1. Alembic Glass Industries Limited is the petitioner. The petitioner ismanufacturing glass and glassware which fall under Tariff Item No. 23A inthe First Schedule to the Central Exicses and Salt Act. 1944. Thepetitioner has got a factory at Baroda in the State of Gujarat. Theglass and glassware produced by the petitioner company are purchased bywholesale buyers. Anyone can buy the petitioner-company's products inwholesale. Amongst the buyers the excisable goods produced by thepetitioner-Company are manufacturers of medicines, produccers ofchemicals and milk Dairies. It is the case of the petitioner- Companythat it is not necessary that glass and glassware manufacturing by itshould be sold in packed condition. According to them they can be soldin naked condition. The petitioners next contend that in some casestheir buyers supply the packing material and sometimes they purchased thepacking material from the market, pack the goods in it and sell them totheir wholesale buyers. The petitioner-Comapany's buyers sometimesrequire a particular kind of packing, as for example, in catons or incorrugated sheets. Others are satisfied with ordinary packing consistingof buy or straw padding in gunny bags. The petitioner further contendsthat under tariff item 17 in First Schedule to the Central Excises andSalt Act, 1944, excise duty is leviable on packing materials themselves. It is further alleged that the cost of packing material is borne by thebuyer and that the petitioner show the price of the excisable goods andthe price of packing materials separately in its price-list. It nextalleged that price of packing material is not identifiable with the valueof the excisable goods and that, therefore, excise duty cannot be leviedon the composite price of the excisable goods as well as the packingmaterial. Next the petitioner alleges that packing material is not apart of the manufacturing process. In other words, according to them, itis not incidental to manufacture. The petitioner further avers thatpacking is done for the safety of the goods during transporation and thatno further manufacturing process is applied to a packing material. Afteramended section 4 of the Central Excises and Salt Act, 1944, came intoforce on October 1, 1975, the Central Excise authorities startedassessing the excise duty on the composite price of excisable goods aswell as packing material and did not approve the pricelist submitted bythe petitioner showing the price of excisable goods alone. 2. The petitioner, therefore, filed this petition in which two reliefsare claimed :-

(1) Definition of the expressio "value" given in clause (d) ofsub- section (4) of section 4 of the Central Excises and Salt Act, 1944,is beyound the legislative competence of Parliament under Article 246 ofthe Constitution read with Entry 84 in the Union List; and (2) any collection of excise duty on the basis of this definition is without authority and bad in law and it is hit by Article 265 and Article 31.

In order to examine the first contention which has been raised on behalfof the petitioner, it is necessary to reproduce the definition on "value"given in section 4(4)(d) of the Central Excises and Salt Act. It is thefollowing terms :-

`(d) "value in relation to any excisable goods-

(i) where the goods are delivered at the time of removal in a packedcondition, includes the cost of such packing except the cost of thepacking which is of a durable nature and is returnable by the buyer tothe assessee.

Explanation- In the sub-clause "packing" means the wrapper, container,bobbin, pirn, spool, reel or warp beam or any other thing in which, oron which the excisable goods are wrapped, contined or wound;

(ii) does not include the amount of the duty of excise, sales tax andother taxes, if any, payable on such goods and, subject to such rules asmay be made, the trade discount (such discount not being refundabble onany account whatsoever) allowed in accordance with the normal practice ofthe wholesale trade at the time of removal in respect of such goods soldor contracted for sale.' Let us now analyse this definition. This definition in terms excludesfrom the value of excisable goods the cost of packing which is of a durable nature and which is returnble by the buyer to the assessee. Theexpression "returnable" used in the definition suggests that actualreturn of the packing material of a durable nature by the buyer is not ofany great consequence. In other words, what is excluded from the valueof the excisable goods is the cost of packing which is of a durablenature and which can be returned by the buyer to the assesseeirrespective of whether the returns it or not. Excluding such cost ofpacking, the cost of other packing is required to be included in thevalue of the excisable goods in order to find out its assessable valuefor the purpose of collecting excise duty.

