TMI Blog1985 (9) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... nly, the extension must be strictly construed, for what is being included-in the value now is something beyond the value of the manufactured commodity itself. - Civil Appeal No. 1136 of 1977, Civil Appeal No. 1244 of 1977, Civil Appeal Nos. 55-61 of 1979 - - - Dated:- 30-9-1985 - Judge(s) : R. S. PATHAK., AMARENDRA NATH SEN., P. N. BHAGWATI JUDGMENT BHAGWATI J.-These appeals by special leave raise a number of questions relating to excise duty leviable on cigarettes manufactured by the respondents. Barring one, all the other questions are now settled as result of the decision of this court in Union of India v. Bombay Tyre International Ltd. [1984] 1 SCC 467 ; [1986] 59 Comp Cas 460 (SC) and all that is required is to direct the assessing authorities to assess the excise duty leviable on the respondents on the basis of the law laid down in the Bombay Tyre International's case [1986] 59 Comp Cas 460 (SC). The only question which remains to be considered is in regard to the cost of packing includible in the value of the cigarettes for the purpose of assessment to excise duty. The respondents in these appeals are manufacturers of cigarettes. They manufacture cigarettes in thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The respondents, on the other hand, urged that though it was true that section 4(4)(d)(i) read with the Explanation did not make any distinction between primary packing and secondary packing, the cost of only such secondary packing was liable to be included in the value of the cigarettes as was necessary for sale of the cigarettes in the wholesale trade and not the cost of secondary packing which was necessitated in order to protect the packed cigarettes and to prevent them from being damaged during the course of transportation from the factory gate to the godown or warehouse of the wholesale dealer. The packing in corrugated fibre board containers, contended the respondents, was not necessary or essential for the purpose of sale of the cigarettes to the wholesale dealer at the factory gate but it was done only with a view to facilitating transportation of the cigarettes from the factory gate to the godown or warehouse of the wholesale dealer and protecting the cigarettes against damage during such transportation and, therefore, the cost of such packing was not liable to be included in the value of the cigarettes. These were the rival contentions urged on behalf of the parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ? 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. " It will be noticed that so far as primary packing is concerned, it was conceded on behalf of the respondents in that case that the cost of primary packing must be regarded as falling within the terms of section 4(4)(d)(i) read with the Explanation and it was only the cost of secondary packing which gave rise to disputes between the parties. But we did not proceed to decide whether the cost of every degree of secondary packing would be liable to be included in the value of the goods or whether a distinctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd where this condition is satisfied, the "' value of the goods would include " the cost of such packing " and " such packing must obviously mean the packing in which the goods are (kept) when they are delivered at the time of removal. The question which has to be asked is: what is the packed condition in which the goods are kept when delivered at the time of removal ? Whatever is the packing of the goods at the time when they are delivered at the time of removal, the cost of such packing would be liable to be included in the " value " of the goods. The Explanation to section 4(4)(d)(i) provides an exclusive definition of the term " packing " and it includes not only outer packing but also what may be called inner packing. Ordinarily bobbin, pirl, spool, reel, and warp beam on which yarn is wound would not be regarded as packing of such yarn, but they are brought within the definition of " packing " by the Explanation. The Explanation thus extends the meaning of the word " packing " to cover items which would not ordinarily be regarded as forming part of packing. The Explanation then proceeds to say that " packing " means wrapper, container or any other thing in which the excisable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods. The respondents thus sought to draw a distinction between secondary packing necessary for the purpose of selling the goods at the factory gate in the course of wholesale trade and the secondary packing used in order to protect the goods against damage during the course of transportation so that they may safely reach the consumer in proper condition. We find it difficult to appreciate this distinction so far as assessment to excise duty is concerned. Obviously, every wholesale dealer would like to take delivery of the goods from the manufacturer in such packing that he can safely transport the goods to his godown or warehouse and sell the same to the retailer or consumer in marketable condition. The wholesale dealer would, therefore, insist that the goods purchased by him in wholesale should be properly packed so that they do not get damaged during transportation or even storage. The manufacturer would accordingly have to deliver the goods at the factory gate in such packed condition be demanded by the wholesale dealer. It is apparent that unless the goods are in such packed condition, the wholesale dealer would not ordinarily take delivery of the goods and necessarily, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Cigarette Manufacturers' Association that " instructions have been issued to the Collector of Central Excise that the cost of corrugated fibre board containers in question does not form part of the value of cigarettes for the