Supreme Court Allows Appellant in Central Excise Valuation Dispute Regarding Service Charges on Returnable Bottles. Service Charges for Sorting and Cleaning Durable Returnable Bottles Constitute Packing Cost, Excludable from Assessable Value Under Section 4(4)(d)(i) of Central Excise Act, 1994, Not Manufacturing Cost.

Case Note & Summary

The dispute pertained to the valuation of aerated water for central excise duty under the Central Excise Act, 1994. The appellant, M/s Vijayawada Bottling Co. Ltd., manufactured MAAZA MANGO, a mango drink, falling under Tariff Item 1-B of the erstwhile First Schedule to the Act. The appellant filed a price list in August 1984 showing the price as Rs.32 per crate of 24 bottles, with a note that Rs.2.50 per crate towards rental and Rs.3.00 per crate towards service charges were not included in the price. The Assistant Collector of Central Excise issued a show cause notice dated August 17, 1984, seeking to include those amounts in the assessable value. After the appellant's reply, the Assistant Collector by order dated November 30, 1984 included both rental and service charges in the assessable value. The Collector of Central Excise (Appeals) dismissed the appeal on April 26, 1986. Before the Customs Excise and Gold (Control) Appellate Tribunal, a two-member bench held that rental charges were includable based on Indian Oxygen Limited, but differed on service charges. The Judicial Member held service charges related to unloading, sorting, separating broken bottles, and were in the nature of packing cost for durable and returnable containers, therefore excludable under Section 4(4)(d). The Technical Member held preparatory operations to ensure bottles fit for bottling were part of manufacturing and includable. The third member agreed with the Technical Member, and the majority held service charges includable. The Tribunal dismissed the appeal on service charges but allowed it on rental charges, remanding for verification. The appellant appealed to the Supreme Court only against inclusion of service charges. The core legal issue was whether service charges for sorting, cleaning, and preparing durable returnable bottles for reuse are includable in the assessable value under Section 4(4)(d)(i) of the Act. The appellant argued that these charges relate to packing of durable returnable containers and must be excluded. The revenue argued that preparatory operations for bottling form part of manufacturing. The Supreme Court examined Section 4(4)(d)(i), which includes cost of packing except durable and returnable containers. The Court noted that the bottles were undisputedly durable and returnable. The activities for which service charges were claimed—unloading empty bottles outside the factory, sorting brandwise, examining defects, chemical cleaning, loading into trolleys, conveying to washing plant, and examining after washing—were all directed at preparing previously used bottles for reuse in bottling aerated water. Since aerated water must be supplied in packed bottles, these activities related to packing after manufacture and not to the manufacturing process of aerated water. The Court relied on the decision in Collector of Central Excise v. Century Spg. and Mfg. Co. Ltd., where maintenance and repair charges for durable returnable containers used for chlorine gas were held excludable from assessable value. The Court held that the position was not different and set aside the Tribunal's majority view that service charges were includable. The appeal was allowed; the impugned Tribunal order including service charges was set aside; the Assistant Collector was directed to verify actual service charges and re-determine the assessable value after excluding them, along with verification of rental charges already remanded; the appellant was to furnish necessary material; no costs.

Headnote

Issue of Consideration

Final Decision

Appeal allowed; impugned Tribunal judgment holding service charges at Rs.3.00 per crate includable in assessable value set aside; Assistant Collector directed to verify actual service charges and re-determine assessable value after excluding them; appellant to furnish material; no order as to costs.

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