3. Now packing material may originate, broadly speaking, from threesouces: (1) the buyer may supply the packing material ad the manufacturermay pack his excisable goods in it and deliver them to the buyer; (ii)the manufacturer may buy it from the market, pack the goods in it anddeliver in to the buyer; and (iii) the manufacturer may himselfmanufacturer it, pack the goods in it and deliver to the buyer. So faras the last category is concerned, it ca be sub-divided into two parts;packing material which a manufacturer may be an integral part of theprocess of manufacturer of excisable goods of it may not be such anintegral part of the manufacturing process applied to the excisablegoods. It is quite probable that the packing material manufacturing by amanufacturer may itself be subject to duty of excise. It may as well benot subject to it. We have to consider this aspect in detail because itis not necessary for us to do in this case. In this case it isundisputed on record that either the petitioner Company's buyers supplythe packing material or the petitioner-Company purchases packingmaterials from the market packs the excisable goods in them and deliversthem to its buyers. Therefore, the question which has arisen before usis whether the cost of packing material supplied by the buyer to themanufacturer or the cost of packing material purchased by themanufacturer from the market for the purpose of packing the excisablegoods in it and delivering it to its buyer can be included in theassessable value of the excisable goods. Ordinarily the measure orstandard of assessable value which the Parliament prescribes cannot becalled in question unless while doing so it has entranced upon aforbidden field. We shall revert to this aspect a little later.

4. Let us first examine some of the definitions given in the CentralExcise and Salt Act, 1944, Section 2(d) defines "Excisable goods" so as tomean goods specified in the First Schedule as being subject to a duty ofexcise and includes salt. There is no doubt or dispute about the factthat glass and glassware which the petitioner-company manufactures fallunder Entry 23A in the First Schedule to the said Act, Section 2(f) isvery material for the purpose of this case. It defines "manufacture" inthe following terms :-

This long definition of "manufacture" makes it clear beyond any doubt twopropositions. Firstly process of manufacture includes any processincidental or ancillary to the completion of a manufactured product. Thesecond proposition which is made clear is that wherever the parliamentwanted to include in the process of manufacture certain incidental orancillary process, it has said so for example, in sub- clause (i) ofclause (f) and in sun-clause (ia) of clause (f).

5. Mr. Patel has invited out attention to section 2(k) which definess theexpression "wholesale dealer". It is not necessary to make any referenceto it because for the purpose of deciding this case nothing turns uponit. Mr. Patel has invited our attentio to section 3 and emphasized thefact that this section which is the charging section levies a duty ofexcise on all excisable goods other than salt. This aspect he hasemphasized with reference to several kinds of goods specified in theFirst Schedule. In other words, according him, when section 3 is read inlight of item 23A in the First Schedule, it is very clear that the widthand amplitude of section 3 is to impose or to levy only upon glass andglassware the excise duty. According to him, therefore, section 4 byartificially definatio the valuation of excisable goods cannot go beyondthe charging section and levy excise duty on something which does notform a prt of the value of the excisable goods. He has in particularemphasised the fact that in case and glassware packing material isabsolutely indepndent of the excisable goods.

6. He has invited our attention in that behalf to the decision of theHigh Court of Bombay in Ogale Glass Works v. Union of India, (1975) 79Bom. L.R. 37. In that case Ogale Glass Works Limited were manufacturersof glass and glassware. The price-lists approved by the Exciseauthorities included the cost of packing and the petitioners in that casefrom 1962 to 1972 paid whatevern amount were demanded from time by theExcise authorities. Thus the petitioners paid a duty of about Rs. 12lakhs. A part of this payment represented legitimate excise duty on theexcisable goods, namely, glass and glassware. But it also included apayment puporting to be excise duty on the cost of packing and packingmaterial. IN Dec, 1972 the petitioner in that case made a representationto the Excise authorities that revised price- lists should be approved inaccordance with the law by excluding the packing charges. They wereembodened to make that application because of the decision of the MysoreHigh Court in the case of Messrs Alembic Glass Industries Limited. TheExcise authorities refursed to comply with the request of the petitioner.Therefore, they filed a writ petition in the High Court of Bombay fordirections to the Central Excise authorities to repay the excess illegalrecoreries made by them on such packing charges from 1962 to 1972. Theyfurther contended that they had paid the excise duty on packing chargesunder common mistake since the inception.