purposes of excise duty". The respondents and other manufacturers of cigarettes, acting upon this representation made by the Central Board of Excise and Customs, proceeded on the basis that the cost of corrugated fibre board containers was not liable to be included in the value of cigarettes for the purpose of assessment to excise duty and did not recover from the wholesale dealers to whom they sold the cigarettes, any amount by way of excise duty attributable to the cost of such corrugated fibre board containers. This representation contained in the letter dated May 24, 1976, continued to hold the field until November 2, 1982, when the Central Board of Excise and Customs addressed a circular letter to all the Collectors of Central Excise stating that the matter had been re-examined in consultation with the Ministry of Law and, in view of the provisions of section 4, the cost of packing, " whether initial or secondary in which the excisable goods are packe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-rule confers power on the Central Board of Excise and Customs to grant exemption and if at all, the letter dated May 24, 1976, could be justified only under that sub-rule. But we fail to see how rule 8, sub-rule (2), can possibly be availed of by the respondents. That sub-rule postulates the making of a special order by the Central Board of Excise and Customs in each case exempting from payment of duty any excisable goods. The letter dated May 24, 1976, could not possibly be regarded as a special order by the Central Board of Excise and Customs in the case of each of the manufacturers of cigarettes exempting cigarettes from payment of duty to the extent of the cost of packing by way of corrugated fibre board containers. We do not think the letter dated May 24, 1976, could be brought within the terms of sub-rule (2) of rule 8 and the argument of the respondents based on that sub-rule must be rejected. The respondents are, however, on firmer ground in their plea of promissory estoppel against the Central Board of Excise and Customs and the Central Government. The representation contained in the letter dated May 24, 1976, was undoubtedly made by the Central Board of Excise and Cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssory estoppel is that where one party has by his word or conduct made to the other a clear and unequivocal promise or representation which is intended to create legal relations or affect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise or representation is made and it is in fact so acted upon by the other party, the promise or representation would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so, having regard to the dealings which have taken place between the parties. It has often been said in England that the doctrine of promissory estoppel cannot itself be the basis of an action I it can only be a shield and not a sword : but the law in India has gone far ahead of the narrow position adopted in England and as a result of the decision of this court in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 (SC), it is now well-settled that the doctrine of promissory estoppel is not limited in its application only to defence but it can also found cause of action. The decision of this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r our constitutional set-up, no person may be deprived of his right or liberty except in due course of and by authority of law: if a member of the executive seeks to deprive a citizen of his right or liberty otherwise than in exercise of power derived from the law-common or statute-the courts will be competent to, and indeed would be bound to, protect the rights of the aggrieved citizen." The learned judge also, after examining the decisions cited before him, summed up the position in the following words (p. 728 of AIR) : " Under our jurisprudence, the Government is not exempt from liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be the judge of its own obligation to the citizen on an ex parte appraisement of the circumstances in which the obligation has arisen." The defence of executive necessity was thus clearly negatived by this court and it was pointed out that it did not release the Government from its obligation to honour the promise made by it, if the citizen, acting in reliance on the promise, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der no obligation to act in a manner, i.e., fair and just, or that it is not bound by the considerations of 'honesty and good faith' ? Why should the Government not be held to a high 'standard of rectangular rectitude while dealing with its citizens' ? There was a time when the doctrine of executive necessity was regarded as sufficient justification for the Government to repudiate even its contractual obligations, but, let it be said to the eternal glory of this court, that this doctrine was emphatically negatived in the Anglo-Afghan Agencies' case, AIR 1968 SC 718 ; [1968] 2 SCR 366 and the supremacy of the rule of law was established. It was laid down by this court that the Government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action." The doctrine of promissory estoppel as explained above was also held to be applicable against public authorities as pointed out in Motilal Padampat Sugar Mills' case [1979] 118 ITR 326 (SC). This court, in Motilal Padampat Sugar Mills' case, quoted with approval the observations of Shah J. in Century Spinning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot think it was right on their part to express their disagreement with the enunciation of the law by a co-ordinate Bench of the same court in Motilal Padampat Sugar Mills case [1979] 118 ITR 326 (SC). We have carefully Considered both the decisions in Motilal Padampat Sugar Mills' case and Jeet Ram's case [1980] 3 SCR 689, and we are clearly of the view that what has been laid down in Motilal Padampat Sugar Mills' case represents the correct law in regard to the doctrine of promissory estoppel and we express our disagreement with the observations in Jeet Ram's case [1980] 3 SCR 689, to the extent that they are in conflict with the statement of the law in Motilal Padampat Sugar Mills' case [1979] 118 ITR 326 (SC) and introduce reservations cutting down the full width and amplitude of the propositions of law laid down in that case. Of course, we must make it clear, and that is also laid down in Motilal Padampat Sugar Mills' case [1979] 118 ITR 326 (SC), that there can be no promissory estoppel against the legislature in the exercise of its legislative functions nor can the Government or public authority be debarred by promissory estoppel from enforcing a statutory prohibition. