9911796707
TMI Blog1989 (8) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... uantity of fusel oil/Styrene Monomer manufactured, according to the appellant, is entered in the RG-1 Register maintained for goods manufactured by the appellant. It is also the case of the appellant that the said fusel oil/Styrene Monomer manufactured by it is sold in bulk and delivered to the customers at the appellant's factory. The fusel oil/Styrene Monomer is also capable of being supplied in road-tankers to customers. The appellant had filed its price-lists in respect of the same. In the said price-lists, which were duly approved by the Asstt. Collector, the appellant had shown the value of fusel oil/Styrene Monomer at the rate at which those were sold in wholesale as "Naked Ex-Works and in bulk". According to the appellant, the manufacture of fusel oil is complete and it is the fully manufactured fusel oil/Styrene Monomer which is stored in the storage tank. 3. On 2nd July, 1983, a notice in respect of a consignment was issued to show cause as to why value of the drums should not be included in the value of the goods. There the drums had been supplied by the buyer. Another show cause notice as to why value of the drums should not be included in the assessable value of the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Styrene Monomer. No duty of excise, therefore, could be collected from the appellant on such drums which were neither manufactured nor purchased by the appellant. It was further urged that on a correct and true interpretation of Section 4(4)(d)(i) of the Act, the cost of packing could be included in the assessable value only when the packing is either manufactured by the assessee or is purchased by the assessee. The said sub-section does not contemplate, according to the appellant, the inclusion of the cost of packing in the value of goods when the packing is supplied by a customer to a manufacturer on its own cost. 5. It was contended by Shri Salve, appearing on behalf of the appellant, that on a correct analysis of Section 4(4)(d), the duty being on the activity of manufacture whatever is necessary to bring the goods into existence alone can be taken into account for duty purposes. Reliance was placed by Shri Salve as well as by the learned Attorney General, appearing on behalf of the revenue, on the relevant provisions of the Act and the position as explained by this Court in Union of India and Ors. v. Bombay Tyre International Ltd. [1983 (14) E.L.T. 1896 (S.C.) = 1984 (1) SCR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 977 (1) E.L.T. (J 177) = 1973 (2) SCR 1088] and also toAtic Industries Ltd. v. H.H. Dave, Assistant Collector of Central Excise [1978 (2) E.L.T. (J 444) = 1975 (3) SCR 563 at 568] to emphasise the point that percentages of sales do not in any manner affect determination of the assessable value of the excisable goods. In this connection, it may be relevant to mention that in C.A. 4339-41/86, in respect of which show notice was issued as to why value of drums should not be included in the assessable value of fusel oil and Styrene Monomer, 90% of Styrene Monomer had been sold directly in tanks and only 10% of Styrene Monomer had been sold in drums and the show cause notice on 20th October, 1983 had been issued relating to clearance of fusel oil in 45 drums but the said drums had been supplied by the buyer. The Asstt. Collector in those appeals had included the costs of such drums in the value of styrene monomer. Relying on the two decisions referred to hereinbefore, learned Attorney General emphasised that percentages of sales would not in any manner affect determination of the assessable value of the excisable goods. In A.K. Roy's case (supra), it was held by this Court that though i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... torney General and Shri Salve to the observations of this Court in Union of India v. Godfrey Philips India Ltd. [1985 (22) E.L.T. 306 (S.C.) = 1985 Supp. 3 SCR 123]. 8. In order to appreciate the controversy in this case, it is necessary to refer to the relevant provisions. 9. Section 2 (f) of the Act provides the definition of the term "manufacture". It states, inter alia, that manufacture includes any process incidental or ancillary to the completion of manufactured product. It is, therefore, necessary to bear in mind that a process which is ancillary or incidental to the completion of the manufactured product, that is to say, to make the manufacture complete would be "manufacture". It is relevant and important to bear this aspect in mind. Section 3 of the Act provides that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India. "Excisable goods", under Section 2(d) of the Act, means goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subject to duty of excise and includes salt. Section 4 of the Act provides for the valuation of excisa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l" has been defined under Section 4(4)(b) of the Act to mean a factory or any other place or premises of production or manufacture of the excisable goods; or a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed. It is in relation to Section 4(4) (d) that it is contended that except the cost of packing which is of a durable nature and is returnable by the buyer to the assessee to the buyer, in respect of all other costs of packing, the costs should be included in the value of the excisable goods. The explanation to the said sub-section defines the expression "packing" as 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. The provisions of these two sections must be judged in the light of the principles laid down by this Court in Union of India v. Bombay Tyre International (supra). In that decision, it has been recognized that the measure employed for assessing a tax must not be confused with the nature of the tax, while the measure of the tax may be assessed by its own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not correct to equate the measure of tax with the levy itself which is the basis of the contentions of the appellant. 