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TMI Blog1989 (10) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 10th December, 1985. It is alleged that it was later noticed that the small packs were first packed in dozen and then packed in secondary packings for easy transportation to the wholesale dealer, and it was found that the secondary packings were a must for delivery to the wholesale dealers (emphasis indicated). The Asstt. Collector came to the conclusion that the amount as claimed by the respondent was not deductible as per this Court's decisions in respect of post-manufacturing expenses. In the premises, a show cause notice was issued to the respondent on October 30,1986 and a demand was made for the differential duty on the cost of secondary packings which was stated to be Rs. 3,46,151.92 for the period from December 2,1985 to May 31,1986. The Asstt. Collector by his order dated February 27,1987 disallowed the respondent's claim for exclusion of the cost of packing for transportation and thus rejected its claim. He, inter alia, observed as follows :- "Therefore, I consider that the cost of secondary packings viz., cardboard cartons are rightly includible in the assessable value of items mentioned in PL No. 405/ 85-86 and 406/85-86, dated 10-12-1985 under Section 4(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade where the goods are sold by number of dozens and in some cases by numbers of tins or other packings which are primary packing (this was seen from the invoice produced during personal hearing). Therefore, it cannot be said that the outer cartons are employed only for the purpose of avoiding damage or injury to the goods during transit. In view thereof, the Hon'ble Supreme Court's decision in the case of MRF becomes applicable. In case of talcum powder and face powder, it is necessary to put the dozen cartons inside the outer cartons, for giving delivery whether at the factory gate, or at a place of delivery other than the factory gate, because it is not convenient for the wholesale dealers to collect the goods in dozens' packing. Wholesale trade is not generally in quantities less than a dozen. Therefore, even while giving delivery by the wholesale dealers, to other dealers, the outer carton is necessary as otherwise it will become difficult for him to give such delivery of 50 dozens or 100 dozens of the goods. It is not disputed that the outer carton packing is the packing in which the goods are cleared from the factory, and are put into the stream of wholesale trade.......the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale trade at the factory gate without the outer carton in which the number of smaller cartons were packed. It is important to emphasise this question in view of the contentions raised in this appeal. The case of the revenue was that since the goods were sold in lots packed in the bigger outer cartons, the value of the same should be included for the purpose of assessment. According to the Tribunal, there was however, no plea raised by the revenue as to the capability or otherwise of the sale of powder tins in the wholesale market in the smaller cartons described as the inner-outer. The Tribunal noted that in the facts of the instant case, the talcum powder packed in tin containers is in no danger so far as the contamination of the powder is concerned and the packing, it was pleaded before them, was required for the purpose of preventing damage to the tin containers which were sophisticated in nature taking into account the product being marketed, and it recorded that inner cartons contain 12 tins or so which is a wholesale packing and it was not made out that the smaller carton was not sufficient to protect the tins or that the sale could be made in the course of wholesale trade at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales service and marketing and selling organisation expenses including advertisement expenses marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. This Court further observed that the new Section 4(4)(d)(i) of the Act has made express provision for including the cost of packing in the determination of 'value' for the purpose of excise duty. 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 (emphasis supplied). Therefore, the cost which is incurred for making the goods available in the wholesale market and in which the goods are generally available in such market, would be the 'value' which is includible under Section 4(4)(d)(i) of the Act. There is no dispute that the cost of primary packing, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his principle, about which there is no dispute, there has been some divergence of the emphasis put on by what criterion that cost should be determined. This question came up for consideration in Union of India v. Godfrey Philips India Ltd. [1985 (22) E.L.T. 306 (S.C.) = 1985 Supp. (3) SCR 123]. There, Chief Justice Bhagwati observed that whenever a question arises whether the cost of any particular kind of secondary packing is liable to be included in the value of the article, the question to be asked is does the packed condition in which the article is generally sold in the wholesale market at the factory gate include such secondary packing? The learned Chief Justice observed that if it does, it would be liable to be included in the value of the article for the purpose of excise duty. It, therefore, followed that if the packed condition in which the cigarettes manufactured by the respondents were generally sold in that case in the wholesale market at the factory gate included packing in corrugated fibre board containers, the cost of such corrugated fibre board containers was liable to be included in the value of the cigarettes for the purpose of excise duty. The learned Chief Just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le must