Full Judgment
2. Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944 allows exclusion of cost of packing from the assessable value of goods if the packing is of a durable nature and is returnable by the buyer to the assessee. The respondents manufactured liquid glucose and cleared it in drums. In about 70% cases, the drums were returned to them by their customers and in such cases the department has allowed them exclusion of the cost of drums from the assessable 'value of liquid glucose.
Through the present appeals, the department seeks to disallow such exclusion in the remaining cases on the ground that "returnable" means "ordinarily/ generally returned" and since the drums were not actually returned to the respondents, they could not be considered as returnable.
3. As to what is the meaning of the word "returnable", has been the subject matter of a larger Bench decision of this Tribunal in the case of Associated Cement Companies Ltd. and Ors., 1987 (27) ELT 746, [Appeals ED(SB)(T) No. 266/1977-A, 253/78-A, 1432-33/1984-A, 326/ '979-A, 1008/1980-A, 263/1980-A and 111/1985-A; Orders No. 917 to 924/1986-A]. After considering the judgments of the Supreme Court and various High Courts on the point, the larger Bench has summarised the conclusions in paragraph 18 of the aforesaid order. We reproduce this paragraph :- "After the arguments before us were concluded, a Supreme Court judgment on the meaning of 'returnable' in Section 4(4)(d)(i) has come to our notice 1986 (2) SCALE 880 (Nov. 24-30) - K. Radha Krishnaiah v. Inspector of Central Excise Gooty and Ors.]. The Supreme Court has held that "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". As we see it, it confirms the judgment of Madhya Pradesh, Andhra Pradesh and Karnataka High Courts in regard to cement. In the light of this judgment and the judgments of the Madhya Pradesh, Andhra Pradesh, Gujarat and Bombay High Courts, it would be worthwhile summarising the norms relevant to return-ability of durable containers. We list the norms as under :- (1) Though 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 unless there is an arrangement between them that it shall be returned.
(2) Actual return is not relevant. What is necessary is that if the buyer choses to return the packing, the seller should be obliged to accept it and refund the stipulated amount.
(4) The mode of return is a matter of mutual convenience, whether the packing is returned direct to the seller or through his collection agent makes no difference.
The cases of cement gunny bags during the material period before us satisfy the above norms of returnability. We, therefore, hold that their cost was not includible in the assessable value of cement".
4. There is no finding of the Assistant Collector, nor any pleading in the department's appeal, that there was no contract/agreement/arrangement between the respondents and their customers for return of the drums. on the contrary, from the fact that in about 70% cases, where drums were actually returned, the department allowed the exclusion, it is quite evident that the department was satisfied as to the existence of such contract/agreement/arrangement.
This conclusion is also supported by endorsement of the remark "returnable drums" on the Central Excise Gate Passes covering the clearances in question. The only objection of the department for disallowing the exclusion in the remaining cases is that the drums were not actually returned. The conclusion based on the Supreme Court and High Courts judgments and summarised in the larger Bench order aforesaid would show that actual return of the containers is' not relevant nor is the extent of their return. In the circumstances, the department's pleading is not sustainable in law.