7. The High Court of Bombay held that the cost of packing and packingmaterials could not be legally included in arrvig at the wholesale cashprice of the excisable goods manufactured by the petitioners. It wasfurther held that the method or manner or marketing, delivering ortransporting excisable goods which have been fully manufactured can neverby itself determine the assessable value of such excisable goods undersection 4 of the Central Excises and Salt Act, 1944. It was further heldby the High Court of Bombay that packing of glass and glassware is notaprocess incidental or ancillary to the completion of its manufacture. Therefore, the cost of packing and packing material cannot be included inthe value of glass and glassware for the purpose of lvey and collectionof excise duty.

8. This decision makes it clear that in case of glass and glassware, thepacking material does not constitute a process incidental or ancillary tothe completion of the manufactured product. Indeed the aforesaiddecision of the High Court of Bombay was rendered on the basis of oldsection 4, which has now been amended. At the time the expression"value" was not defined by Parliament. The amended section definess thatexpression and includes in the value of the excisable goods the cost ofpacking which otherwise would not have been included in it. Thequestion, therefore, is whether the cost of packing could be included inthe value of the excisable goods by Parliament competently under Entry 84of the Union List.

9. Mr. Patel has argued that cost of packing is a post-manufacturing ornon-manfacturing operation. According to him excise duty on packingmaterial overreaches Entry 84 of the Union List of section 3 of theCentral Excise and salt Act and is, therefore, a bad in law. In thatcontext he has invited our attentio to Entry 17 in First Schedule whichaccording to him, read in light of section 3, provides for levy of exciseduty on packing material. We may, however, state that reference to isnot at all helpfull because it refers to paper packing and not packing inwooden cartons and such other things in which generally glass andglassware are packed. He has also submitted that packing service arerendered free of charge by the petitioner-Company to its buyers. Thatfact has been disputed on behalf of the respondents in theaffidavit-in-reply.

10. Now let us eamine the nature of the excise duty which is collected onthe cost of packing and packing material which either a buyer supplies orwhich a manufacturer from the market purchases and in which he packs hisexcisable goods for delivery to his buyers. It cannot be gainsaid thatpacking material which the buyer supplies or which a manufacturerpurchases from the market has nothing whatsoever to do with themanufacturing process of the excisable goods nor is it in any wayincidental or ancillary to that manufacturing process. In fact not aniota of manufacturing process. Incidental or otherwise can by aystretch of imagination be applied to the supply of packing material bythe buyer or purchase of packing material by the manufacturer from themarket. Therefore, in our opinion, the packing material which the buyersupplies or the manufacturer purchases from the market is so independentof the manufacturing process of the excisable goods and so divorced fromit that it is not even within a reasonable distance from themanufacturing process applied to the excisable goods. We concur in thisbehalf in the view expressed by the High Court of Bombay in the case ofOglae Glass Works (supra). Now if the packing material supplied by abuyer or purchased by a manufacturer from the market has nothingwhatsoever to do with the manufacturing process applied to the excisablegoods, so what is the nature of the tax which the manufacturer pays tothe Central Excise authorities on the cost of packing or packingmaterial?

