# COLLECTOR OF CENTRAL EXCISE v. POND'S INDIA LTD

- **Citation:** [1989] Supp. 1 S.C.R. 479
- **Court:** Supreme Court of India
- **Decided:** 1989-10-19
- **Bench:** Sabyasachi Mukharji, S. Ranganathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/collector-of-central-excise-v-pond-s-india-ltd-10495
- **Pages:** 16

## Headnote

B
Central Excises and Salt Act 1944: Section 4(4)(d)(i)-Cost of
packing-Whether includible in value of goods for purposes of assessment to excise duty.
The Respondent-assessee used to manufacture talcum powder
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and face powder and were clearing the same on payment of excise duty.
The assessee claimed deduction of cost of packing for transportation in
respect of small packings of powder ranging 'from 0.27 paise to 11. 76
paise per dozen packings and the same was first approved by the
Department but later the Department having noticed that the small
packs were first packed in dozen, and thereafter packed in secondary
D
packings for easy transportation to the wholesale dealer, disallowed the
claim of dednction.
The Assistant Collector in view of this Court's decision in postmanufacturing expenses cases took the view that the amount claimed:by
the Respondent was not deductible and accordingly issued a show cause
E
notice to the Respondent raising a demand on the respondent to pay the
differential duty on the cost of secondary packings which was stated to
be Rs.3,46,151.92 P. for the period from 2.12.85 to 31.5.1986. The Asstt
Collector by his order dated 27 .2.87 disallowed the Respondent's claim
for exclusion of the cost of packing for transportation and thus rejected
the claim.
F
The Respondent preferred an appeal to the Collector of Customs
but did not succeed and thus appealed to the Customs, Excise and Gold
(Control) Tribunal. The Respondent relied on the decision of this Court
in Union of india v. Godfrey Philips India Ltd., [1985] 3 Suppl SCR
123 and contended that in view of the decision of this Court, the cost of G
third stage packing, the outer cartons, intended for transport could be
inclnded in the assessable value only if packing was necessary for the
sale of goods in the wholesale market. The Tribunal however relying on
the decision of this Court in Union of India & Ors. v. Bombay Tyre
International Ltd., [1984] l SCR 347 held that the Cost of outer or
bigger cartons in which the smaller cartons containing powder tins ·are
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479
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480
SUPREME COURT REPORTS
[1989] Supp. 1 S.C.R.
packed is not includible in the assessable value as the delivery of the
goods can be taken in smaller cartons at the factory gate by a buyer in
the course of wholesale trade.
Being aggrieved by that decision the Revenue came up in appeal
to this Court under Section 3SL(b) of the Act.
Allowing the appeal and remanding the case to the Tribunal with
directions, this Court,
HELD: (Per Sabyasachi Mukharji, J.)
What is to be included in the value has to be determined in terms
of Section 4(4)(d)(i) of the Act. [485F]
The question is not for what purpose a particular kind of packing
is done but the test is whether a particular packing is one 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 includible in the value of the goods for assessment to excise
duty. [490B-C]
In the present case, it has been factually found by the Collector
that. the talcum 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, and contain one dozen. The same are then put in the master carton for purpose
of delivery to wholesale dealers. [490C-D]
The correct position seems to be that the cost of that much of
packings, be they primary or secondary, which are required to make
the articles marketable would be includible in the valut. How much
packing is necessary to make the goods marketable is a q.lestion of fact
to be determined by application of the correct approach. Packing which
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is primarily done or mainly done for protecting the goods\ and not for
making the goods marketable should

## Text

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COLLECTOR OF CENTRAL EXCISE
A
v.
POND'S INDIA LTD.
OCTOBER 19, 1989
[SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.]
B
Central Excises and Salt Act 1944: Section 4(4)(d)(i)-Cost of
packing-Whether includible in value of goods for purposes of assessment to excise duty.
The Respondent-assessee used to manufacture talcum powder
C
and face powder and were clearing the same on payment of excise duty.
The assessee claimed deduction of cost of packing for transportation in
respect of small packings of powder ranging 'from 0.27 paise to 11. 76
paise per dozen packings and the same was first approved by the
Department but later the Department having noticed that the small
packs were first packed in dozen, and thereafter packed in secondary
D
packings for easy transportation to the wholesale dealer, disallowed the
claim of dednction.