become goods. In order to become goods, these must come to the market or be capable of coming to the market as definite and identifiable goods. So whatever expenses are necessary for making that possible, that much of the cost would be included in the "value". But what is subsequent to that, that is to say, any cost merely facilitating transport or merely ensuring security in transit are costs which are post-manufacture, i.e., after articles have become goods as a result of manufacture and are capable of becoming manufactured and thereafter dealt with. This, in my opinion, is the true test and read in that light, I do not find that there is really any divergence of opinion between Bhagwati, CJ, Pathak, J. and Sen, J. Of course, there is divergence of emphasis in the approach in which the question has to be looked into. This aspect of the matter was also dealt with by this Court in M/s. Hindustan Polymers v. The Collector of Central Excise (Civil Appeals Nos. 4339-41 of 1986) [Since reported in 1989 (43) E.L.T. 165 (S.C.)] -judgment in which was delivered on 23rd August, 1989, where one of us (Sabyasachi Mukharji, J.) after analysing these several cases of this Court observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. In my opinion, the views expressed by the majority of the Judges in Godfrey Philips' case (supra) were in consonance with the views of this Court in the Bombay Tyres International's case (supra). The question is not for what purpose a particular kind of packing is done but the test is whether a particular 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 and if they are generally sold in the wholesale market at the factory gate in 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. 7. In the present case, it has been factually found as indicated hereinbefore, by the Collector that the telcum powder and face powder are packed either in metal containers or in plastic containers, and thereafter they are put in dozen packing also of cardboard packings, which are inner cartons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re delivery was taken by wholesale dealers outside the city of Allahabad in that case. This Court found that it was not necessary to determine the disputed question of fact. It was held that even if the cardboard cartons were packed is wooden boxes in all cases, it was clear that the cost of such secondary packing in wooden boxes was not includible in determination of the value of batteries and torches. This Court agreed with the Godfrey Philips's case (supra) that corrugated fibre board containers were used as secondary packing only in order to ensure cartons or outers against injury or damage during transport and that it was not necessary if or putting the cigarettes in the corrugated fibre board containers for their sale in the wholesale market at the factory gate and the cost of such secondary packing was therefore not liable to be included in determination of the value of the cigarettes for the purpose of excise duty. 9. The Tribunal in the instant case observed as under : "We observe that in the facts of the present case, the rationale of the judgment of the Hon'ble Supreme Court above is squarely applicable. We hold following with respect to the ratio of the decision above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Sri Soli Sorabjee that the Tribunal's conclusion in this case has to be upheld straightaway in view of the decision of this Court in Godfrey Philips [ 1985 (22) E.L.T. 306 (S.C.) - 1985 Suppl. 3 S.C.R. 123] and Geep (C.A. Nos. 642-45 of 1982), I should like to add a few words. 12. Section 4(4)(d)(i) of the Act lays down that where goods are delivered at the factory gate in a packed condition, the cost of the packing should be included in the assessable value. The clause makes no distinction between primary packing and secondary or further subsequent packing. However, a restriction was read into the wide language of the clause by this Court in the Bombay Tyre International case (1984 1 S.C.R. 347). Posing the question whether the cost of all packing, no matter to what degree, in which the wholesale dealer takes delivery of the goods, should be included in determining the assessable value or a line should be drawn somewhere, the Court indicated that while the cost of primary packing was indisputably includible, the position would be different in regard to secondary packing. The Court observed that "the degree of secondary packing which is necessary for putting the excisable ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place the fluid goods on the market and that, therefore, the cost of the drums would have to be included in the assessable value. But this was not the view taken by this Court. There is, therefore, much to be said for the view that, in judging the condition of packing whose cost is to be included in the assessable value, one should go by the conduct of the parties and the nature of the packing in which the goods generally are - not, can be - placed in the wholesale market. 14. It is, however, urged for the respondent that such an enquiry has been held necessary by Godfrey Phillips, But, as pointed out by my learned brother, even the majority decision in that case does not go to the length suggested on behalf of the appellant and justify an investigation as to the state of packing in which the goods could be placed in the market. That would only be an exercise in theoretical speculation. On that basis, for instance, in the present case, it could be said, for the same reasons as have been given by the Tribunal, that the goods could be collected from the factory even in units of tin containers, leaving it free to the purchasers to make their own arrangements to pack them in cardboar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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