11. In any case it is not excise duty firstly because the packingmaterial is not manufactured by the manufacturer as an integral andinseverable part of its product. Therefore, the question ofmanufacturing costs and manufacturing profits in respect of such packingmaterial does not arise so far as the manufacturer is concerned. Therefore, there cannot be any assessable value in respect of suchpacking material and the tax collected is not excise duty within themeaning of Entry 84 in the Union List. Therefore, the tax collected onthe price of such packing material is not excise duty. It may also benoted that in such a case whoever manufactured the packing material fromwhom the manufacturer of excisable goods purchased it must have paidexcise duty if otherwised it was subject to excise duty. When themanufacturer purchases in the open market and supplies it to his buyerwho pays the manufacturer its paice, the tax collcted on this activitywill partake of the character of purchase tax of sales tax. It would bepurchase tax if it is levied on purchase by the buyer or the petitionerfrom the market and it would be sales tax if there is levy on the salethereof by the manufacturer of the excisable goods to his buyer. It isclear, therefore, that the impost on packing material under the aforesaidcircumstances falls under Entry 84 in the State List. Obviously,therefore, the Parliament cannot levy and collect it.

12. Excise duty can be levied on excisable goods. Indeed it can belevied at different stages at which the goods undergo transation and newgoods or commodities are brought into existece. Change of indentify oremergence of a new article or commodity of the test for levying exciseduty afresh. Where the packing material is purchased by the manufacturerfrom the market and is used for packing the excisable goods, there is nochange or identify of goods or does a new article emerge which mayattract the levy of a fresh excise duty. Similarly, if a buyer suppliespacking material to the manufacturer of excisable goods, the packingmaterial also supplied by the buyer does not undergo any change ofidentify nor does it give birth to a new excisable commodity. Therefore,levy of excise duty on the manufacturer or excisable goods after themanufacturer of packing material paid it when he cleared them from hisfactory would mean payment of excise duty twice. There is no provisionin the Central Excise and Salt Act, 1944 for levying excise duty twice onthe same article or commodity which has not changed its identify andwhich has not become a new marketable commodity.

13. Support is lent to this view by a decision of the Supreme Court inSouth Bihar Sugar Mills v. Union of India, A.I.R. 1968 S.C. 922=1978E.L.T.(J 336), in which the principle which the Supreme Court has laiddown in the context of the Excise Act is that the Act charges duty onmanufacturer of goods and that the word "manufacturer" implies a changebut every change in the raw material is not manufacturer. It has beenfurther observed in that decision that there must be such atransformation that a new and different article must emerge having adistinctive name, character or use.

14. It has been argued by Mr. Vakil on behalf of the respondent that thelevy of excise duty on packing material under the aforesaid circumstancesis not a tax on sale or purchase. It has been argued by him that a taxlevied on the first sale may be in addition to the tax on manufacturingcosts and manufacturing profits. According to him, therefore, it iscovered by Entry 97 in the Union List. We are unable to accept thisargument on account of the reason which we have unable to accept thisargument on accounts of the reasons which we have stated earlier. In ouroipinion, for the reasons stated above it amounts to purchase tax orsales-tax.

15. It has next been argued by Mr. Vakil that the parliment may levy taxon something more than the manufacturing goods and manufacturing profits.In our opinion, it cannot be done if it entrances upon the State ListParliament cannot levy in the name of duty of excise within the meaningof the Entry 84 in the Union List something which falls under the StateList and which is beyond its legislative competence.