The Assistant Collector in view of this Court's decision in postmanufacturing expenses cases took the view that the amount claimed:by
the Respondent was not deductible and accordingly issued a show cause
E
notice to the Respondent raising a demand on the respondent to pay the
differential duty on the cost of secondary packings which was stated to
be Rs.3,46,151.92 P. for the period from 2.12.85 to 31.5.1986. The Asstt
Collector by his order dated 27 .2.87 disallowed the Respondent's claim
for exclusion of the cost of packing for transportation and thus rejected
the claim.
F
The Respondent preferred an appeal to the Collector of Customs
but did not succeed and thus appealed to the Customs, Excise and Gold
(Control) Tribunal. The Respondent relied on the decision of this Court
in Union of india v. Godfrey Philips India Ltd., [1985] 3 Suppl SCR
123 and contended that in view of the decision of this Court, the cost of G
third stage packing, the outer cartons, intended for transport could be
inclnded in the assessable value only if packing was necessary for the
sale of goods in the wholesale market. The Tribunal however relying on
the decision of this Court in Union of India & Ors. v. Bombay Tyre
International Ltd., [1984] l SCR 347 held that the Cost of outer or
bigger cartons in which the smaller cartons containing powder tins ·are
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SUPREME COURT REPORTS
[1989] Supp. 1 S.C.R.
packed is not includible in the assessable value as the delivery of the
goods can be taken in smaller cartons at the factory gate by a buyer in
the course of wholesale trade.
Being aggrieved by that decision the Revenue came up in appeal
to this Court under Section 3SL(b) of the Act.
Allowing the appeal and remanding the case to the Tribunal with
directions, this Court,
HELD: (Per Sabyasachi Mukharji, J.)
What is to be included in the value has to be determined in terms
of Section 4(4)(d)(i) of the Act. [485F]
The question is not for what purpose a particular kind of packing
is done but the test is whether a particular packing is one 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 includible in the value of the goods for assessment to excise
duty. [490B-C]
In the present case, it has been factually found by the Collector
that. the talcum 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, and contain one dozen. The same are then put in the master carton for purpose
of delivery to wholesale dealers. [490C-D]
The correct position seems to be that the cost of that much of
packings, be they primary or secondary, which are required to make
the articles marketable would be includible in the valut. How much
packing is necessary to make the goods marketable is a q.lestion of fact
to be determined by application of the correct approach. Packing which
G
is primarily done or mainly done for protecting the goods\ and not for
making the goods marketable should not be included. l49IH; 492AJ
The Tribunal was in error in approaching the problem before it
by looking al the question whether the goods packed in the smaller
cartons conld he sold in a wholesale market in the course of wholesale
1-1
trade at the factory gate without the outer cartons in which the smaller
C.C.E. v. POND'S INDIA [MUKHARJI, J.]
481
cartons are packed. The question is oot whether these goods could be so
A
sold but the question is whether these goods are so sold usually and as
such used to become marketable in such manner. [492B-C)
(Per S. Ranganathan, J.)
Section 4(4)(d)(i) of the Act lays down that where goods are
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delivered by 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 and secondary packing or further subsequent packing. [492G)
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
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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. [493H; 494AJ
Mis. Hindustan Polymers v. The Collector of Central Excise,
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[1989) 3 SCR 974 case, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2043
(NM) of 1989.
From the Judgment and Order dated 28.11.1988 of the Customs.
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Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal
No. E.A. No. 3302/87 A in Order No. 558/88-A.
K. Parasaran, Attorney General, A.K. Ganguli and P. Parmeshwaran for the Appellant.
Soli J. Sorabji, S. Ganesh, R. Narain, P.K. Ram and D.N.
Mishra for the Respondent.
The following Judgments of the Court were delivered
F
SABY ASA CAI MUKHARJI, J. This is an appeal under section G
35L(b) of the Central Excises & Salt Act, 1944 (hereinafter called 'the
Act') from the judgment and order of the Customs, Excise & Gold
(Control) Appellate Tribunal, New Delhi, (hereinafter called 'tlie Tribunal') date 28th November, 1988.
