TaxTMI 
TaxTMI 
1986 (12) TMI 130
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Salt Act, 1944 lays down as under : "(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." There is no dispute between the appellants and the department that gunny bag was a durable packing since it was capable of being re-used. The dispute is on the point whether it was returnable by the buyer to the appellants. 4. The period to which the controversy before us relates is from 1-10-1975 to 8-1-1976. During this period, cement was a controlled commodity by virtue of the Cement Control Order, 1967 promulgated by the Central Government under Section 18G and Section 25 of the Industries (Development and Regulation) Act, 1951 for the declared "purpose of securing the equitable distribution and availability at fair prices of cement, the supply and distribution of, and trade and commerce in, cement." Clauses (4) and (8) of the Cement Control Order are relevant for our purpose. We reproduce them below :- "4. Power to direct sale or transport : The Ce....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... XXX XXX XXX The serviceable second hand jute bags may be collected by the Bag Collecting Agents of the respective cement factories (to be collected by them at the consumers' work site on 'Cash and Carry' basis) and the resale price for the period 9-11-1975 to 31-12-1975 is Rs. 92.54 (Rupees ninety two and paise fifty four) only per 100 bags. Sales Tax where leviable, extra. Yours faithfully, Sd/- (S.S. MIGLANI) ; Deputy Chief Cement Officer." 5.  In terms of the Cement Control Order, Release Orders were issued by Regional Cement Officer to various cement factories for supply of the stated quantity of cement to bulk consumers. The specimen copies of the Release Orders produced before us (which we admitted as additional evidence) show that they were all in a uniform format. On the reverse of the Release Orders, 9 serially numbered conditions were printed. Below condition No. 9, there was a boxed instruction in the following terms :- Please preserve empty cement bags in serviceable condition and return them to the factory of origin or its Collecting Agent on paymen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(4) "The 'practice of the factories to appoint collection agents for collection of bags is only a convenient mode of giving effect to the term that packing is returnable. It does not mean that the purchaser cannot otherwise return the packing if he so likes." Against the aforesaid judgment of the Madhya Pradesh High Court, the Union of India filed special Leave Petition before the Supreme Court (S.L.P. Civil No. 11044-45/80). The Special Leave Petition was dismissed by the Supreme Court on 30-7-1982. The Andhra Pradesh High Court and the Karnataka High Court noticed the aforesaid Madhya Pradesh High Court judgment and expressed their full agreement with it. 7.  Both sides stated before us that they were not aware of any appeal having been filed against the Andhra Pradesh and Karnataka High Court judgments. They also stated that on the specific issue of exclusion of cost of cement gunny bags from the assessable value there was no contrary High Court judgments. In the circumstances, we put it to the learned representative of the department as to why, in keeping with the practice of this Tribunal, the unanimous verdict of Madhya Pradesh, Andhra Pradesh and Karnataka High....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecord before us. The additional evidence available in the High Court case contained a note to the buyers to return the serviceable second hand gunny bags. It could thus be said in that case that return ability of the bags was a term of sale. No such inference could be drawn in the present appeals. Further, the Release Orders on record before us did not cover the entire quantity of cement cleared from the appellants' factory during the material period. (5)  The statutory scheme of the Cement Control Order left no area for bargaining on return ability of the bags and hence the returnability could not be considered a term of contract of sale [Reliance on AIR 1978 S.C. 449 - M/s. Vishnu Agencies (Pvt) Ltd. v. Commercial Tax Officer]. (6)  The conventional practice followed in the trade regarding returnable containers was that the seller took a security deposit from the buyer and paid it back to him on the buyer returning the container to the seller. The practice followed by the appellant cement factories was different. Theirs was an outright sale of the gunny bags along with the cement packed therein, followed by re-purchase of the cement serviceable bags on their retur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... must use serviceable second hand gunny bags to a specified extent. But no such direction appears to us to be necessary. Since serviceable second hand gunny bags are bound to be cheaper in price as compared to new bags, it is a matter of simple business commonsense that left to themselves the cement factories would like to use the maximum number of second hand serviceable bags which they could manage to collect. But since the controlled price of cement fixed the packing charges on the basis of 50% new and 50% old bags, the Cement Control Order deemed it necessary to put a ceiling on the use of old bags lest cement factories profiteer at the cost of the consumer. Lack of an express provision to use old bags in the Cement Control Order did not mean that Cement factories would not use old bags or would use them to an extent which is less than 50%. Nor did it mean that serviceable second hand bags became non-returnable thereby. No cement factory would think of using new bags wholly or in pre-dominant quantity and thereby lose money. This is so because the controlled price of cement did not compensate the factory for cost of new bags beyond 50%. 