11. In my opinion, however, the correct position must be found out bearing in mind the essential nature of excise duty. Excise duty, as has been reiterated and explained, is a duty on the act of manufacture. Manufacture under the excise law, is the process or activity which brings into being articles which are known in the market as goods and to be goods these must be different, identifiable and distinct articles known to the market as such. It is then and then only that manufacture takes place attracting duty. In order to be goods, it was essential that as a result of the activity, goods must come into existence. For articles to be goods, these must be known in the market as such and these must be capable of being sold or being sold in the market as such. See the observations of this Court in Union of India v. Delhi Cloth and General Mills Ltd. [1977 (1) E.L.T. (J 199) = 1963 Supp. 1 SCR 586], South Bihar Sugar Mills Ltd., etc. v. Union of India and Ors. [1978 (2) E.L.T. (J 336) = 1968 (3) SCR 21] and Bhor Industries Ltd., Bombay v. Collector of Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posit of cylinders - whether these two amounts were includible in the value under section 4 of the Act was the question. The revenue's case was that the notional value of deposit was rental and hence should be included in computing the assessable value. The respondent, however, disputed this. Analysing the scope of section 4 of the Act, it was held by this Court that supply of gas cylinders might be ancillary activity to the supply of gases but this was not ancillary or incidental to the manufacture of gases. The goods were manufactured without these cylinders. Therefore, the rental of the same though income of ancillary activity, was not the value incidental to the manufacture and could not be included in the assessable value. Similarly, in my opinion, drums even though these were ancillary or incidental to the supply of fusel oil and styrene monomer, these were not necessary to complete the manufacture of fusel oil or styrene monomer; the cost of such drums cannot, therefore, be included in the assessable value thereof. Furthermore, no cost was, in fact, incurred by the assessee. Drums had been supplied by the buyers. 12. This position, in my opinion, was correctly approached in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returnable to the buyer is made a part of the assessable value. One has to bear in mind the scheme of clause (d) of Section 4(4) of the Act. The two sub-clause of this clause deal with abatements or deductions in respect of actual burdens, either by way of an expenditure or discount, borne by the assessee. Clause (ii) deals with duties of excise, sales tax and other taxes, if any, payable on such goods. Here also obviously, the reference is not generally to the taxes payable on such goods by either the assessee or the buyer but is obviously to the taxes payable by the assessee. The trade discount is referable to that allowed by the assessee. Therefore, in the same sense, clause (i) would only be referable to the packing in respect to which "cost" is incurred by the assessee. It has to be borne in mind that the scheme of old Section 4 of the Act and new Section 4 is the same as was held by this Court in the case of Bombay Tyre International (supra) [at pages 376 E-F, 377-H and 378 A-B, H of the Report]. The scheme of the old Section 4 is indisputedly to determine the assessable value of the goods on the basis of the price charged by the assessee, less certain abatements. There was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court in Bombay Tyre International's case (supra) at page 393 D & E. In the case of Union of India v. Godfrey Philips Ltd. [1985 (22) E.L.T. 306 (S.C.) = 1985 (3) SCC 369], this position was clarified by the majority judgment. In that case, the respondent therein manufactured cigarettes in their factories. The cigarettes so manufactured were packed initially in paper/cardboard packets of 10 and 20 and these packets were then packed together in paper/cardboard cartons/outers. These cartons/outers were then placed in corrugated fibreboard containers and delivered by the respondents to the wholesale dealers at the factory gate. There was no dispute that the cost of primary packing into packets of 10 and 20 and the cost of secondary packing in cartons/outers must be included in determining the value of the cigarettes for the purpose of assessment of excise duty, since such packing would fall under Section 4(4)(d)(i) of the Act. The question that