M/s. Ponds India Ltd., (hereinafter referred to as 'the responH
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[1989) Supp. 1 S.C.R.
dent') used to manufacture telcum powder and face powder falling
under tariff item 14F of the Central Excise Tariff, which are now under
sub-heading No. 3304.00 and were clearing the same on payment of
duty. The assessee claimed deduction of cost of packing for transportation in respect of small packings of 15, 18, 20, 30, 40 & 100 gms.
powder ranging from 0.27 paise to 0. 76 paise per dozen packings and
the same was approved provisionally by the office of the Asstt. Collector of Central Excise, Pondicherry. The said approval was by an
order 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 Asst!. 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 postmanufacturing 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 Asst!. Collector by his order dated February 27,
1987 disallowed the respondent's claim for exclusion of the cost of
packing of transportation and thus rejected its claim. He inter alia,
observed as follows:
"Therefore, I consider that the cost of secondary packings
viz, card board cartons are rightly includible in the assessable value of items mentioned in PL No. 405/ 85-86 and
406/85-86 dated 10.12.85 under Section 4(4)(d)(i) of the
Central Excises and Salt Act, 1944, and the provisional
assessments are to be finalised accordingly. T.he assessees
are also liable for payment of differential duty of
Rs.3,46,151.92 as demanded in the.show cause notice cited
under Section l!A of the Central Excises and Salt Act read
with rule 9B of the Central Excise Rules, 1944."
There was an appeal to the Collector of Customs which was
G disposed of by an order dated 15th September, 1987. It is necessary to
set out the said observations of the Collector, in view of the contentions sought to be raised in these matters. He, inter alia, observed as
follows:
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"I have carefully considered the submission of the appellants made in their grounds of appeal and repeated during
C.C.E. v. POND'S INDIA [MUKHARJI, J.)
483
personal hearing. I find that the appellant's claim is solely A
based on the judgment of the Hon'ble Supreme Court iii
the case of Godfrey Philips and which has been followed by
different High Courts also from time to time. First of all, it
is necessary to consider whether the goods sold by the appellants viz. talcum powder and face powder required an
outer carton packing for purpose of safety in transit, which
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was the case before the Hon'ble Supreme Court in case of
M/s Godfrey Philips. It ·cannot be disputed that talcum
powder and face powder are packed either in metal containers or in plastic packing also of cardboard. packings,
which are inner cartons and contain one dozen. The··same
are then put in the master carton for purpose of delivery to
wholesale dealers. In the I-lon'ble Supreme Court's judgC
meat, it is stated that the corrugated fibre board containers
are employed only for purpose of avoiding damage or
injury during transit. But that is not as in the case of the
appellants. There is no likelihood of any damage or injury
to .the tins or the plastic containers employed as a primary D
packing even if the goods are transported without the outer
packing. Unlike cigarettes, even dampness is not going to
affect the goods because they are hermetically sealed when
put in the primary packing. Therefore, the ratio of the
judgment of Hon'ble Justice Pathak which is quoted by the
appellants is not a~ailable in the case of different goods
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which are not perishable as cigarettes are. The second
point is that cigarettes are sold by carton of 200 cigarettes
each, even in wholesale trade. That is not the case in the
appellant's wholesale trade 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 F
from the invoice produced during personal hearing).
'I)lerefore, 1t 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 oCourt's decision in the case of MRF becomes
applicable. In case of talcum powder and face powder, it is G
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 H
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[1989] Supp. I S.C.K.
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 JOO
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 ratio of the Godfrey Philips case is not applicable in .the appellant's case. I find that the talcum powder
and face powder are cleared in the master carton packing in
the factory and it is in that packing the same are put in the
stream of wholesale trade. Further, I do not find that the
master cartons are employed solely for purpose of protecting the goods during transit. But the same are used for
giving delivery in wholesale trade by the appellants. Therefore, the order of the Asstt. Collector, including the cost of
master cartons in assessable value of the goods is correct
and proper and needs no interference. That being the only
point for determination in appeal, the appeal is rejected."
There was an appeal to the Tribunal. It was contended on behalf
of the respondent herein before the Tribunal that the only question for
determination was, whether the cost of third stage packing, the outer
carton, intended for transport can be included in the assessable value.
It was pleaded that all goods were cleared from the factory in the outer
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cartons With the smaller carton containing dozen containers of
powder. It was further contended that the facts of this case were same
as in the case of cigarettes dealt with by this Court in Union of India &
Ors. v. Godfrey Philips India Ltd., [1985] 3 Suppl SCR 123. It is
contended that in view of the said decision of this Court, cost of
cartons was included only if packing was necessary for the sale of goods
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in the wholesale market. It is submitted that it was not so necessary. for
sale. The Tribunal noted that the question of inclusion of cost of
secondary packing in Section 4(4}(d}(i) of the Act, be it at the first
stage, second or third stage of packing, has to be decided in each case
depending upon the facts applicable. The Tribunal found that so far as
the smaller carton is concerned, the inclusion of the cost of the same in
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the assessable value was not in dispute and the appellants have con·
ceded that the value is includible following the ratio of the judgment of
this Court. It also noted that it was nobody's case that the number of
tins contained in the smaller carton constitute retail packing rather
than wholesale packing. The Tribunal felt that the only question to be
decided was, whether the goods packed in the smaller cartons could be
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sold to the wholesale buyer in the course of wholesale trade at the
C.C.E. v. POND'S INDIA [MUKHARJI, J.]
