# [1985] Supp. 3 S.C.R. 123

- **Citation:** [1985] Supp. 3 S.C.R. 123
- **Court:** Supreme Court of India
- **Decided:** 1982-11-02
- **Bench:** P.N. Bhagiati, R.S. Pat!Jak, Amarendra Nath Sen
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1985-supp-3-s-c-r-123-9031
- **Pages:** 29

## Headnote

Central Excise and Salt Act 1944, Section 4(4) (d) (i) and
~xplanation thereto - 'value' - 'in a packed condition' - CoBt of
such packing - Whether to be included for excise duty - Primary
packing and secondary packing - Difference between.
Cigarettes - Manufactured and packed in paper/card board
packets and then in cartons - Cartons packed in corrugated fibre
board containers - Cost of corrugated fibre board containers
Exclusion for levy of excise duty - Whether arises.
Promissory estoppel
Doctrine of promissory estoppel -
Applicability
of -
Explained.
Constitution of India 1950, Article 141
Supreme Court - Enunciation of law by a Bench of the Court
- Whether Co-ordinate Bench entitled to express disagreement.
Words and Phrases
'Value' - 'in a packed condition' - Meaning of -
Central
Excise and Salt Act, 1944 Section 4(4)(d)(i).
The respondents in the appeals were manufacturers of
cigarettes• They manufactured cigarettes in their factories and
the cigarettes
so
manufactured
were
packed
initially in
paper/card board packets of 10 and 20 and these packets were then
packed together in paper/card board cartons/outers. These car
tons/outers were then placed in corrugated fibre board containers
and these corrugated fibre board containers filled with cartons/
outers containing packets of cigarettes of 10 and 20 were delivered by the respondents to.the wliolesale dealers at the factory
gate.
The wholesale price charged by the respondents for the
cigarettes sold to the wholesale dealers included not only the
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124
SUPREME COURT REPORTS
[1985] SUPP.3 s.c.R.
cost of primary packing in packets of 10 and 20, but also the
cost of secondary packing in cartons/outers and the cost of final
packing in corrugated fibre board containers.
On May 19, 1976 the Cigarette Manufacturers Association
B made a representation to the Central Board of Excise and Customs
pointing out that corrugated fibre board containers "are not an
integral or essential requirement for the sale of cigarettes and
are used for the sole purpose of protecting cigarettes from any
damage that may arise during transportation", and that the cost
of such corrugated fibre board containers should not therefore be
included in the value of goods for the purpose of excise duty.
C The Board accepted this plea of the Association and by a letter
dated
May
24,
1976
intimated
to
the
Association
that
"instructions have been issued to the Collectors 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". This representation contained in the
letter dated May 24, 1976 continued to hold the field until
0 November 2, 1982 when the Central Board of Excise and Customs
addressed a circular to all Collectors of Central Excise, stating
that the matter had been re-examined and the ear lier advice
should be treated as cancelled.
In the appeals by the Revenue to this Court, the question
for consideration was whether the cost of packing is includible
E in the value of the cigarettes for the purpose of assessment to
excise duty.
On behalf of the appellant-Revenue it was contended that on
a true construction of section 4 (4)(d)(i) read with the
F Explanation, that whatever be the packing, primary or secondary,
in which the cigarettes were packed when deli.vered to the buyer
in the course of wholessle trade at the factory gate, the cost of
such packing would be liable to be included in the value of the
cigarettes, and that it was a totally unwarranted gloss on the
language of section 4 (4)(d)(i) read with the Explanation to make
G a distinction between primary and secondary packing because that
section did not make any such distinction and on the contrary,
provided in the clearest terms for inclusion of the cost of the
entire packing in which the cigarettes were packed when delivered
to the whole-sale buyer at the time of removal.
H
On behalf of the respondents - companies, it was contende

## Text

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123
UNION OF INDIA & ORS,
Vo
GODFREY PHILIPS INDIA LTD. ETC, ETC.
~EPTEMBER 30, 1985
[P.N. BHAGIATI, CJ., R.S. PAT!JAK AND AMARENDRA NATH SEN, JJ.]
