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Thursday, August 11, 2011

whether the cost of packing charges expended/incurred by the appellant-company is liable to be included in the assessable value of the motorcycles manufactured by the appellant-company. 3. The appellant-company, previously known as M/s. Eicher Limited - unit Royal Enfield Motors, are manufacturing motorcycles falling under Chapter 87 of the Central Excise Tariff Act, 1985. The issue relates to non-inclusion of the value of packing charges by the assessee-company in the assessable value for motorcycles despite the fact that the said motorcycles were cleared by the assessee to the dealers located outside Chennai by sending them to their various depots on stock transfer basis and in packed condition from their factory during the period from April, 1999 to December, 1999. 4. At the time of removal from the factory to depot the motorcycles were cleared in fully packed condition. It is also established from records that Rs. 190/- is being charged as packing charges by the appellant and, therefore, the said amount which was collected as packing charges must have been passed on to the buyers.


                                                                         REPORTABLE


                        IN THE SUPREME COURT OF INDIA

                          CIVIL APPELLATE JURISDICTION




                          CIVIL APPEAL NO.  4406 OF 2010




M/s. Royal Enfield (Unit of M/s. Eicher Ltd.)                     ....Appellant




                                          VERSUS




Commissioner of Central Excise, Chennai                  ....Respondent




                                       JUDGMENT





Dr. MUKUNDAKAM SHARMA, J.




1.    By   this   judgment   and   order   we   propose   to   dispose   of   this   appeal


      which   is   filed   by   the   appellant-company   challenging   the   judgment



      and order dated 24.11.2009 of the Customs, Excise and Service Tax



      Appellate   Tribunal   [for   short   "the   Tribunal"],   Chennai,   whereby   the



      Tribunal   rejected   the   appeal   filed   by   the   appellant   and   upheld   the



      order of the Commissioner of Central Excise [Appeals], Chennai.




2.    The issue that arises for our consideration in the present case is as


                                        Page 1 of 12


      to   whether   the   cost   of   packing   charges   expended/incurred   by   the



      appellant-company is liable to be included in the assessable value of



      the motorcycles manufactured by the appellant-company.




3.    The appellant-company, previously known as M/s. Eicher Limited  -


      unit   Royal   Enfield   Motors,   are   manufacturing   motorcycles   falling



      under   Chapter   87   of   the   Central   Excise   Tariff   Act,   1985.   The   issue



      relates   to   non-inclusion   of   the   value   of   packing   charges   by   the



      assessee-company   in   the   assessable   value   for   motorcycles   despite



      the fact that the said motorcycles were cleared by the assessee to the



      dealers   located   outside   Chennai   by   sending   them   to   their   various



      depots   on   stock   transfer   basis   and   in   packed   condition   from   their



      factory during the period from April, 1999 to December, 1999.




4.    At the time of removal from the factory to depot the motorcycles were


      cleared in fully packed condition. It is also established from records



      that Rs. 190/- is being charged as packing charges by the appellant



      and,   therefore,   the   said   amount   which   was   collected   as   packing



      charges   must   have   been   passed   on   to   the   buyers.   The   appellant-



      company   filed   price   declaration   in   Annexure-II   for   the   vehicles   sold



      from   their   depots   and   therein   declared   the   depot   sale   price   per



      vehicle   and   claimed   abatement   of   Rs.   190/-   per   vehicle   towards


                                        Page 2 of 12


      packing charges.




5.    A show cause notice dated 4.10.1999 was issued by the respondent


      to   the   appellant-company   for   the   period   from   April,   1999   to



      September,   1999   directing   them   to   show   cause   as   to   why   the



      aforesaid   abatement   claimed   of   Rs.   190/-   should   not   be   disallowed



      and   as   to   why   a   differential   duty   of   Rs.   4,41,043/-   and   Cess   of



      Rs.   2,228/-   should   not   be   demanded.   Thereafter,   another   similar



      show cause notice dated 24.2.2002 was also issued for a subsequent



      period,   i.e.,   from   October,   1999   to   December,   1999   demanding



      differential duty of Rs. 2,45,602/- and Cess of Rs. 1,279/-.




