Court rules cost of packing materials cannot be included in assessable value under Central Excises and Salt Act

The court held that the definition of "value" under Section 4(4)(d) of the Central Excises and Salt Act, 1944, does not empower Parliament to include the cost of packing materials in the assessable value of excisable goods. It was deemed beyond legislative competence and violative of the Constitution. The court directed the respondents to refund the excess duty collected from the petitioner, reimburse costs incurred, and pay interest on the refundable amount. The rule was made absolute in favor of the petitioner.

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Issues Involved:
1. Legislative competence of Parliament to define "value" u/s 4(4)(d) of the Central Excises and Salt Act, 1944.
2. Legality of collecting excise duty on the basis of this definition under Article 265 and Article 31 of the Constitution.

Summary:

Issue 1: Legislative Competence of Parliament to Define "Value" u/s 4(4)(d)
The petitioner, Alembic Glass Industries Limited, contended that the definition of "value" in Section 4(4)(d) of the Central Excises and Salt Act, 1944, which includes the cost of packing materials, is beyond the legislative competence of Parliament under Article 246 of the Constitution read with Entry 84 in the Union List. The court analyzed the definition and noted that it excludes the cost of durable and returnable packing materials from the value of excisable goods. The court further examined different scenarios of packing material procurement and concluded that the cost of packing materials supplied by the buyer or purchased by the manufacturer from the market cannot be included in the assessable value of excisable goods. The court held that such a levy would fall under Entry 54 in the State List, making it beyond Parliament's legislative competence.

Issue 2: Legality of Collecting Excise Duty on the Basis of This Definition
The petitioner argued that collecting excise duty on the composite price of excisable goods and packing materials is without authority and violates Article 265 and Article 31 of the Constitution. The court referred to the decision of the High Court of Bombay in Ogale Glass Works v. Union of India, which held that the cost of packing materials could not be included in the assessable value of excisable goods. The court concurred with this view, stating that packing materials supplied by the buyer or purchased by the manufacturer are not part of the manufacturing process and thus cannot be subjected to excise duty. The court emphasized that excise duty can only be levied on the manufacturing costs and profits of excisable goods, not on post-manufacturing operations like packing.

Conclusion:
The court concluded that the definition of "value" in Section 4(4)(d) of the Central Excises and Salt Act, 1944, does not apply to cases where the buyer supplies the packing material or the manufacturer purchases it from the market. The court directed the respondents to account for the excess duty recovered from the petitioner from October 1, 1975, and refund the undisputed amount. The court also ordered the respondents to pay the costs incurred by the petitioner for furnishing the Bank Guarantee and interest on the refundable amount at the rate of six percent per annum from the date of the petition until payment.

Order:
Rule made absolute to the extent specified. Respondents to pay costs to the petitioner and refund the excess duty with interest.

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