Central Excise and Salt Act 1944, Section 4(4) (d) (i) and
~xplanation thereto - 'value' - 'in a packed condition' - CoBt of
such packing - Whether to be included for excise duty - Primary
packing and secondary packing - Difference between.
Cigarettes - Manufactured and packed in paper/card board
packets and then in cartons - Cartons packed in corrugated fibre
board containers - Cost of corrugated fibre board containers
Exclusion for levy of excise duty - Whether arises.
Promissory estoppel
Doctrine of promissory estoppel -
Applicability
of -
Explained.
Constitution of India 1950, Article 141
Supreme Court - Enunciation of law by a Bench of the Court
- Whether Co-ordinate Bench entitled to express disagreement.
Words and Phrases
'Value' - 'in a packed condition' - Meaning of -
Central
Excise and Salt Act, 1944 Section 4(4)(d)(i).
The respondents in the appeals were manufacturers of
cigarettes• They manufactured cigarettes in their factories and
the cigarettes
so
manufactured
were
packed
initially in
paper/card board packets of 10 and 20 and these packets were then
packed together in paper/card board cartons/outers. These car
tons/outers were then placed in corrugated fibre board containers
and these corrugated fibre board containers filled with cartons/
outers containing packets of cigarettes of 10 and 20 were delivered by the respondents to.the wliolesale dealers at the factory
gate.
The wholesale price charged by the respondents for the
cigarettes sold to the wholesale dealers included not only the
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124
SUPREME COURT REPORTS
[1985] SUPP.3 s.c.R.
cost of primary packing in packets of 10 and 20, but also the
cost of secondary packing in cartons/outers and the cost of final
packing in corrugated fibre board containers.
On May 19, 1976 the Cigarette Manufacturers Association
B made a representation to the Central Board of Excise and Customs
pointing out that corrugated fibre board containers "are not an
integral or essential requirement for the sale of cigarettes and
are used for the sole purpose of protecting cigarettes from any
damage that may arise during transportation", and that the cost
of such corrugated fibre board containers should not therefore be
included in the value of goods for the purpose of excise duty.
C The Board accepted this plea of the Association and by a letter
dated
May
24,
1976
intimated
to
the
Association
that
"instructions have been issued to the Collectors 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". This representation contained in the
letter dated May 24, 1976 continued to hold the field until
0 November 2, 1982 when the Central Board of Excise and Customs
addressed a circular to all Collectors of Central Excise, stating
that the matter had been re-examined and the ear lier advice
should be treated as cancelled.
In the appeals by the Revenue to this Court, the question
for consideration was whether the cost of packing is includible
E in the value of the cigarettes for the purpose of assessment to
excise duty.
On behalf of the appellant-Revenue it was contended that on
a true construction of section 4 (4)(d)(i) read with the
F Explanation, that whatever be the packing, primary or secondary,
in which the cigarettes were packed when deli.vered to the buyer
in the course of wholessle trade at the factory gate, the cost of
such packing would be liable to be included in the value of the
cigarettes, and that it was a totally unwarranted gloss on the
language of section 4 (4)(d)(i) read with the Explanation to make
G a distinction between primary and secondary packing because that
section did not make any such distinction and on the contrary,
provided in the clearest terms for inclusion of the cost of the
entire packing in which the cigarettes were packed when delivered
to the whole-sale buyer at the time of removal.
H
On behalf of the respondents - companies, it was contended
that though section 4(4) (d)(i) read with the F.xplanstion did not
make any distinction between the primary packing and secondary
U.Q.I. V• GODFREY PHILIPS INDIA LTD.
