TaxTMI 
TaxTMI 
1992 (10) TMI 161
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Collector confirmed the Order of Assistant Collector. The Collector held that :- "The appellants do not sell the cement without packing. So, packing is essential before the cement can be sold to the various customers. Therefore, the cost of packing is a part and parcel of the manufacturing cost in respect of the cement. It might be true that the appellants are collecting old gunny bags on payment of some price. This does not mean that the gunny bags which were used for packing of the cement at the time of removal from the appellants' factory are returned to the appellants' factory. It has been contended that the consumer of cement has to pay, at the time of buying the cement, the price inclusive of the cost of the gunny bags. Later on, if the consumer wants to come and sell the empty gunny bags to their collecting agent, he will get some payment for the empty gunny bags. This mode of arrangement is entirely different from what Section 4 of the Central Excises & Salt Act, 1944 envisages. The consumer just sells empty gunny bags to so-called collecting agents. This in no way means that the gunny bags used in packing of the cement by the appellants are returned to them. The variou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e earlier Order requires re-consideration. Hence the Reference before us. 5. Shri S. Ganesh, learned advocate appearing for the appellants raised 3 main contentions :- (1) He submitted that though the earlier Order has mainly considered whether it is necessary to pack the cement in gunny bags to make them marketable in view of the alternative question considered and decided against the appellant namely the gunny bags are not returnable and therefore, the packing of cement is includible by the Collector, it may not be necessary to go into the question whether packing is necessary to make the cement marketable; (2) In the alternative, he submitted that the earlier Order of this Tribunal covers the issue and in view of the judgment of the Supreme Court in Radhaswami Satsang v. Commissioner of I.T. [1992 (193) ITR Page 321], it would not be appropriate to allow the position changed in respect of the same commodity for determining the assessable value; (3) The other contention raised by Shri Ganesh is that under the Cement Control Order ex-factory price is fixed. Therefore, in view of the judgment of the Supreme Court in Indian Oxygen it is ex-factory price of cement i.e. relevant fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the observations made by the Supreme Court in Bombay Tyres International relating to secondary packing are not applicable as gunny bags are in the nature of primary packing. He also submitted that there is no sale at the factory gate and that there is not a single sale without gunny bag. Therefore, the ratio of the judgment of the Supreme Court in Ponds India is applicable. He further pointed out that the judgment of the Supreme Court in Ponds India being latter in time it should be followed. The fact that the same material is sold by different manufacturers without packing is not relevant in determining whether the cost of packing is includible in the assessable value as the appellant is in fact selling the same in gunny bags. Packing, according to him, in industry is not relevant in deciding the assessable value. Each case is to be determined on the facts of the case. The necessity of packing cannot be decided on the basis of commodity though it may be relevant to some extent. He submitted that the judgment of Indian Oxygen is not relevant as it is given in a different context. The general pattern of sale for one year and 3 months is in gunny bags at the factory gate. Therefore....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see unless there is an arrangement between them that it shall be returned." 10A. In other words, there should be an arrangement between the assessee and the customer for the return of the durable container. 10B. We may also refer to the Order of this Tribunal in Associated Cement Company v. Collector (supra), where this Tribunal had an occasion to consider the returnability of gunny bags under the Cement Control Order of the 1967. We may examine the case in detail as it is under the Cement Control Order and the Tribunal considered the judgment of the Madhya Pradesh High Court in Birla Jute Mfg. Company, and Kesho Ram Cement and Baghalkot Udyog Ltd. 10C. Under the Cement Control Order, the price of the cement was fixed under Clause 4 and 8. In pursuance of the said Order releasing orders were issued releasing the cement to the suppliers. Relevant clauses are extracted below :- "4. Power to direct sale or transport : The Central Government may, by order, require any producer to sell cement to such person or class of persons or to transport cement to such destinations by such modes of transport, and on such terms and conditions, as may be specified in the order." "8.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (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 payment. On consideration of Clauses 4 and 8 of the Cement Control Order of the 1967 and the circular issued by the Ministry of Industry and the release orders, it was held :- "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 u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court that under the Cement Control Order and the Releasing Order under the said Order, there is an arrangement for return of the gunny bags and that the said arrangement is covered by statutory orders. Since there is an arrangement for return of the packing the principle laid down by the Supreme Court in K. Radha Krishaiah (supra) and the conditions laid down in Section 4(4)(d)(i) are satisfied. Therefore, the cost of gunny bags is not includible in the assessable value of the cement. 