By TIOL News Service

NEW DELHI, AUG 07, 2015: THE question involved in this complicated case is rather simple, that is whether the cost of gunny bags used for packing soda should be excluded in arriving at the assessable value. The assessee's contention that the gunny bags were returned was not accepted by the Tribunal.

Dispute with regard to these gunny bags between the assessee and revenue have arisen for the period from 1970 to 1985 and are at different stages of adjudication. The present case pertains to the period 1981-1985. The previous period litigation had once reached the Supreme Court and is back in the field.

The present batch of appeals was listed before a three-Judge Bench of the Supreme Court, which referred it to the Constitution Bench. The Constitution Bench held that the case can be heard by a Division Bench and so it is now with the Division Bench.

Even in the Division Bench now, there is difference of opinion between the two judges.

Per: Justice Dipak Misra:

The tribunal, as is noticeable, has held that there has been no arrangement between the manufacturer and their customers to return the durable packing and, therefore, the claim put forth by the assessee that the value of gunny bags used for packing soda ash manufactured by them should be excluded in finding out the assessable value is untenable.

Be it clarified, an arrangement need not be in a particular form, it can be oral or in writing by way of an agreement or can be ascertained from communication or letters exchanged. When oral it has to be proved and established and when in writing it should be genuine and not a camouflage, but an arrangement cannot be ignored and treated as non est because it is by means of written communications.

In Hindustan Polymers, it has been clearly held that when an arrangement per se exists for return of durable packaging by the buyer to the manufacturer, then whether or not the packaging was in fact returned would be inconsequential. More importantly, it was held therein that if the durable packaging was supplied by the buyer to the assessee and was returnable to the buyer, the cost of durable packaging would not form a part of the assessable value.

He held: I arrive at the irresistible conclusion that the letters spell out an arrangement between the assessee and the buyers. The tribunal has not accepted the stand of the appellant on the ground that it is not an arrangement and on that basis has remanded the matter to the adjudicating authority for computation of the actual amount of duty payable by the appellant. Once I accept that it has the nature and character of an arrangement, then the authority is required to ascertain from the record whether the buyers continued to have a choice to return the packing material for reuse. I need not indicate the method of verification of the existence of the arrangement for the period in question. Once the existence arrangement and choice to return the packing material for reuse are established for the period in question in view of the second decision in Triveni Glass Limited (supra), the packing cost would not be included. If the assessee succeeds in establishing the choice mentioned in the documents which I have accepted to be an arrangement, and is prevalent during the relevant period i.e. 1981 to 1985, the appellant shall be given the benefit.

Resultantly, the appeals are allowed and the orders passed by the forums below are set aside and the matter is remanded to the adjudicating authority for adjudication.

Per: Justice Gopala Gowda: the burden to prove that the value of the gunny bags is not inclusive and not excisable with the value of the soda ash, lies on the appellant and it has miserably failed to do so as is clear from the facts and circumstances of the case that the soda ash are sold in bulk in the gunny bags at the factory gate to the wholesale market and such packing is indispensible for the transport and preservation of soda ash.

The appellant has also failed to establish an arrangement as per Section 4(4)(d)(i) of the Act. Mere suggestion of the same in the letters, regarding the return of used gunny bags to the appellants by the buyers does not establish the terms and conditions that are prerequisites for establishing an arrangement of return of the gunny bags to the appellant. Further, the letters also suggest that the buyers send their own packing materials for the soda ash for which no extra charges are incurred on them.

In the present case, the appellant has failed to establish any arrangement between itself and the buyers regarding the returnability of the used gunny bags. Therefore, the appellant is hereby directed to pay the total amount of the gunny bags which are excisable under the Act.

Therefore, the claim of the appellant cannot be sustained in the light of the provisions of the Act and the laws laid down by this Court in a catena of cases, as the same is marred by lack of proper and independent evidence.

He Held: Therefore, the tribunal has rightly rejected the claim of the appellant so far as the exclusion of the cost of packing material with the value of soda ash is concerned and hence, it is liable to pay the tax liability for the same in the light of the findings and observations made in this judgment. The appeals are dismissed.

Now, the judgement does not mention whether the matter is referred to a Larger Bench or not.

(See 2015-TIOL-177-SC-CX)