125
packing, the cost of only such secondary packing was liable to be
A
included in the value of the cigarettes as wao necessary for sale
of the cigarettes in the wholesale trade, and not the cost of
.secondary packing whieh 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. It was further contended
B
that the cost of corrugated fibre board containers was not
includible in the value of the goods because the letter dated
24th May, 1976 constituted an el!l!lllj>tion order within the meaning
of Bule 8 sub-rule (2) of the Central Excise Hules, 1944 and the
respondents were accordingly exempted from payment of excise duty
on the cost of corrugated fibre board containers used for packing
C
the cigarettes, and the doctrine of promissory estoppel was
invoked against the Government on the basis of the representation
contained in the letter dated 24th May, 1976.
llELI>: 1. (per llbapati, c.J., Patbalr. and Sen, JJ· J The
Central Government and the Central Board of Excise and Customs
D
were clearlY bound bypromissory estoppel to exclude the
c~st of
corrugated fibre board containers from the value of the goods for
the purpose of assessment of excise duty for the period 24th May
. 1976 to 2nd November 1982, The respoudents would be entitled to
exclusion of the cost of corrugated fibre board containers from
the value of the cigarettes only during the period 24th May 1976
E
to 2nd November 1982. [147 B, C]
In the instant case, a representation was undoubted!y made
by the Central Board of Excise and Customs
and approved and
accepted by the Central Government, that the cost of corrugated
fibre boards containers would not be includible in the value of
the cigarettes for the purpose of assessment to excise duty. The
F
respondents acted upon this representation and continued the use
of corrugated fibre containers for packing the cartons/outers of
cigarette and did not recover from the wholesale dealers the
SD¥>unt of excise duty attributable to the cost of such corrugated
fibre board containers during the period 24th May 1976 to 2nd
November 1982. It would be most inequitable to allow the Excise G
authorities to assess excise duty on the basis that the value of
the cigarettes manufactured by the respondents should include the
cost of corrugated fibre board containers, when it was clearly
represented by the Central Board of Excise and Cuatoms 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. [146 C-F]
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SUPREME COURT REPORTS
[1985] SUPP.3 s.c.R.
2. What has been laid down in Hotilal Sugar Mills case
[1979] 2 s.c.R. 641 represents the correct law in regard to the
doctrine of promissory estoppel. The observations in Jeet Kara's
case [1980] 3 s.c.R. 689 to the extent that they conflict with
the statement of the law in Hotilal Sugar Mills case and
introduce reservations cutting down the full width and amplitude
of the propositions of law laid down in that case are dissented
from. If the Bench of two Judges in Jeet Ball's case fourul
themselves U11Sble to agree with the law laid down in Hotilal
Sugar Mills case they could have referred Jeet 118111s case to a
larger Bench. It was not right on their part to express their
disagreement with the enunciation of the law by a co-ordinate
Bench of the same Court in Hotilal Sugar Mills case. [145 C-E]
3. Union of India v. Bombay International Ltd. [1984] 1
s.c.c. 467 broadly dealt with the question of cost of packing,
and it was conceeded on behalf of the respondents in that case
that the cost of prilllary packing DllBt be regarded as falling
within the teflDS of s. 4(4)(d)(i) read with the Explanation and
it was only the cost of secondary packing which gave rise to
dispute between the parties. [131 F; 134 F]
{Per llbagvati, c.J.)
1. 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
wholeasle market at the factory gate include such secondary
packing? If it does, it would be liable to be included in the
value of the article for the
purpose of excise duty. It DllBt
therefore follow that if the packed
condition in which the
cigarettes manufactured by the respondents are generally sold in
the wholesde market at the factory gate includes packing in
corrugated fibre board containers, the cost of such corrugated
fibre board containers would be liable to be included in the
value of the cigarettes for the purpose of excise duty. [135 B-D]
2.
The
condition for applicability of the inclusive
defenition of "value" in s. 4 (4)(d)(i) is that the goods are
delivered at the time of removal "in a packed coodition• and
where this condition is satisfied, the "value" of the goods would
include "the cost of such packing" and "such packing" oust
obviously mean the packing in w-hich the goods are when they are
delivered at the time of removal. The question therefore to be
u.o.I. V· GODFREY PHILIPS INDIA LTD.
