and Salt Act is concerned, cost of packing and packing material in cases in which the buyer supplies the packing material or the manufacturer purchases it from the market and packs the excisable goods do not form a part of the value of the excisable goods because tax on them falls within Entry 54 in the State List in respect of which Parliament is not competent to legislative. We read down the definition accordingly and hold that the definition or 'value' has no application to these two categories of packing matter. We are not expressing any opinion in this petition on two sub-categories of the third category of packing material because it is not necessary for us to do so in this case.
20. The petitioner has tried to file a Civil Application for amendment of the original petition in the course of the hearing of this petition. We are unable to entertain this application at such a late stage. It is, therefore, rejected. As a result of the finding which we have recorded on the definition of 'value' in Section 4(4)(d), we direct the respondents to make account of the excess duty recovered by them from the petitioner from October 1, 1975 till date and submit it to the petitioner for verification on or before August 30, 1979 after it has been verified by the petitioner, the respondents shall refund to the petitioner such amount as it undisputed between them. If any part of the refund is disputed by the respondents and which petitioner claims, the petitioner shall be at liberty to adopt its own remedy for its recovery. This relief has not been specifically prayed for in the petition. We have given this direction as a consequential relief following upon our reading down the definition of 'value'.
21. Rule is made absolute to the aforsaid extent. The respondent shall pay the costs of this petition to the petitioner.
22. It appears that in pursuance of the interim order made by this Court, the petitioner has furnished the Bank Guarantee. The respondents are, therefore, directed to pay to the petitioner the costs incurred by them for furnishing the Bank Guarantee. The respondents shall do so within two months from the date on which the petitioner submits respondents a statement of costs in this behalf.
23. Whatever amount is found refundable to the petitioner as a result of this order shall bear interest at the rate of six per cent per annum from the date of the petition until payment and the respondents shall pay it to the petitioner.
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