Ajit Glass Works Pvt. Ltd. and another vs Union of India and others

Bharucha, J.—The appeal assails the judgment and order of the learned Single Judge dismissing the appellants'' writ petition with no order as to costs.

The 1st appellate is a private limited company which manufactures glass bottles and other glass articles. The 2nd appellant is a director thereof. The price list filed by the 1st appellant with the Excise authorities for the period effective from 1st October, 1974 was approved. In the price so shown the cost of wooden cases, in which the appellant''s glass bottles were packed, were not shown because the wooden cases were stated to be durable and returnable. In checking the invoices, however, the Excise authorities noted that the 1st appellant was recovering from the purchasers of its bottles amounts as packing charges which were equal to 1/3rd the total cost of the wooden cases because the wooden cases were used for the purposes of packing glass bottles twice or thrice.

On 10th September, 1976 the 1st appellant was issued with a show cause notice for the period October 1975 to March 1977. It asked that the cause should be shown why excise duty, as therein stated, should not be recovered from the 1st appellant. It stated that since the cost of the wooden cases was charged to the buyers, the wooden cases could not be said to be returnable and their value was includible in the assessable value of the bottles. Upon this ground, the Assistant Collector of Central Excise, after hearing the appellants, confirmed the demand made in the show cause notice. An appeal therefrom was rejected by the Appellate Collector of Central Excise on the same ground.

On 27th January, 1977 the 1st appellate was issued with a show cause notice for the period April 1976 to September 1976 upon the identical ground. The demand in this show cause notice was confirmed and the appeal therefrom was dismissed.

The 1st appellate filed revision applications to the Government of India which were disposed of by a common order dated 26th December, 1979. The revisional authority held that the reason for rejection given by the authorities below, namely, the recovery of the costs of the wooden cases on an instalment basis, was not sustainable. However, the revisional authority upheld the demands made in the show cause notices on the grounds that (1) The term "durability" which was a relative term could not be applied to "the type of ordinary cases under consideration". (2) The mere fact that the 1st appellant charged on a reduced basis for the wooden cases did not establish their returnability in the absence of any contractual obligation that the same packing cases as supplied by the 1st appellant be returned. In this context, the revisional authority noted the 1st appellant''s letter dated 31st October, 1979 which it read as an admission by the 1st appellant to the effect that there was no contractual obligation on the part of its customers to return the wooden cases. (3) No speciality attached to an ordinary wooden case and it was conceivable that the 1st appellant''s customers could send any wooden cases to the 1st appellant for lifting their goods and the 1st appellant "in turn may be given them the benefit of reduced charge for the containers, particularly by way of an incentive for attracting business".

The appellants preferred the writ petition to impugn the orders of the various authorities. The learned Single Judge relied upon the judgment of a Division Bench of this court in writ Petition No. 1384 of 1983, Sathe Biscuits and Chocolate Company Ltd. and another Vs. Union of India and others, wherein it was held "that the cost of only such packing which is of a durable nature and is returnable under the terms of the contract between the manufacturer and the wholesaler is excludible from the value for the purposes of excise duty". The learned judge noted the 1st appellant''s letter dated 31st October, 1979 and found it to be an admission that there was no contract between the manufacturer and the wholesaler in the matter of return of packing material. The learned judge rejected the submission that there was such an implied contract "on the materials existing". The learned judge also said that, "to claim the requisite deduction it was incumbent upon the company to satisfy the authorities below that not only the packing was durable but also that the same returnable as a matter of contract between the manufacturer and the wholesaler with legal obligation on the manufacturer to accept the return. Not only has the company failed to do so but has, on the contrary, categorically admitted in its letter of 31st of October, 1979 that there was no such contract. It is also well to remember that it is not an appeal on facts and evidence but a writ petition which this court is hearing". Accordingly, the learned judge dismissed the writ petition.

It would appear that it was not pointed out to the learned judge that the only ground taken in the show cause notices was in terms rejected by the revisional authority. The revisional authority proceeded upon basis which had not found place in the show cause notice. No opportunity was, therefore, given to the appellants to produce before the authorities material to show that the wooden cases were durable and that there was an implied contract or arrangement between the 1st appellant and its customers which required the return of the wooden cases. To hold in this situation that the appellants had failed to satisfy the authorities that the packing was not durable or returnable does not seem to be justified.

Our attention was drawn by Mr. Taraporwalla, learned counsel for the appellants, to the judgment of the Supreme Court in K. Radha Krishnaiah Vs. Inspector of Central Excise and Others, , where, in regard to the returnability of packing material for the purposes of Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944, this test was formulated : "The question which has to be asked in each case is : Is the packing in this case returnable by the buyer to the assessee and obviously 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". The emphasis, therefore, is on an arrangement or what may be said to an implied agreement between the manufacturer and the wholesaler. What the 1st appellant said in the letter dated 31st October, 1979, upon which both the revisional authority and the learned single judge placed emphasis, was that the "return of wooden cases/boxes was not formally mentioned in the contract of agreement between us and our customers". A formal contract or agreement is not necessary and, apart from the judgment of the Supreme Court to which we have just made a reference, even the judgment of the Division Bench of this court in the case of Sathe Biscuits and Chocolate Co. Ltd. does not suggest that only a formal contract will do.

Having regard to the fact that the appellants had no opportunity to show that the wooden cases were both durable and returnable, the judgment of the learned Single Judge must be set aside.

The appeal is allowed. The petition is made absolute in terms of prayers (a) and (b). The Excise authorities shall forthwith issue to the appellants a fresh show cause notice for the period October 1975 to September 1976 and shall set out therein the grounds for the demand raised thereby, which shall not exceed the aggregate of the demands in the show cause notices aforementioned. The order thereon shall be passed by the appropriate authority within 12 weeks from today. The appropriate authority shall pass the order after giving to the appellants an opportunity to meet the allegations in the show cause notice, inter alia, by production of evidence. The order shall be passed after considering the evidence, if any, and the contentions of the appellants. The appropriate authority shall consider whether the wooden cases are retunable applying the test laid down by the Supreme Court in the judgment aforementioned.

The appellants have deposited a sum of Rs. 30,000/- in this court to the credit of this appeal pursuant to an interim order therein. The respondents have not withdrawn any part thereof. For the period of 12 weeks the amount and interest, if any, accrued thereon, shall continue to remain deposited in court. Then, in the event that the appropriate authority confirms the demand for the full amount or part thereof, the respondents shall be at liberty to withdraw from the court the amount so confirmed. The balance amount may be withdrawn by the appellants.

No order as to costs.