127
asked is - what is the packed condition in which the goods are
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
rerooval, the cost of such packing would be liable to be included
in the 'value' of the goods. The Explanation to s. 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. [135 F-G)
3. Oridinarily bobbin, pirl, spool, reel and warp beam on
which yarn is wound would not be regarded as packing of such
yarn, but 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 proceed& to
say that "packing" meana wrapper, container or any other thing in
which the excisable goods are wrapped or contained. [135H; 136B]
4. It is apparent from the wide lsngusge of the Explanation
that every kind of container in which it can be said that the
excisable gooda are contained would be "packing" within the
meaning of the Explanation and this would necessarily include a
fortiorari corrugated fibre board containers in which the
cigarettes are contained. [136 CJ
5. The question is not for what purpose a particular kind
of packing is done. The test 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 and 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 inciudible in the value of the goods for
assessment to excise duty. [137 E-F]
In the inatant case, there can therefore be no doubt that
corrugated fibre board containers in which the cigarettes are
contained fall within the definition of
"packing" in the
Explanation and if they form part of the packing in which the
gooda are packed when delivered at the time of removal, it ia
difficult to resist the conclusion that under s. 4 (4)(d)(i) read
with the Explanation, the cost of such corrugated fibre board
containers would be liable to be included in the value of the
cigarettes. [136 E~F]
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· SUPREME COURT REPORTS
(1985) SUPP.3 s.c.R.
A.·
6. IWJ.e 8 of the Central Excise J.WJ.es, 1944 deals with the
power to authorise exemption from duty in aped.al cases. Sub-rule
(2) . IWJ.e 8 postulates the making of a special order i>y the
Central Board of Excise and Custans in each case exempting from
payment of duty s:ny ~sesble goods. (139 c, G)
·
B
7 • The letter dated 24th May 1976 could not possibly be
c
.
D
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regarded as a special order by the Central Board of Excise and
Custans in the case of each of the mam.:.facturers of cigarettes
exempting cigarettes from ·payment of duty· to the extent of the
cest of pack•ng by way of corrugated fibre board containers~ The
ars=ent of the respondents 'baaed on sub-rule (2) of IWJ.e 8 lllWlt
be therefore rejected. ( 139 G; 140 A)
·
8 •. The doctrine of promissory eatoppel is well-established
in the adminiatrative law of India. It represents a principle
evolved by equity to avoid injustice and, though commonly named
promissory estoppel, it is· neither in the realm of contract nor
in the realm of estoppel. The i>aais of this doctrine is the inter
position of equity which has always, true to its form,,· stepped
in to mitigate the ri"gour of strict law.
g, The doctrine of promissory - estoppel is applicable
against the Goverment in the exercise of its govermental,
public or eucutive functions and the doctrine of executive
necessity or freedaa of future executive action cannot be invoked
·to defeat the applicability of the doctrine of promissory
eatoppel. [144 G)
..
. -
Ce>ttal Lmdca PlopeLtj Trust I.1Jlited v. B1&h .Trees llouae
Lbdted, (1966) l AU. E. JI., 256, ll2deriaktieholaget A=pbitrite y,
2he E!Dg, ll921] 3 Jt,B, 500, lohentoo "• llilliater of Pmaiolls,
'•, F
(1949) l Jt,B. 227, 1lni<a of Ind1a v. lDdo Afghan ~- [1968) -
G
H
., , 2 . s.c.11.. 366 and Century SpimW>g and l!l!mifacturl"3 Coapimy
L1llited .... tnhnn•gar lbl1cipal a---n, (1970) 3 s.c.11.. 854,
·referred to.
·
10. The doctrine of promissory eatoppel being s:n equitable .
doctrine, lllWlt yield when the e(iuity so requires, if it can be
shown by the Goverment or public authority that having regard to
the facts as they have transpired, it would be· inequitable· to
bOld the Goverment · or public authority to · the promise or.
representation made by it. The Court would not raise s:n equity in
favour . of the person to wbaa the promise or representation is
made . and enforce the promise or representation againa t th8
Goverment or public · authority. The doctrine of. promissory
u.o.I. V• GODFREY PHILIPS INDIA LTD.