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government that the cost of corrugated fibre board containers would not be includible in the value of the cigarettes for the purpose of assessment of excise duty. Of course, this representation could operate to create a promissory estoppel only if it was within the competence of the Central Board of Excise and Customs and the Central Government to make good such representation and the exclusion of the cost of corrugated fibre board containers from the value of the cigarettes was not contrary to law. We think that the Central Government had power under rule 8, sub-rule (1), of the rules to issue a notification excluding the cost of corrugated fibre board containers from the value of the cigarettes and thereby exempting the cigarettes from that part of the excise duty which would be attributable to the cost of corrugated fibre board containers. So also the Central Board of Excise and Customs had power under rule 8, sub-rule (2), to make special order in the case of each of the respondents granting the same exemption, because it could legitimately be said that, having regard to the representation made by the Cigarette Manufacturers' Association, there were circumstances of an excepti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d containers, evidently to ensure the cartons against injury or damage during transport. The question is whether the corrugated fibre board containers can be regarded as secondary packing, the cost of which can permissibly be included in the determination of " value " for the purpose of excise duty. Now, it is apparent that under section 3 of the Act, the levy of excise duty is made on manufactured cigarettes, which after all are the excisable goods. And section 4 provides how the value of manufactured cigarettes shall be determined. The expression " value " has been extended to include the cost of packing. The packing itself is not the subject of the levy of excise duty. The manufactured cigarettes are the subject of the levy, because excise duty is here charged on the manufactured commodity, that is to say, cigarettes. For the purpose of computing the measure of the levy, however, the statute has given an extended meaning to the expression " value " in clause (d) of sub-section (4) of section 4 of the Act. Plainly, the extension must be strictly construed, for what is being included in the value now is something beyond the value of the manufactured commodity itself. In Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e necessary for me to refer to the facts and circumstances of this case or to any of these aspects in my judgment. The cigarettes after manufacture are usually placed in paper/card board packets, each packet containing 10 or 20 cigarettes. These packets before delivery to the wholesale buyer are packed together in paper/card board/ cartons/outers, each of such cartons containing a number of packets of cigarettes with 10 or 20 cigarettes in each packet. I agree with the learned Chief justice that the cost of packing cigarettes in packets of 10 or 20 cigarettes each and thereafter in cartons/outers for delivery to the buyer in the course of wholesale trade at the factory gate must necessarily be included in the value for the purpose of levy of excise duty. I, however, find it difficult to agree with the view expressed by the learned Chief justice that when a number of these cartons are put in corrugated fibre board containers for delivery, the cost of the farther packing incurred for putting cartons/outers in the corrugated fibre board containers must also be included in the value for the purpose of assessment of excise duty. When tobacco is rolled up in paper following the appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the packets of cigarettes have been packed in the corrugated fibre board containers is not, indeed, in the course of delivery to the buyer in the wholesale trade at the factory gate but is only for the purpose of facilitating the smooth transport of the cartons containing the packets of cigarettes to the buyer in the wholesale trade. On a proper construction of section 4(4)(d)(i) of the Act read with the Explanation, I am of the opinion that any secondary packing done for the purpose of facilitating transport and smooth transit of the goods to be delivered to the buyer in the wholesale trade cannot be included in the value for the purpose of assessment of excise duty. I, therefore, hold that the cost of corrugated fibre board containers in which the cartons containing the packets of cigarettes Are packed, cannot be included in the value for the purpose of assessment of excise duty.' It is to be borne in mind that the excise duty which is levied on the goods is ultimately passed on to the consumers of the goods and they have ultimately to bear the burden. So far as the consumers are concerned, they buy cigarettes, loose or in packets or even in cartons. Cartons packed in co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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