NATIONAL LEATHER CLOTH MANUFACTURING CO vs UNION OF INDIA on 23 July, 2010

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(4) For the purposes of this section,--

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(d) ‘value’, in relation to any excisable goods,--

(i) 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;

Explanation.— In this sub-clause ‘packing’ means the 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;”

11.The Section provides as to how the value of excisable goods is to be

determined. The expression “value” has been extended to include the

cost of packing. As per Section 4(4)(d)(i) of the Act, the cost of packing

is to be included in working out the value of the goods, unless the

packing is of a durable nature and is returnable by the buyer to the

assessee. Explanation thereto enumerates various types of packing, of

which cost has to be included in the value of the goods. It is evident that

by including the cost of packing in the value of goods, the legislature has

sought to extend the levy beyond the manufactured article itself and,

therefore, the provision has to be strictly construed.

12.Although the provision is clear and unambiguous, yet the concept of

“primary packing” and “secondary packing” was evolved by this Court in

Bombay Tyre International Ltd. (supra). In that case, while observing

that the degree of packing would vary from one class of excisable goods

to another and the packing may be of different grades, which may be

necessary to make an article marketable, it was held “that the degree of

secondary packing which is necessary for putting the excisable article in

the condition in which it is generally sold in the wholesale market at the

factory gate is the degree of packing whose cost can be included in the

“value” of the article for the purpose of the excise levy.” Thus, the test

laid down was that it is only the cost of packing ordinarily required for

selling the goods in the course of wholesale trade to a wholesale buyer at

the factory gate which would be includible in the value of the goods and

not the cost of any additional or special packing.

13.In Union of India & Ors. Vs. Godfrey Philips India Ltd.4, a question

arose as to whether the cigarettes manufactured and packed in cardboard

packets, each containing 10 to 20 cigarettes and those packets were

packed in corrugated fibreboard cartons/containers, the cost of corrugated

fibreboard containers was liable to be included in determination of the

value of the cigarettes for the purpose of excise duty. The majority view

was that since the corrugated cartons were employed as secondary

packing only for the purpose of avoiding damage or injury during transit

and were not necessary for selling the cigarettes in the wholesale market

at the factory gate, their cost was not to be included in the value of the

cigarettes for the purpose of levy of excise duty.

14.In Geep Industrial Syndicate Ltd. Vs. Union of India5, the assessee was

manufacturing batteries and torches. The torches and batteries

4 (1985) 4 SCC 369

5 1992 (61) E.L.T. 328 (S.C.)

manufactured by them were first packed in polythene bags and then these

polythene bags were placed in cardboard cartons. The cardboard cartons

were placed in the wooden boxes at the time of delivery at the factory

gate. Though there was no dispute about the inclusion of cost of

polythene bags and cardboard cartons, the dispute was whether the cost

of wooden boxes, in which the cardboard boxes were packed, was to be

included in the value of batteries and torches. It was held by a bench of

three Judges of this Court that the wooden boxes were in the nature to

secondary packing and, therefore, their cost was not includible in the

value of batteries and torches.

15.In Hindustan Safety Glass Works Ltd. (supra) referring to the ratio of

decisions in Bombay Tyre International Ltd. (supra) and Geep

Industrial Syndicate Ltd. (supra), again a bench of three learned Judges

summed up the test on the issue, as follows :-

“14…The test is whether the packing is done in order to put the

goods in a marketable condition. Another way of testing would

be to see whether the goods are capable of reaching the market

without the type of packing concerned. Each case would have

to be decided on its own facts. It must also be remembered that

Section 4(4)(d)(i) specifies that the cost of packing is

includible when the packing is not of a durable nature and

returnable to the buyer. Thus, the burden to show that the cost

of packing is not includible is always on the assessee. Also

under Section 4(a) the value is to be the normal price at which

such goods are ordinarily sold in the course of wholesale trade

for delivery at the time and place of removal.”

16.Having examined the facts of the instant case on the touchstone of the

test laid down in the aforementioned cases, we are of the opinion that

since admittedly the fabric manufactured by the assessee was sold by the

assessee to the wholesalers at the factory gate only in polythene bags, the

further packing of three rolls in hessian cloth was not in the course of

normal delivery to the customers in the wholesale trade at the factory

gate and was, therefore, not required to make the product marketable.

The additional packing in the nature of a secondary packing was done for

the purpose of convenience of the up-country customers in the

transportation of the goods manufactured by the assessee. We, therefore,

hold that the cost of secondary packing in hessian cloth cannot be

included in the value of the goods in terms of Section 4(4)(d)(i) of the

Act for the purpose of assessment of excise duty.

17.In so far as the question of limitation is concerned, as already stated,

leave was granted only on the afore-noted limited issue and, therefore,

we express no opinion on that aspect.

18.We, accordingly, allow the appeal partly and set aside the impugned

order to the extent indicated above, leaving the parties to bear their own

costs.

.......................................J.

(D.K. JAIN)

........................................J.

(ANIL R. DAVE)

NEW DELHI;

JULY 23, 2010.