129
estoppel would be displaced in such a case, because on the facts
A
equity would not require that the Government or public authority
should be held bouud by the promise or representation made by it.
[145 G; 146 AJ
(Per Pathalt 6 Sen, JJ. d1ssentfng)
The corrugated fibre board containers are not necessary for
sel.liJl8 the cigarettes in the wholesale market at the factory
gate. The cost of such packing cannot be included in the 'value'
for the P'Jrpose of assessment of excise duty. (148 G; 151 BJ
(Per 11..s. Pathak, .r.)
1. Under s. 3 of the Central Excise and Salt Act, 1944 the
levy of .excise duty is made on manufactured cigarettes, the
exclsable goods. Section 4 of the Act provides how the ·•value'
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. (148 BJ
2. For the purpose of computing the measure of the levy,
the statute has given an extended meaning to the expression
'value' in clause (d) of sub-a. (4) of sec. 4 of the Act. The
expression 111USt be strictly construed. What is being included in
the value now is something beyond the value of the manufactured
comaodity itself, [148 CJ
3. The corrugated fibre board containers are employed only
for the purpose of avoiding damage or injury during transit. The
wholesale dealer who takes delivery may have his depot a very
short distance only ·from the factory gate or may have such
transport arrangements available that damage or injury to the
cigarettes can be avoided. The corrugated fibre board containers
are not necessary for selling the cigarettes in the wholesale
market at the factory gate. [148 F-<;J
4. The position expressed by the Central Board of Excise
and Custom in its letter dated May 24, 1976 was right wnen it
declared that the Collector of the Central Excise has been
instructed that "the cost of corrugated fibre board containers in
question does not form part of the value of cigarettes for the
purpose of excise duty." (148 HJ
Uaf.au. of India v. Bombay tyre Int:ematianal Ud., (1984] l
s.c.c. 467, referred to.
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SUPREME COURT REPORTS
(1985] SUPP.3 s.c.R.
(Per A.II. Sm, J.)
l. Excise duty which is levied on the goods is ultimately
passed on to the consumers of the goods and they have ultillately
to bear the burden. So far as the consumers are concerned they
bu)' cigarettes, loose or in packets or even in cartons. Cartons
packed in corrugated fibre board containers are not purchased by
the consumers. So far as the retail sellers are concerned who
may buy frOll wholesalers, they usually buy loose packets of
cigarettes or packets of cigarettes packed in cartons. So far as
the buyers in the wholesale trade are concerned, they buy the
cartons of cigarettes in which the packets of cigarettes are
packed in the course of their wholesale trade for selling the
same to retailers or to their customers. It is only for the sake
of convenience in the matter of BlDOOth deli very of cartons in
which the packets of cigarettes are packed that the cartons may
be further packed in corrugated fibre board containers for
facility of transport and BlDOOth transit of the cartons before
delivery of the same to the wholesale buyer. (151 11-!l]
2. On a proper conatruction of s.4(4)(d)(i) of the Act read
with the Explanation any secondary packing done for the purpose
of facilitating transport and B1D00th 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.
(150 G-1!]
In the inatant case, the cost of corrugated fibre board
containers which the cartons containing the packets of cigarettes
is packed, cannot be included in the value for the purpose of
assessment of excise duty. (151 A]
UniaD of India V• Bomllay TJre lntenlatiollal Ltd. (1984] 1
s.c.c. 467, referred to.
CIVIL APPELIATE JURISDICTION : Civil Appeal No. 1136 of
1977.
From the Judgment and Order dated 29.4.1976 of the Bombay
High Court in Misc. Petn. No. 548 of 1974.
AND
Civil Appeal No. 1244 of 1977.
u.o.I. v. GODFREY PHILIPS INDIA LTD. [BHAGWATI, C.J.]
131
From the Judgment and Order dated 15.12.1975 of the Bombay
High Court in Spl. Misc. Petition No. 293 of 1974.
AND
Civil Appeal Nos. 55-61 of 1979.