6.    The Assistant Commissioner of Central Excise, Chennai `C' Division


      passed   an   order-in-original   disallowing   the   abatement   of   Rs.   190/-



      claimed by the assessee towards the cost of packing and upheld the



      demand   made   in   the   show   cause   notices.     While   recording   the



      aforesaid   finding   and   the   conclusion,   the   Assistant   Commissioner



      referred to the decision of this Court in the case of  Government of


      India   v.   M/s.   Madras   Rubber   Factory   Limited  reported   in  1995


      (77) ELT 433 (SC): (1995) 4 SCC 349  and on another order of the


      Customs,   Excise   and   Service   Tax   Appellate   Tribunal,   New   Delhi   in



      the case of Commissioner of Central Excise, Jaipur v. M/s. Eicher


                                        Page 3 of 12


      Limited reported in 2001 (136) ELT 1029 [Tri. Delhi] in which the


      Tribunal,   in   respect   of   the   same   assessee,   held   that   the   cost   of



      packing is to be included in the assessable value of the motorcycles



      manufactured   by   it.   Aggrieved   by   the   aforesaid   order-in-original   of



      the   Assistant   Commissioner   the   appellant-company   filed   an   appeal



      before the Commissioner of Central Excise [Appeals], Chennai which



      got rejected by order dated 23.07.2003 while relying on the decision



      of   CESTAT,   Delhi   in   the   case   of  Commissioner   of   Central   Excise,


      Jaipur [supra].




7.    Being   aggrieved   by   the   said   order   of   the   Commissioner   of   Central


      Excise   [Appeals],   Chennai   assessee-company   filed   an   appeal   before



      the   Tribunal,   Chennai   which   also   was   rejected   by   the   impugned



      judgment   and   order   dated   24.11.2009   and,   therefore,   the   present



      appeal was filed in this Court by the appellant-company on which we



      heard the learned counsel appearing for the parties.




8.    During the course of hearing our attention was drawn to Section 4 of


      the Central Excise Act, 1944 [for short "the Act"], the relevant portion



      of   which   is   extracted   below   for   better   understanding   and   ready



      reference: -



           "Section 4. Valuation  of excisable goods for purposes of charging



                                        Page 4 of 12


of duty of excise -

(1) Where under this Act, the duty of excise is chargeable on any

excisable goods with reference to value, such value, shall, subject

to the other provisions of this section, be deemed to be -

        (a)   the   normal   price   thereof,   that   is   to   say,   the   price   at

        which such goods are ordinarily sold by the assessee to a

        buyer in the course of wholesale  trade  for delivery at the

        time   and   place   of   removal,   where   the   buyer   is   not   a

        related   person  and  the  price is  the  sole  consideration   for

        the sale:

                        ........................................

                        ........................................

(4) For the purposes of this section, -

        (a) "assessee" means the  person who  is liable  to  pay the

        duty of excise under this Act and includes his agent;

        (b) "place of removal" means -

                  (i)   a   factory   or   any   other   place   or   premises   of

                  production or manufacture of the excisable goods;

                  (ii)   a   warehouse   or   any   other   place   or   premises

                  wherein   the   excisable   goods   have  been   permitted

                  to be deposited without payment of duty;

                  (iii)   a   depot,   premises   of   a   consignment   agent   or

                  any   other   place   or   premises   from   where   the

                  excisable goods are to be sold after their clearance

                  from the factory and,

                  From where such goods are removed;

        (ba)   "time   of   removal",   in   respect   of   goods   removed   from

        the place of removal referred to in sub-clause (iii) of clause

        (b),   shall   be   deemed   to   be   the   time   at   which   such   goods

        are cleared from the factory;

                        ........................................

                        ........................................

        (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


                             Page 5 of 12


                     goods are wrapped, contained or wound;

                                   ........................................

                                   ........................................"




9.    Relying   on   the   same   counsel   appearing   for   the   appellant-company


      submitted before us that the cost of the packing material cannot be



      included in the assessable value because the said cost of the packing



      material   cannot   be   said   to   be   the   price   at   which   such   goods   are



      ordinarily sold by the assessee to a buyer in the course of wholesale



      trade for delivery at the time and place of removal. He also submitted



      that   the   requisite   packing   is   done   so   as   to   avoid   scratch   to   the



      painted body and breakage of the lights fitted on to the motorcycles



      during   transportation,   and   therefore,   the   cost   of   the   aforesaid



      packing was not includable as per Section 4 of the Central Excise Act



      to   the   value   of   the   motorcycles.   In   support   of   the   aforesaid



      contentions   he   relied   and   referred   to   various   judgments   of   this



      Court,   viz.,  Union   of   India   &   Ors.   V.   Bombay   tyre   International


      Ltd. reported at 1983 (14) ELT 1896 (SC); Union of India & Ors. v.


      Godfrey Philips India Ltd. & Ors.  reported at  1985 (22) ELT 306


      (SC)  and  Hindustan   Polymers   v.   collector   of   Central   Excise


      reported at 1989 (43) ELT 165 (SC).




10. Counsel   appearing   for   the   respondent,   however,   submitted   that   the



                                        Page 6 of 12


   aforesaid submissions are untenable in view of the settled position of



   law in the decision of this Court in the case of Government of India


   v. M/s. Madras Rubber Factory Limited  [supra]. He also drew our


   attention to the fact that the appellant has been realizing Rs. 190/-



   as packing charges from the buyers, therefore, the entire amount is



   passed   on   to   the   buyers   by   the   appellant-company.   He   also



   submitted   that   the   cases   relied   upon   by   the   counsel   appearing   for



   the   appellant   are   distinguishable   on   facts.   In   the   light   of   the



   aforesaid   submissions   made   on  behalf   of   the   counsel   appearing   for



   the parties we would proceed to discuss and answer the issue raised



   before us.




