Case: Mahalakshmi Glass Works (P) Ltd Vs. Collector Of Central Excise, Bombay

2. The appellant, a private limited company, manufactured various types of glass bottles which were assessed to duty under Item No. 23A of the Central Excise Tariff. According to the appellant, it sold to the customers on wholesale basis the glass bottles manufactured by it, packed in gunny bags and cartons which it purchases from the market. According to the appellant further , it has been paying duty on the value of the glass bottles including the cost of gunny bags or the cartons in which these are packed at the time of sale. It appears, therefore, according to the appellant, that it has been paying duty on glass bottles on the basis of the assessable value which included the costs of packing material, namely, the gunny bags and the cartons. The case of the appellant further is that the glass bottles are normally sold by it in the packing consisting of gunny bags which are durable and returnable and in several cases the gunny bags are returned by the buyers and are used by the appellant again for packing the glass bottles. It is only when the customers specifically ask for delivered in cartons instead of in gunny bags that the appellant delivered the glass bottles packed in cartons which are also durable and returnable. Towards the end of 1977 and early 1978 the appellant submitted 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 "wholesale trade" and "the cost of packing". By his letter dated 10th January, 1978, the Superintendent of Central Excise returned to the appellant the price list duly approved but nothing therein that the price should be inclusive of the cost of packing and packing charges in terms of section 4(4)(d) of the Act.Since then the appellant has been paying duty on the cost of packing under protest and lodging claims of refund. The appellant, however, did not receive any refund nor any intimation that the claims of refund are or were being rejected. Various representations made by the appellant were in vain. The Assistant Collector of Central Excise wrote a letter dated 8th March, 1980 advising the appellant to file an appeal before the Appellate Collector if the appellant felt aggrieved. Feeling aggrieved, the appellant filed a writ petition under Article 226 of the Constitution in the High Court of Bombay. The High Court passed a n interim order on 18th July, 1984 remanding the case back to the Assistant Collector of Central Excise and to decide the matter after giving the appellant fair and adequate opportunity to adduce evidence.4. After considering the written statements filed by the appellant, the Assistant Collector passed an order on 29th April, 1986 rejecting the appellants refund claim for about Rs.17 lakhs for the period from 1st January, 1978 to 31st December, 1980 and demanding duty for the period 6t h January, 1981 to 31st December, 1985 in terms of the bank guarantees executed by the appellant. There was an appeal before the Collector of Central Excise (Appeals). The Collector on 21st January, 1987 rejected the appeal and upheld the order of the Assistant Collector. The appellant filed an appeal before the Customs Excise and Gold (Control) Appellate Tribunal (hereinafter called CEGAT). CEGAT dismissed the appeal. Aggrieved thereby the appellant filed the appeal in this Court.

Reasoning: The appellants case was that these packings were also returnable and in many cases they were actually returned andby the appellant. There were no evidence about the durability of the cartons and gunny bags but nothing to show that these were returnable. The position seems to be as follows. The Tribunal has rightly applied the returnability test.The Tribunal was of the view that the above clause related to cases". It could have meant only the crates which belonged to the appellant and for which the customers had not paid anything. The property 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 normal course of business anyone could be asked to part with its property, and in addition incur return freight therefore too for nothing. In those circumstances, the Tribunal held that the cartons and gunny bags were not returnable in the accepted sense of the term. The Tribunal further noted that since the statute insisted on the packing being returnable, in addition to being durable, the authorities are bound to see whether the transaction fulfilled the tests of returnability as per the Supreme Court and High Court judgments.6. In that view of the matter, the Tribunal dismissed the appeal.7. As noted above, this Court has considered the meaning of the expression "returnable" in the Section in K. Kadha Krishnaiahs case (supra). 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 meaning and connotation of the word "returnable". Does it mean physically capable of being returned or does it postulate an arrangement under which the packing is return able. 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 i s 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 even t, the words "by the buyer to the assessee" need not have found a place in the section; they would be superfluous.In that view of the matter we are of the opinion that in the facts found and the expressions used in section 4(4)(d)(i) of t he Act which have been set out hereinbefore, there being no evidence of the agreement that the cartons and gunny bags w ere returnable, we are of the opinion that the Tribunal came to the correct conclusion.