From the Judgment and Order dated 18.8.1977 of the Andhra
Pradesh High Court in Writ Appeals NOs. 252, 435, 550, 553 and
560 of 1976 and Writ Petition Nos. 3114 and 6044 of 1975.
K· Parasaran, Solicitor General, N.C. Talukdar, Suraj Udai
Singh, Dalveer Bhandari, c.v. Subba Rao and R.N. Poddar for the
Appellants.
N.A. Palkhiwala, J.C. Bhatt, D.B. Engineer, B.H. Antia,
Ravinder Narain, o.c. Mathur, Kamal Mehta,
Talat Ansari, Mrs.
A.K. Verma, Ashok Sagar, Sukumaran, D.N. Mishra, Kamal Mehta and
Ms. Rainu Walia for the appearing Respondents.
s.
Roy
Chowdhury,
Jatin
Ghosh,
D.N.
Gupta,
s.
Ramsubramaniam, D.N. Gupta and S.K. Nandy for the Intervener•
The following Judgments were delivered
BHAGWATI, C .J. These appeals by special leave raise a
m.unber
of
questions relating to excise duty
leviable on
cigarettes manufactured by the respondents. Barring one, all the
other questions are now settled as a result of the decision of
this Court in Union of India V• Bombay Tyre International Ltd.
(1984] l s.c.c. 467, 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 Bombay Tyre
International case (supra). The only question which remains to be
considered is in regard to 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 their factories and
the cigarettes so manufactured are packed initially in paper/card
board packets of 10 and 20 and these packets are then packed
together in paper/card board cartons/outers. These cartons/outers
are then placed in corrugated fibre . board containers and it is
A
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SUPREME c;<>URT REPORTS
[1985] SUPP.3 s.c.R.
A
these
corrugated
fibre
board
containers
filled
with
cartons/outers containing packets of cigarettes of 10 and 20
which are delivered by the respondents to the whole sale dealers
at the factory gate. It was common ground between the parties
that the whole-sale price charged by the respondents for the
cigarettes sold to the whole-sale dealers includes not only the
B
cost of primary packing in packets of 10 and 20, but also the
cost of secondary packing in cartons/outers and the cost of final
packing in corrugated fibre board containers. So far as the two
items of cost, namely .cost of primary packing into packets of 10
and 20 and the cost of secondary packing in cartons/outers, are
concerned, there was no dispute between the parties that these
two items of cost must be included in determining the value of
C
the cigarettes for the purP.,se of assessment to excise duty,
since such packing would admittedly fall within the terms of
section 4(4)(d)(i) of the Central Excises
and Salt Act, 1944
(hereinafter referred to as the Act) read with the Explanation to
that provision. But the question whether the cost of final
packing in corrugated f'l.bre board containers would be liable to
be included in the value of the cigarettes for the purpose of
D
assessment to excise duty raised a serious controversy between
the parties. The appellant contended that on a true construction
of Section 4(4)(d)(i) read with the Explanation, whatever be the
packing, primary or secondary, in which the cigarettes were
packed when delivered to the buyer in the course of whole-sale
trade at the factory gate, the cost of such packing would be
E
liable to be included in the value of the cigarettes. The
argument of the appellant was that it was a totally unwarranted
gloss on the language of Section 4(4)(d)(i) read with the
Explanation to make a distinction between primary and secondary
packing because that section did not make any such distinction
and on the contrary, provided in the clearast terms for inclusion
F
of the cost of the entire packing in which the cigarettes were
packed when delivered to the whole-sale buyer at the time of
removal. 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
G
included in the value of the cigarettes as was necessary for sale
of the cigarettes in the whole sale 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 warehous~ of the whole-sale dealer. The packing in corrugated
H
fibre board containers,
contended the respondents,
was not
u.o.I. V• GODFREY PHILIPS INDIA LTD. [BllAGWATI, c.J.]