14. Let us examine the facts of this case. It is not disputed that the cement is controlled commodity and the sale of which is governed by Cement Control Order. Under Clause 3 of the Cement Control Order, 1967 prohibits the removal of the cement and the relevant clause reads as follows :- "Power to prohibit removal No producer shall remove or permit the removal of any cement, whether sold or unsold, from the precincts or premises of his factory or from any part of such precincts or premises to any place; (i) Within the precincts or premises of such factory for use as such or for the manufacture of any article; or (ii) Outside the precincts or premises of such factory, except with the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for the purpose of supply to the customers. There is an endorsement on the back of the Releasing Order which reads as follows :- "Please reserve empty cement bags in serviceable condition and return them to the factory or its collecting agent on payment." The Ministry also issued instructions fixing the charges for packing on Metric Tonne of cement in 20 new as well as serviceable second-hand heavy cess cement bags in the ratio of 90% and 10% for period commencing 1st July, 1982 to 30th Sep., 1982 from Rs. 66.96 only for 8 x 9 construction weight 515 GMS and Rs. 71.10 only for 8 x 10 construction weight 538 GMS only KML the re-sale price of serviceable second-hand jute bags for the above period is Rs. 134.18 only per 100 bags. The appellant brought to our notice the number of collecting agents appointed for the purpose of collecting the serviceable cement bags. We found from the documents that Joshi Agencies are bag collecting agencies of M/s. Orissa Cement Ltd., Rajgangpur. The receipt dated 27-7-1982 states that they have deposited towards the cost of serviceable empty cement gunny bags out of M/s. Orissa Cement Ltd. advance with them. The receipt also indicates the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry price of levy cement as well as non-levy cement is determined under the Cement Control Order. Therefore, in view of the judgment of the Supreme Court in Collector of Central Excise v. Indian Oxygen [1988 (36) E.L.T. 723 (S.C.)], it should be ex-factory price which is determined for assessable value. Secondly, the value of gunny bag is not includible. 17. It is true that under Clause 9 of the Cement Control Order, ex-factory price of levy cement was fixed and it does not include the cost of packing. In view of the Clause 9(IV) which says that in the case of packed cement, the charges fixed by the Central Government in respect of packing under the first provision to Clause 8 and where a producer uses second-hand jute bags in excess of the limit, if any, specified under the second provision to that clause such charges as proportionately reduced. Under Clause 8, the price of free cement is fixed. The price fixed both under Clauses 8 and 9 does not include the cost of gunny bags. Therefore, in terms of judgment of the Supreme Court in Indian Oxygen it is the ex-factory price which should be the assessable value. 18. We may, in this context, refer to the proviso (ii) to Section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which maintains the nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy (Bombay Tyres International). The measure of levy under Section 4 is the "value". The expression 'value' has been defined and extended to include the cost of packing. The packing itself is not the subject of levy of excise duty. The manufacture of cement is the subject of levy. For the purpose of computing the measure of levy, Parliament has given an extended meaning to the expression "value" by including the cost of packing. Therefore, the extension must be construed strictly. 22. Since "cost of packing" is included in the measure of levy and since the levy of duty is on cement and since the levy is sought to be extended beyond the manufactured article the statutory provision requires to be construed strictly, the Supreme Court restricted the inclusion of cost of packing only to that degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate, (Bombay Tyres International). 23. The decision in Bombay Tyres International was follow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me of removal without being put in drums and delivery in drums was only to facilitate their transport in small quantities. Shri Sabyasachi Mukharjee, J. held that the manufacture of goods was complete before the goods were placed in drums. He also held that the goods were not sold in drums generally, in the course of wholesale trade and, therefore, cost of drums is not includible in the assessable value. 28. Shri S. Ranganathan, J. while agreeing with the conclusion arrived at by Shri Mukharjee, J. rested his conclusion on the language of Section 4(4)(d)(i). According to him, it would be anomalous if the cost of packing charges from the customer is to be excluded from the assessable value where the packing though durable is returnable to the manufacturer but the cost of an item of durable packing supplied by the customer and taken back by him is liable to be included in the assessable value. 29. The next decision to be considered is judgment in Collector of Central Excise v. Ponds India Ltd. -1989 (44) E.L.T. 185 (S.C). It is not necessary to refer the facts in extenso. The Court while reiterating the test laid down by the Supreme Court in Bombay Tyres International, observed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctory gate. The said principle was followed in Godfrey Philips and also in Hindustan Polymers (supra) and Ponds India (supra). 33. This Tribunal followed the said principle in Hindustan Lever. 34. In Hindustan Polymers the Court found that 90% of the fosil was sold in bulk. Since 90% of the fusil oil was sold in bulk, it was held by the Supreme Court that in respect of 10% of the fusil oil, which is sold in containers brought by the customers, the packing is not necessary. In other words, packing is not necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate. They have taken into account the general condition in which the commodity is sold. 34A. Now let us examine in the light of the above whether the Order No. 111 to 119/90-A, dated 14-2-1990 requires re-consideration. 34B. In the Order referred to above on examination of the material before it, this Tribunal gave a finding that the special cement is sold actually in bulk. Therefore, the cost of packing is not necessary. In other words, on facts, it was found that the special cement is generally sold in the wholesale market in bulk at the fa....