Packing of glass and glassware excluded from manufacture; packing costs not includible in assessable value, limited refunds ordered

Packing of glass and glassware does not constitute a process incidental or ancillary to completion of manufacture because it does not alter or transform the product; conclusion in favour of assessee. Consequently, costs of packing and packing materials are not includible in the assessable value/wholesale cash price under Section 4 absent statutory provision; conclusion in favour of assessee. Amounts collected by the State as duty on packing are unlawful, but restitution is refused for sums the claimants passed on to customers for the period 196218 December 1972, while refunds are directed for amounts recovered thereafter; conclusion partly in favour of assessee.

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Issues: (i) Whether packing of glass and glassware is a process incidental or ancillary to completion of manufacture; (ii) Whether cost of packing and packing materials can be included in the assessable value/wholesale cash price under Section 4 of the Central Excises and Salt Act, 1944; (iii) Whether petitioners are entitled to refund of excise duty recovered on packing charges and materials collected without legal authority and, if so, for which period; (iv) Whether the Court should exercise its discretion to refuse restitution where the petitioners passed on the packing charges to their customers.

Issue (i): Whether packing of glass and glassware is a process incidental or ancillary to completion of manufacture.

Analysis: The Court examined the nature of manufacture under Section 2(f) and authorities establishing that an incidental or ancillary process must directly affect or change the product itself. The Court compared the present facts with prior decisions (including the Division Bench decision in First Appeal No. 257 of 1972) and found that packing does not alter or transform glassware; packing is performed for protection, transport or at buyer's instance and does not have a direct relation to the manufacture of the product.

Conclusion: Packing of glass and glassware is not a process incidental or ancillary to the completion of manufacture. Conclusion in favour of Assessee.

Issue (ii): Whether the cost of packing and packing materials can be included in the assessable value/wholesale cash price under Section 4 of the Act.

Analysis: Applying the statutory scheme of Section 4 and the construction of entries in the First Schedule (Item 23A for glass and glassware), the Court held that marketing, delivery or transport requirements do not determine assessable value. In absence of specific statutory provision, costs of packing done for protection/transport or at buyer's direction are not part of wholesale cash price or assessable value. The Court relied on prior Division Bench authority rejecting inclusion of container/packing costs where manufacture is complete prior to packing.

Conclusion: Cost of packing and packing materials cannot be included in the value of excisable glass and glassware for levy of excise duty. Conclusion in favour of Assessee.

Issue (iii): Whether petitioners are entitled to refund of amounts collected by respondents as excise duty on packing charges and materials collected without authority of law, and the period for which refund is available.

Analysis: The Court held that amounts collected by the State without legal authority are not lawful excise duty. It examined the claim for refund, the Contract Act provision referenced (Section 72), and factual evidence that petitioners had recovered the packing charges from their customers. The Court observed that while illegally collected moneys are not due to the State, equitable considerations apply where petitioners never bore the economic burden because they passed the charges to customers. The Court distinguished the period from 18th December, 1972 and afterwards from the earlier period, noting that a refund for sums collected after the specified date was to be made, but declined to order restitution for the period from 1962 to 18th December, 1972 because justice did not require transfer of funds from respondents to petitioners who had themselves collected those amounts from customers.

Conclusion: Petitioners are not entitled to refund for amounts collected during 1962 to 18th December, 1972. The Court indicated relief for amounts from 18th December, 1972 onward (i.e., refund to petitioners for that later period). Conclusion partly in favour of Assessee.

Issue (iv): Whether the Court should exercise its discretion to refuse restitution where the petitioners passed on the packing charges to their customers.

Analysis: Considering equitable principles and the facts that petitioners charged and recovered the impugned sums from their customers (so petitioners were not out-of-pocket), the Court held that ordering refund to petitioners would unjustly enrich them. The Court therefore exercised its discretion to deny restitution for the earlier period despite the illegality of the respondents' collection.

Conclusion: The Court exercised its discretion against granting restitution to petitioners for the period 1962 to 18th December, 1972. Conclusion against Assessee on that discrete relief.

Final Conclusion: The Court concluded that packing of glassware is not part of manufacture and packing costs cannot be included in assessable value under Section 4; the impugned assessments/orders charging duty on packing are quashed; however, equitable discretion precludes refund to the petitioners of amounts recovered from 1962 to 18th December, 1972, while amounts from 18th December, 1972 onward are to be refunded as indicated by the Court.

Ratio Decidendi: In the absence of a statutory provision to the contrary, costs of packing and packing materials that do not effect any change in the excisable product and are incurred for protection, transport or at buyer's direction are not includible in the assessable value under Section 4 of the Central Excises and Salt Act, 1944; equitable restitution may be refused where the claimant has passed on the impugned levy to customers, to avoid unjust enrichment.

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