133
necessary or essential for the purpose of sale of the cigarettes
to the whole-sale dealer at the factory gate but it was done only
A
with a view to facilitating transportation of the cigarettes from
the factory gate to the godown or warehouse of the whole-sale
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 we shall
B
now proceed to examtne them·
We have broadly dealt with the question of cost of packing
in the Judgment delivered by us in Bombay Tyre
International
case (supra) and it wou1'1 be convenient at this stage to
reproduce what we have said in that Judgment in regard to the
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cost of packing:
"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
D
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)
E
reads
x
x
x
x
x
x
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
F
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
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the a9sessees, 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 tablets in a
card-board carton, or biscuits in a paper wrapper or
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SUPREME COURT REPORTS
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in a tin container, muat be regarded aa 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 haa 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
whst degree, in which the wholesale dealer takes
detlvery of the goods to be considered for including
the cost thereof in the "value" ? We 1111st 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 solJ 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 aa primary packing is concerned,
it was conceded on behalf of the respondents in that csae that
the cost of primary packing 1111st 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 dispute
F
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 distinction could
be drawn between one degree of secondary packing and another. We
posed the question: "Is all the packing, no matter to whst
degree, in which the whole-sale dealer takes deli very of the
G goods to be considered for including the cost thereof in the
"value"? Or does the law require a line to be drawn somewhere?"
''We did not answer this question specifically, leaving it to a
later date when this question would directly come up for
consideration on the facts of a particular case. We however laid
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u.o.I. v. GODFREY PHILIPS INDIA LTD. [BHAGWATI, c.J.]
135
down the general proposition 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 whole-sale
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 duty". Where therefore a question arises whether the
cost of any particular kind of secondary packing is liable to be
B
included in the value of article, we would have to ask does the
packed condition in which the article is generally sold in the
whole-sale market at the factory gate include such secondary
packing? If it does, it would be liable to be included in the
value of the article for the purpose of excise duty. On this
reasoning it must follow that if the packed condition in which
C
the cigarettes manuf actu~ed by the respondents are generally sold
in the whole-sale market at the factory gate includes packing in
corrugated fibre board containers, the cost of such corrugated
fibre board containers would be liable to be included in the
value of the cigarettes for the purpose of excise duty.
We
may
leave
aside
for
the
moment
the
above
observations made by us in the Judgment
in
Bombay
Tyre
InternatioDaJ. case (supra) and turn to examine the language of
Section 4(4)(d)(i) read with the Explanation. Section 4(4) (d)
D
(i) enacts an inclusive definition of "value" and provides that
E
"value" in relation to any excisable goods, "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. The condition for applicability of this inclusive
definition of "value" is that the goods are delivered at the time
of removal in a packed condition" and where this condition is
F
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 when they are delivered at the time of
removal. The question which has to be armed is: what is the
packed condition in which the goods are when delivered at the
time of removal? Whatever is the packing of the goods at the time
G
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
packiIJtl
but
also
what
may
be
called inner
packing. Ordinarily bobbin, pirl, spool, reel and warp
beam on
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SUPREME COURT REPORTS
[1985] SUPP.3 s.c.R.
A
which yam is wound would not be regarded as packing of such
yam, 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
B
other thing in which the excisable goods are wrapped or
contained. It is apparent from
the wide
language of
the
Explanation that every kind of container in which it can be said
that the excisable goods are contained would be "packing" within
the meaning of the Explanation and this would necessarily include
a fortiorari corrugated fibre board containers in which the
cigarettes are contained. When Bombay Tyre International case was
c
argued before us, it was at one stage sought to be contended,
though rather faintly, that it is only the immediate packing in
which the excisable goods are contained, that is primary packing
alone, which would be liable to be regarded as "packing" within
the meaning of the Explanation. But this argument was given up
when it was pointed out that even secondary packing would be
within the terms of the Explanation, because such secondary
D
packing would also constitute a wrapper or a container in which
the excisable goods are wrapped or contained. That is why we held
in the Judgment in Bombay Tyre International case (supra) that
secondary packing is also included within the term "packing" in
the Explanation. There can therefore be no doubt that corrugated
fibre board containers in which the cigarettes are contained fall
E
within the definition of "packing" in the Explanation and if they
form part of the packing in which the goods are packed when
delivered at the time of removal, it is difficult to resist the
conclusion
that
under
Section
4(4)(d)(i)
read
with
the
Explanation, the cost of such corrugated fibre board containers
would be liable to be included in value of the cigarettes.