485
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 p"urpose of preventing
damage to the tin containers which were sophisticated in nature taking
into account th,e 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
the factory g_ate. There was no plea on record that the smaller carton is
flimsy and not sufficient for the purpose of marketing the tins and their
storage in the course of wholesale trade. the Tribunal referred to the
observations of this Court in Union of India & Ors. v. Bombay Tyre
International Ltd., [1984] 1 SCR 347, and following the same came to
the conclusion that the cost of outer or bigger cartons in which the
smaller cartons containing powder tins are packed, is not includible in
the assessable value as the delivery of the goods can be taken in smaller cartons at the factory gate by a buyer in the course of wholesale
trade. The outer cartons were held to be for the purpose of transport
of the goods and were not required for the sale of the goods at the
factory gate. The revenue seeks to challenge this basis.
What is to be included in the value, has to be determined in
terms of section 4( 4)(d)(i) of the Act. The question has been examined
from all points of views by this Court.
The question of secondary packing was examined by this Court
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in Bombay Tyres International's case (supra). There, this Court
observed that for the purpose of determining the 'value', broadly G
speaking both olds. 4(a) and the news. 4(1)(a) speak of the price for
sale in the course of wholesale trade of an article for delivery at the
time and place of removal, namely, the factory gate. Where the price
contemplated under the old s. 4{a) or under new s. 4(l)(a) is not
ascertainable, the price is determined under the olds. 4(b) or the new
s. 4( l)(b ). Now, the price of an article is related to its value (using this
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SUPREME COURT REPORTS
[1989] Supp. 1 S.C.R.
term in a general sense) and into that value have poured several components, including those which have enriched its value and given to the
article its marketability in the trade. Therefore, the expenses incurred
on account. of the several factors which have contributed to its value
upto the date of sale, which apparently would be the date of delivery,
are liable to be included. Consequently, where the sale is effected at
the factory gate, expenses incurred by the assessee upto the date of
delivery on account of storage charges, outward handling charges,
interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely,
after-sales 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 news. 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 s. 4(4)(d)(i) of the Act. There is no dispute 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, must be regarded as falling within s. 4(4)(d)(i) of the Act.
There is often, as in this case, 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. The question with which this Court was
concerned in that case was: is all the packing, no matter to what
degree, in which the wholesale dealer takes delivery of the goods to be
considered for including the cost thereof in the 'value'? Or does the
law require a line to be drawn somewhere? This Court observed that
one 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. Therefore, this Court observed that the
C.C.E. v. POND'S INDIA [MUKHARJI, J.J
487
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 duty. To that extent, this Court observed, the cost of secondary
packing cannot be deducted from the wholesale cash price of the excisable article at the factory gate. It was further held therein that 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 the such packing shall be deducted from
the wholesale cash price. Therefore, it is clear by virtue of that decision that the cost of 'packing which is necessary to make the excisable
article martketable, that is to say, in which it is generally sold in the
wholesale market at the factory gate', is to be included. Therefore,
according to the said decision and by virtue of the terms of the section,
the cost of that much of secondary packing, which is necessary only to
put the excisable good in condition in which it is generally sold in
wholesale market is the degree of packing which cost can be included
and not beyond that.
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In the application of this 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]
Supp. 3 SCR 123. There, Chief Justice Bhagwati observed that
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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 F
article for the purpose of excise duty. It, therefore, followed that ifthe
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 G
learned Chief Justice further observed that the condition for applicability of the inclusive definition of "value" ins. 4(4)(d)(i) of the act is
that the goods are delivered at the time of removal "in a packed
condition" and where this condition is satisfied, the "value" of the
goods would include "the cost of such packing" arid "such packing"
must obviously mean the pacl(ing in which the goods are when they are
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delivered at the time of removal. Therefore, according to the learned
Chief Justice, the question to be 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 removal, 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) of the Act provides an exclusive definition of the term
"packing" and it includes not only outer packing but also what may be
called inner packing. The question that the Chief Justice posed was not
for what purpose a particular kind of packing was done. The test was
whether a particular kind of packing was done in order to put the
goods in the condition in which these were generally sold in the
wholesale market at the factory gate and if these were 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. Pathak, J. (as the learned Chief Justice was then) and Sen, J.
