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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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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.
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