F
But then it was contended on behalf of the respondents that
it is not the cost of every kind of secondary packing which is
includible in the value of the excisable goods. Whether the cost
of secondary packing is includible or not must depend upon the
necessity or essentiality of such secondary packing for sale of
G
the excisable goods at the factory gate in the course of
wholesale trade. The argument was that where the secondary
packing is necessitated in order to protect the packed excisable
goods from damage during the course of transportation from the
factory gate to the godown or warehouse of the wholesale dealer,
the cost of such secondary packing cannot be included in the
H
value of the goods. The respondents thus sought to draw a
u.o.I. v. GODFREY PHILIPS INDIA LTD. [BHAGWATI, c.J.]
137
distinction between secondary packing necessary for the purpos~
of selling the goods at the factory gate in the course of
wholesale trade and the secondary packing . uaed 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 concerr.ed.
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 ma'ketable 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
facotry gate in such packed condition as 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 therefore such would
be the packed condition in which the goods are generally sold in
the wholesale market at the factory gate. 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. The question is not for what
purpose a particular kind of packing is done. The test 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 and if they are generally sold in the
wholesale market at the factory gate in a certain packed
cond.itioμ, whatever may be the reason for such packing, the cost
of such packing would be includible ln the value of the goods for
assessment to excise duty. Of course, as pointed out by us in the
judgment in Bombay Tyre International case 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 trade, the cost of such' special packing
would not be includible in'the value of the goods and would have
to be deducted from the wholesal~ cash price.
That takes us to the next contention of the respondents
based on the letter dated 24th May 1976 addressed by the Under
Secretary, Central Board of Excise and Customs to the Cigarette
Manufacturers'
Association.
It is
necessary,
in order
to
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SUPREME COURT REPORTS
[1985] SUPP.3 s.c.R.
A
appreciate the contention based on this letter, to state a few
facts. On 19th May 1976 the Cigarette Manufacturer's Association
made a representation to the Central Board of Excise and customs
pointing out that corrug&.ed fibre board containers "are not an
integral or essential r~quirement for the sale of cigarettes and
are used for the sole purpose of protecting cigarettes from any
B
damage that may arise during transportation" and that the cost of
such corrugated fibre board containers should not therefore be
included in the value of the goods for the purpose of excise
duty. The Central Board of Excise and Customs after examining
this question accepted the plea of the Cigarette Manufacturers'
Association and by a fetter dated 24th May 1976 intimated to the
Cigarette Manufacturers' Association that "instructions have been
c
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
D
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cigarettes for the purpose of assessment to excise duty snd 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 24th May 1976 continued to
hold the field until 2nd November, 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 gosds are packed at
the time of the removal may form part of the assessible value of
such goods" and the earlier advice inconsistent with this
position should be treated as cancelled. The question which was
raised on behalf of the respondents on this set of facts was as
to whether during the period between 24th May 1976 and 2nd
November 1982 the respondents were liable to pay excise duty on
the basis that the cost of corrugated fibre board containers was
includible in the value of the goods. It was contended on behalf
of the respondents that 'the cost of corrugated fibre board
containers was not includible irr the value of the goods and there
were two arguments urged in support of this contention. The first
argument was that the letter dated 24th May 1976 constituted an
exemption order within the meaning of Rule 8 sub-rule (2) of the
Central Excise Rules, 1944 and the respondents were accordingly
u.o.I. v. GODFREY PHILIPS INDIA LTD. [BHAGWATI, c.J.]
139
exempt from payment of excise duty on the cost of corrugated
A
fibre board containers used for packing the cigarettes. The
second argument invoked the doctrine of promissory estoppel
agains.t the aovernment on the basis of the representation
contained in the letter dated 24th May 1976. The first argument
is in our opinion not well-founded but so far as the second argument is concerned, we find that there is considerable force in
B
it.