11. The   provisions   extracted   hereinbefore   from   the   Central   Excise   Act



   would   indicate   that   there   is   express   provision   in   Section   4   for



   including   the   cost   of   packing   in   the   determination   of   value   for   the



   purpose   of   excise   duty.   Sub-Section   4   (d)(i)   along   with   explanation



   has   relevant   bearing   on   the   present   case.   According   to   the   said



   provision where goods are delivered at the time of removal from the



   factory gate in a packed condition the value would include the cost of



   such packing but would not include such cost of packing which is of



   a durable nature and is returnable by the buyer to the assessee.




                                      Page 7 of 12


12. In  Union   of   India   &   Ors.   V.   Bombay   Tyre   International   Ltd.



  reported at 1983 (14) ELT 1896 (SC): (1984) 1 SCC 467 this Court



  had an occasion to deal with the said provision and in paragraph of



  the said judgment this Court has held thus: -





  "15.   The   case   in   respect   of   the   cost   of   packing   is   somewhat

  complex.   The   new  Section   4(4)(d)(i)   has   made   express   provision

  for  including  the   cost   of   packing   in   the   determination   of   "value"

  for   the   purpose   of   excise   duty.   Inasmuch   as   the   case   of   the

  parties   is   that   the   new   Section   4   substantially   reflects   the

  position   obtaining   under   the   unamended   Act,   we   shall   proceed

  on the  basis  that  the position  in regard  to the  cost of packing is

  the same under the Act, both before and after the amendment of

  the Act. Section 4(4)(d)(i) reads:

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

               *         *         *

            (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;"

  It   is   relevant   to   note   that   the   packing,   of   which   the   cost   is

  included,   is   the   packing   in   which   the   goods   are   wrapped,

  contained or wound when the goods are delivered at the time of

  removal. In other words, it is the packing in which it is ordinarily

  sold in the course of wholesale trade to the wholesale buyer. The

  degree of packing in which the excisable article is contained will

  vary   from  one   class   of   articles   to   another.   From   the   particulars

  detailed  before us by the  assessees, it is apparent that  the cost

  of   primary   packing,   that   is   to   say,   the   packing   in   which   the

  article   is   contained   and   in   which   it   is   made   marketable   for  the

  ordinary consumer, for example a tube of toothpaste or a bottle of


                                        Page 8 of 12


   tablets  in a cardboard  carton,  or biscuits  in a paper  wrapper  or

   in   a   tin   container,   must   be   regarded   as   falling   within   Section

   4(4)(d)(i).   That   is   indeed   conceded   by   learned   counsel   for   the

   assessee.   It   is   the   cost   of   secondary   packing   which   has   raised

   serious dispute.  Secondary  packing  is of different grades. There

   is   the   secondary   packing   which   consists   of   larger   cartons   in

   which   a   standard   number   of   primary   cartons   (in   the   sense

   mentioned earlier) are packed. The large cartons may be packed

   into even larger cartons for facilitating the easier transport of the

   goods   by   the   wholesale   dealer.  Is   all   the   packing,   no   matter   to

   what degree, in which the wholesale dealer takes delivery of the

   goods   to   be   considered   for   including   the   cost   thereof   in   the

   "value"? Or does the law require a line to be drawn somewhere?

   We must remember that while packing is necessary to make the

   excisable   article   marketable,   the   statutory   provision   calls   for

   strict   construction   because   the   levy   is   sought   to   be   extended

   beyond   the   manufactured   article   itself.   It   seems   to   us   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.  To that  extent,  the  cost of secondary

   packing cannot be deducted from the wholesale cash price of the

   excisable article at the factory gate."





13. In  Union   of   India   &   Ors.   v.   Godfrey   Philips   India   Ltd.   &   Ors.



   reported   at  1985   (22)   ELT   306   (SC)  this   Court   again   considered  a



   similar issue. What was decided by the majority of Judges in the said



   case   was   that   the   cost   of   packing   done   for   protection   of   excisable



   goods   during   the   transportation   is   also   includible   in   assessable



   value.   The   said   case   basically   revolved   round   the  cost   of   corrugated


   fibreboard containers and all the three learned Judges uniformly reiterated the




                                         Page 9 of 12


   principles   and   the   test   evolved   in  Bombay   Tyre   International  but   arrived   at


   divergent conclusions (the majority comprising Pathak and Sen, JJ. taking one


   view and Bhagwati, C.J., the other) on the basis of differing perceptions as to


   the factual situation in that case. As was noted in the said case the majority


   and minority came to different conclusions not on account of their adopting a


   different test or principle but only on account of their differing perceptions of


   the factual situation. So far as the test applicable is concerned, all the three


   learned Judges were at one and in agreement.