arose was whether the cost of final packing in corrugated fibreboard containers would be liable to be included in the value of the cigarettes for the purpose of assessment to excise duty. The question was answered in negative by a majority of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h secondary packing would also constitute a wrapper or a container in which the excisable goods are wrapped or contained. But the test to determine whether the cost of any particular kind of secondary packing is liable to be included in the value of the article is whether a particular kind of packing is done in order to put the goods in the condition in which they are generally sold in the wholesale market at the factory gate. If they are generally sold in the wholesale market at the factory gate in a certain packed condition, whatever may be the reason for such packing, the cost of such packing would be includible in the value of the goods for assessment to excise duty. According to learned Chief Justice, it makes no difference to the applicability of the definition in Section 4(4)(d)(i) read with Explanation that the packing of the goods ordinarily sold by the manufacturer in the wholesale trade is packing for the purpose of protecting the goods against damage during transportation or in the warehouse. However, if any special secondary packing is provided by the assessee at the instance of a wholesale buyer which is not generally provided as a normal feature of the wholesale trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng these in drums prior to their sale. It was not necessary that the articles were to be placed in drums for these to be able to generally to enter the stream of wholesale trade or to be marketable. On the other hand, there was evidence that in the wholesale trade, these goods were delivered directly in tankers and deliverable as such. But as a matter of fact, delivery in drums was only to facilitate their transport in small quantities. The manufacture of the goods was complete before these were placed in drums. The completely manufactured product was stored in tanks. From these tanks the goods were removed directly and placed in vehicles for their movement - for 90% of the sales, the vehicle of removal was tankers and 10% of the sales, the vehicle of removals was drums. In the premises, the value of the drums with regard to the fusel oil/styrene monomer irrespective of whether these were supplied by the assessee or not, are not includible in the assessable value of the Styrene Monomer. 15. In the aforesaid view of the matter, I am of the opinion that these appeals have to be allowed and the orders of the Tribunal set aside. The Tribunal was in error in holding that as at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d)(i). It is only that degree of secondary packing which is necessary for the assessable article to be placed in the condition in which it is sold in the wholesale market at the factory gate which can be included in the assessable value of the article. On the facts of this case, there is evidence that 90% of the monomer was delivered at the time of removal without being put in drums. There was no evidence that there was any necessity of packing or putting them in drums prior to their sale. Delivery in drums was only to facilitate their transport in small quantities. The manufacture of the monomer was complete when it was stored in tanks. From these tanks, the goods were, to the extent of 90%, removed directly and placed in tankers. In 10% of the sales, the "vehicle" of removal was drums. In the premises, the value of the drums irrespective of whether these were supplied by the assessee or not, is not includible in the assessable value of the goods." 20. The learned Attorney General, on the other hand, contended that the terms of Section 4(4)(d)(i) are very clear and specific. He pointed out though "manufacture" is the taxable event, the measure of the levy need not be and is not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssable value where the packing, though durable, is returnable to the manufacturer but the cost of an item of durable packing supplied by the customer and taken back by him is liable to be included in the assessable value. This conclusion, in my opinion, is sufficient to dispose of the present appeals. 21.In this view of the matter, I consider it unnecessary to discuss wider questions as to the circumstances in which the cost of packing (primary or secondary) can at all enter into the determination of the assessable value under Section 4(4)(d)(i) - canvassed by the counsel for the assessee - or as to the correctness or otherwise of the decision of this Court in Union of India v. Godfrey Philips [1985 (22) E.L.T. 306 (S.C.) = 1985 (3) SCC 369] - canvassed by the learned Attorney General. My conclusion is that the answer to the question whether the cost of the container should be included in the assessable value or not would depend upon whether the goods in question are supplied in a packed condition or not. If the answer is yes, three kinds of situation may arise. Where the manufacturer supplies his own container or drum but does not charge the customer therefor, then the price of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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