The Hindu Business Line : Battle of the bottles

BOTTLES come in all shapes and sizes. And a few were even seen being tossed about in courtrooms recently. Take the case of Hindustan National Glass and Industries Ltd. It manufactured various types of glass bottles for milk, soft drinks, medicines, hair-oil, beer and so on. Manufacturers of consumer products use bottles for packing their goods, you know. But the dispute in this case was about the packing that Hindustan used for delivering the bottles.

The company said it delivered its bottles loose at the factory-gate, and it was therefore "the headache of the customers to provide any type of packing to ensure safe transportation of the goods". Yet, some buyers sent their own packing materials such as gunny bags, wooden cartons, cardboard boxes, and wooden crates, while some others preferred to reimburse the cost of such packing incurred by Hindustan on their behalf.

"Genie can't be pushed back into the bottle," said David N. Leff. Yet the Excise officials wanted to push packing cost into the bottle's assessable value. Aghast, Hindustan said that it charged and realised only ex-factory price. Some extra sums termed `initial packing' were, however, received for "the extra services rendered at the buyer's request by way of labour charges" and towards "stores material and other related expenditure such as cost of pins, gum type, coir string" and so on.

Hindustan said that even where it provided packing materials at the behest of the buyer, the same were invariably durable and returnable, and so non-includible in assessable value.

Jonathan Swift said, "A tavern is a place where madness is sold by the bottle." But litigation is often a madness of moves and countermoves. In this case, the Department issued 111 show-cause notices and demanded a duty of Rs 2.14 crore. The company filed 108 appeals before the Tribunal and sought to find if packing expenses were required to be added in the assessable value; and also protested that 24 show-cause notices were barred by limitation. "Though the authorities accepted the factum of return of packing material, they ignored the same on the ground that the number was very small." Majority ruling by the Tribunal was that packing material cost was not to be included in the assessable value, though `initial packing charges' was includible.

For the Department, A. Subba Rao argued that the Tribunal's decision ran counter to the clear language of Section 4(4)(d)(i): that `value', in relation to any excisable goods, 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. And the explanation to the section defined `packing' as wrapper, container, bobbin, pirn, spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound.

It is not a requirement in law that the goods at the factory gate should be of marketable stage, said Rao, representing the Department. But S. Ganesh, arguing for Hindustan, said that the crucial expression used in Section 4(4)(d)(i) is `returnable' and not `returned'.

Justices Ruma Pal, Arijit Pasayat and C.K. Thakker of the apex court looked at a few earlier cases on the topic. Such as, the Hindustan Safety Glass Works Ltd case, in which it was held that the cost of packing is to be included in working out the value of goods, unless the packing is of a durable nature and is returnable by the buyer to the assessee. And also that the words `wrapper' and `container' are wide enough to include all types of wrappers and containers.

Another case was that of Bombay Tyre International Ltd where the court laid down a test: that it is only the cost of packing ordinarily required for selling the goods in the course of wholesale trade which would be includible and not the cost of any additional or special packing. Yet another case was of Madras Rubber Factory, where it was emphasised that whether packing was to be included or not is always a question of fact to be decided having regard to the facts and circumstances of a given case.

A recently decided case was of Triveni Glass Ltd, which had followed the verdict of Mahalakshmi Glass Works P Ltd, pointed out the apex court. There, it was held that the question whether the packing was actually returned had no relevance; "there must be an arrangement between the buyer and the assessee that the packing be returned to the assessee"

Thus, the decision went in favour of Hindustan. "A sweetheart is a bottle of wine, a wife is a wine bottle," said Charles Baudelaire. Stretching the bottle analogy for the frustrated taxman, we can similarly explain the difference between a case won and one lost.

Tailpiece

"FM proposes, common man disposes!"

"No, FM imposes, common man opposes!"

Detaxification@TheHindu.co.in

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