14. Finally   in   the   decision   of  Government   of   India   v.   Madras   Rubber



   Factory   Ltd.  reported   at  1995   (77)   ELT   433   (SC)  a   three-Judge


   Bench   of   this   Court   held   that   where   the   goods   are   delivered   in   a



   packed   condition   at   the   time   of   removal   the   cost   of   such   packing



   shall   be   included.   While   recording   the   aforesaid   conclusion   this



   Court took notice of the aforesaid definition of value as given in sub-



   Section   4   of   Section   4   of   the   Act.   After   noticing   the   aforesaid



   definition it was held that the provision in the sub-clause is a plain



   one   and   does   not   admit   of   any   ambiguity   as   what   it   says   is   that



   where   the   goods  are  delivered   in  a  packed   condition,   at  the  time   of



   removal,   the   cost   of   such   packing   shall   be   included   and   that   only



   where such packing is of a durable nature and is returnable by the



   buyer   to   the   assessee,   should   the   cost   of   such   packing   be   not



                                       Page 10 of 12


   included in the value of the goods. It was also held in that decision



   that   the   concept   of   primary   and   secondary   packing   which   is



   recognized   to   some   extent   in   the   decision   of   this   Court   in  Bombay


   Tyre   International   Ltd.  case   [supra],   which   is   not   possible   to   be


   wished away and is merely a refinement and is not borne out by the



   express language of the enactment and, therefore, the same is to be



   resorted   to   with   care   and   circumspection.   Thereafter,   the   Court



   proceeded   to   discuss   the   case   of  Bombay   Tyre   International   Ltd.



   [supra] and also the decision in  Godfrey Philips India Ltd. & Ors.



   [supra].   Having   discussed   both   the   cases,   this   Court   laid   down   the



   test in the following terms: -




         "43.   ..........Whether   packing,   the   cost   whereof   is   sought   to   be

         included   is   the   packing   in   which   it   is   ordinarily   sold   in   the

         course   of   a   wholesale   trade   to   the   wholesale   buyer.   In   other

         words,   whether   such   packing   is   necessary   for   putting   the

         excisable article in the condition in which it is generally sold in

         the wholesale market at the factory gate. If it is, then its cost is

         liable  to be  included  in  the  value  of  the  goods; and  if  it is  not,

         the cost of such packing has to be excluded.


         ......................."





15. The   aforesaid   decision   was   rendered   by   this   Court   with   respect   to



   "tyres" which also were sold at the factory gate in a packed condition



   for onward easy transportation. In the background of the said case, it




                                     Page 11 of 12


   was   held   that   the   cost   of   such   packing   would   be   included   in   the



   assessable value.




16. Almost   similar   are   the   facts   of   the   present   case.   The   authorities



   below   as   also   the   Tribunal   found   that  the   facts   of   the   present   case



   entirely fit in the facts of the aforesaid decision in the case of Madras


   Rubber Factory Ltd.  [supra]. The said three authorities as also the


   Tribunal on analyzing the records came to a finding that the packing



   which   is   given   by   the   appellant-company   to   their   motorcycles   is



   necessary for putting the excisable article in the condition in which it



   is   generally   sold   in   the   wholesale   market   at   the   factory   gate   and,



   therefore, such cost is liable to be included in the value of the goods



   and   the   cost   of   such   packing   cannot   be   excluded.     The   aforesaid



   conclusions are based on cogent reasons and are also supported by a



   well-reasoned decision of three Judges Bench of this Court.




17. Although,   the   counsel   appearing   for   the   appellant-company



   vehemently submitted that the facts of this case are more akin to the



   cases   of  Bombay   Tyre   International   Ltd.  [supra]   and   also   to   the



   that   of  Godfrey   Philips   India   Ltd.   &   Ors.  case   [supra]   having



   considered   the   above   situation   of   facts   and   law,   we   are   of   the



   considered opinion, that all the aforesaid decisions, which are relied


                                     Page 12 of 12


  upon by the counsel appearing for the appellant, were taken notice of



  in the subsequent decision in  Madras Rubber Factory Ltd.  [supra]



  and   this   Court   after   detailed   discussion   of   such   cases   has   given   a



  very   reasoned   order   which   is   applicable   to   the   facts   of   the   present



  case in full force.




18. Therefore,   we   agree   and   confirm   the   findings   recorded   by   the



  Tribunal as also by the authorities below and dismiss this appeal but



  leaving the parties to bear their own costs.




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

                                                     (Dr. MUKUNDAKAM SHARMA)




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

                                                 (ANIL R. DAVE)

NEW DELHI,

AUGUST 10, 2011.





                                    Page 13 of 12