11.  We are not the right forum b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the buyer or by statute. In both cases, the term was equally binding. Obviously, there could not be any contract which was contrary to the statute. There is nothing in the judgment of the Gujarat and Bombay High Court which is contrary to the judgment of the Madhya Pradesh High Court. It is true, no doubt, that the Madhya Pradesh High Court had before it, in addition to Release Orders, certain invoices/challans and a circular letter to stockists issued by the cement factory of M/s. Birla Jute Manufacturing Company Limited. But we fail to see how we could come to a different conclusion on return-ability of cement bags just because the additional evidence of invoices etc. is not available to us. The Release Orders shown to us in themselves covered a substantial quantity of cement. All the Release Orders were in the same format and used the same language. There is no reason to think that the remaining Release Orders would not be in the same format and language. Further, for the sheer economics of working, which we have discussed in paragraph 10 above, it is inconceivable that there would be any cement factory which would not have made arrangements to collect and use at least 50% serv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....guments before us were concluded, a Supreme Court judgment on the meaning of 'returnable' in Section 4(4)(d)(i) has come to our notice [1987 (27) ELT 598 (S.C.) = 1986 (2) SCALE 880 (Nov 24-30) - K. Radha Krishnaiah v. Inspector of Central Excise Gooty and others]. The Supreme Court has held that "it cannot be said that the packing is returnable by the buyer to the assessee unless there is an arrangement between them that it shall be returned." As we see it, it confirms the judgment of Madhya Pradesh, Andhra Pradesh and Karnataka High Courts in regard to cement. In the light of this judgment and the judgments of the Madhya Pradesh, Andhra Pradesh, Gujarat and Bombay High Courts, it would be worthwhile summarising the norms relevant to returnability of durable containers. We list the norms as under :- (1)  Though the word 'returnable' used in Section 4(4)(d)(i) is distinguishable from 'returned', mere capability of being returned is not enough. Returnability should be a term of sale either by contract between the buyer and the seller or by statute. It cannot be said that the packing is returnable by the buyer to the assessee unless there is an arrangement between them that i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....price at which such goods are ordinarily sold" or in the alternative, "the price or the maximum price" fixed under any law for the time being in force. (b)  The "normal price" or "the price or the maximum price" fixed under a statute are not defined but in terms of S.2(10) of the Sale of Goods Act, 1930, it is the money consideration for a sale of goods. The "price" payable is, therefore, either in terms of the agreement to sell, express or implied, between the buyer and the seller (the assessee) or may be one that is ordained by statute. In the latter case, the agreement between the buyer and seller and the resultant sale are implied rather than express in terms of the compulsive sanction of the statute. [Please see the minority judgment of Hidayatullah J. in AIR 1963 S.C. 1207 - (M/s. New India Sugar Mills v. Commissioner of S.T.) - approved by a majority of six to one in 1978 (2) S.C.R. 433 - (Vishnu Agencies v. C.T.O.)]. Therefore, a transfer of property in goods ordained by statute at a specified price is no less a contract of sale and in terms of the second proviso to S.4, such price also is deemed to be the "normal price" which in turn is the assessable value. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....goods at the time and place of removal enunciated earlier would appear to have been ignored in providing the exception, just because the returnable packing, if and when returned, is capable of being used repeatedly at no extra cost every time there is a removal. Although an amendment was advised at the earliest to resolve the conflict in basic concepts, no appropriate amendment that could have pre-empted the deluge of litigation would appear to have been carried out. (f)  Be that as it may, in terms of the provision, unless the two aforesaid conditions are satisfied, the cost of packing is not to be excluded in the computation of the value of assessable goods. (g)  The delivery envisaged in the provision [S. 4(4)(d)], as already stated, may be pursuant to an agreement to sell between the parties or a statutory sale. Whichever it is, the provision can be understood to mean that, since there is an implied sale of and consequent change in title to and ownership in the packing material as well, the assessable value of the goods includes the cost of such packing material. Looked at in this light, where the packing is not charged extra and is durable and returnable (gas c....