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Issues: (i) Whether the cost of packing material supplied free of charge by customers was includible in the assessable value of the glass bottles. (ii) Whether duty demand and appropriation were sustainable where inputs were cleared without reversing Modvat credit already availed. (iii) Whether duty and penalty were sustainable on clearance of freshly manufactured bottles without payment of duty against duty-paid rejected bottles returned by customers, including invocation of the extended period.
Issue (i): Whether the cost of packing material supplied free of charge by customers was includible in the assessable value of the glass bottles.
Analysis: The packing material was supplied by the customers during the relevant period. The settled legal position is that where packing cost is incurred by the customer and not by the manufacturer, and the matter is covered by the governing valuation principle, the value of such packing material is not includible in assessable value.
Conclusion: The cost of packing material was not includible. This issue is decided in favour of the assessee and against the Revenue.
Issue (ii): Whether duty demand and appropriation were sustainable where inputs were cleared without reversing Modvat credit already availed.
Analysis: The appellant admitted the lapse and reversed the differential credit even before issuance of the show cause notice. The confirmed demand corresponded to the admitted short reversal and required no interference.
Conclusion: The demand and appropriation on this count were sustained. This issue is decided against the assessee and in favour of the Revenue.
Issue (iii): Whether duty and penalty were sustainable on clearance of freshly manufactured bottles without payment of duty against duty-paid rejected bottles returned by customers, including invocation of the extended period.
Analysis: Rule 173H permitted clearance of the same goods received back for reconditioning or remaking, but it did not permit clearance of freshly manufactured goods against returned duty-paid bottles. The facts showed suppression sufficient to justify the extended period, and the statutory consequences under the demand and penalty provisions followed.
Conclusion: The duty demand, invocation of the extended period, and penalty were sustained. This issue is decided against the assessee and in favour of the Revenue.
Final Conclusion: The appeal succeeded only on the valuation of free-supplied packing material, while the remaining demands and penalty were upheld.
Ratio Decidendi: Free-supplied packing material is not includible in assessable value, but Rule 173H does not authorize clearance of freshly manufactured goods against returned duty-paid goods, and suppression justifies extended limitation and penalty.
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