16. It has also been argued by him that packing costs are no postmanufacturing costs and post manufacturing profits. In our opinion, theycertainly enjoy that character because they have nothing to do with themanufacturing process or activity and they are incurred aftermanufacturing process or manufacturing activity is over or complete. Reliance has been placed on the unreported decision of this court inSpecial Civil Application No. 558 of 1974 decided by Mr. JusticeJ.B.Mehta, and Mr. Justice M. P. Thakkar, on September 9, 1976. Thatdecision has no application to the instant came because this Court inthat case was concerned with marketing expenses included in theassessable value of excisable goods. In that case this Court upheld thecontention that marketing expenses could be included in the assessablevalue of excisable goods. The question which has been put to us in anover-simplified from is : If marketing expenses can be included in theexcisable value of excisable goods, why can the cost of packing materialnot manufactured by the manufacturer of excisable commodity not be as anintegral and inseverable part of its manufacturing process? The reasonwhich this Court gave while upholding that argument strike down the verybasis of the argument which Mr. Vakil has advanced before us. Accordingto this Court marketing costs may in a given case have relation tomanufacuring costs when they are required to be put in the stream oftrade. Secondly, packing costs are relatable to post manufacturingoperations only after the goods have been purchased and after they haveentered in the stream of trade and await delivery. Relying upon Rule 9of the Central Excise Rules he has argued that packed condition is a partof the manufacturing process. This argument hold good even for a momentwhere the buyer supplies the packing material to the manufacturer ofexcisable goods or the manufacturer of the excisable goods purchases thepacking material from the market in order to pack his goodsx. Rule 9,therefore has no application to the instant case.

17. The next argument which he has advanced that manufacture is completewhen excisable goods are packed and delivered and that until then themanufacturing activity in respect of the excisable goods is not complete.This is too wide an argument to be accepted. It is not so in all caseswhere the buyer supplies are packing material or the manufacture ofexcisable commodity purchases it from the market. It can never be saidthat the manufacture of excisable goods is complete only when it ispacked and delivered.

18. Mr. Vakil has then pressed into service Article 250 of theConstitution. The arguments which he has advanced in support of thiscontention are the same which he advanced in special Civil ApplicationNo. 119 of 1975. The contention based on Article 250 has not beenplaeded by the respondents in their affidavit-in-reply. Obviously,therefore, the petitioner did not have an opportunity to meet thiscontention. Under these circumstances the petitioners cannot be taken bysuprise. For the reason stated by us in Special Civil Application No.119 of 1975 we reject this contention.

19. In the result we are of the opinion that so far as the definition of"value" given in section 4(4)(d) of the Central Excises and Salt Act isconcerned cost of packing ad packing material in cases in which the buyersupplies the packing material or the manufacturer purchases it from themarket and packs the excisable goods do not form a part of the value ofthe excisable goods because tax on them falls within Entry 54 in theState List in respect of which Parliament is not competent tolegislative. We read down the definitio accordingly and hold that thedefinition or "value" has no application to these two categories ofpacking matter. We are not expressing any opinion in this petition ontwo sub-categories of the third category of packing material because itis not necessary for us to do so in this case.

20. The petitioner has tried to file a Civil Application for amendment ofthe original petition in the coursxe of the hearing of this petition. Weare unable to entrtain this application at such a late stage. It is,therefore, rejected. As a result of the finding which we have recordedon the definition of "value" in section 4(4)(d), we direct therespondents to make account of the excess duty recovered by them from thepetitioner from October 1, 1975 till date and submit it to the petitionerfor vefification on or before August 30, 1979 after it has been verifiedby the petitioner, the respondents shall refund to the petitioner suchamount as it undisputed between them. If any parts of the refund isdisputed by the respondents and which petitioner claims, the petitionersshall be at liberty to adopts its own remedy for its recovery. Thisrelief has not been speficically prayed for in the petition. We havegiven this direction as a consequential relif following upon our readingdown the definition of "value".

21.Rule is made absolute to the aforesaid extent. The respondent shallpay the costs of this petition to the petitioner.

22. It appears that in pursuance of the interim order made by this Court,the petitioner has furnished the Bank Guarantee. The respondents are,therefore, directed to pay to the petitioner the costs incurred by themfor furnishing the Bank Guarantee. The respondents shall do so withintwo months from the date on which the petitioner submits respondents astatements of costs in this behalf.

23. Whatever amount is found refundable to the petitioner as a result ofthis order shall bear interest at the rate of six per cent per annum fromthe date of the petition until payment and the respondent shall pay it tothe petitioner.