gave separate judgments in the aforesaid case. Setting out the passage
from the Bombay Tyres International's case (supra), which is referred
to hereinbefore, Pathak, J. posed the question: is the packing necessary for putting the cigarettes in the condition in which they are generally sold in the wholesale market at the factory gate? And answering
that question, Pathak, J. held it is not. It is true that there is a divergence between the views of Bhagwati CJ, Pathak, J and Sen, J. But in
my opinion, there is a unanimity in the test that is to be applied, that is
to say, that much of the cost would be included only which is necessary
for putting the article in the condition in which it is generally sold in
the wholesale market. The principle behind this is-in order for
manufacture to be taxable, article 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 Mis Hindustan Polymers v. The Collector of Central
Excise, [1989] 3 SCR 974 (Civil Appeals Nos. 4339-41of1986)-judgment in
C.C.E. v. POND'S INDIA [MUKHARJI, J.J
489
which was delivered on 23rd August, 1989, where one of us
(Sabyasachi Mukharji, J) after analysing these several cases of this
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Court observed that:
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"In order, therefore, to be manufacture, there must be
activity which brings transformation to the article in such a
manner that different and distinct article comes into being B
which is known as such in the market. If in order to be able
to put it in the market, a certain amount of packing or user
of containers or wrappers or putting them either in drums
or containers, are required, then the value or the cost of
such wrapper or container or drum must be included in the
assessable value and if the price at which the goods are sold
does not include that value then it must be so included by C
the very force of the terms of the section."
Therefore, in all cases, according to that decision, the question
must be examined whether packing, and if so, what packing is necessary to make the article marketable as such or could these goods be o
sold without the containers, drums or packing? This Court in that case
took into account the fact that 90% of the goods were delivered in
tankers belonging to the assessee and only 10% of the goods were in
packed condition at the time of removal. This was taken as an indicia
of in what condition of packing the goods are sold. As mentioned
hereinbefore, that principle has been clearly laid down in the Bombay E
Tyres lnternational's case (supra) in the sense that only that degree of
secondary packing which is neg:ssary for putting the assessable article
in the condition in which it is generally sold in the wholesale market
should be included in the 'value' of the article. The majority judgment
in Godfrey Philips' case (supra) also clarified this position. It is true
that Pathak, J. and Sen, J. made it clear that secondary packing does F ·
for the purpose of "facilitating transport and smooth transit of the
goods to be delivered to the buyer in the wholesale trade would not·be
included in the value". Chief Justice Bhagwati held in the said case
that the fibre board containers in which the cigarettes were packed fell
within the definition of 'packing' in the Explanation to s. 4(4)(d)(i)
and if these formed part of the packing in which the goods were packed G
when delivered at the time of removal, then such cost of corrugated
fibre board containers would be liable to be included in the value of
cigarettes. But Chief Justice emphasised that the test to determine
whether the cost of •my p,.;,ticular 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 conditiou in which they H
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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 view of the 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
B 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.
c
In the present case, .it has been factually found as indicated
hereinbefore, by the Collector that the telcum powder ancl 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, and contain one dozen. The same are
then put in the master carton for purpose of delivery to wholesale
D dealers. But in Godfrey Philips' case (supra), the corrugated fibreboard containers were employed for the purpose of avoiding damage
or injury during transit. On the other hand, in this case, it was found
that there was no damage or in jury to the tins or plastic containers
employed as a primary packing even if the goods are transported withE
F
out the outer packing. The second point is that cigarettes are sold in
cartons of 200 cigarettes each, even in wholesale trade. That is not the
case in the appellants' wholesale trade herein where the goods are sold
by number of dozens and in some cases by numbers of tins or other
packings which are primary packing. 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. But it may be indicative
of the fact that the goods are so sold.
It may be mentioned in this connection that our attention was
d:awn to the unanimous order of three-Judge Bench presided over by
the Chief Justice Bhagwati of this Court in Civil Appeals Nos. 642-45
of 1982 in Geep Industrial Syndicate Ltd. v .. The Union of India & Ors.
G
There, the question that arose for determination was whether the cost
of secondary packing in wooden boxes was liable to be added in
determination of the value of batteries and torches for the purpose of
excise duty. The torches and batteries manufactured by the appellants
were first packed in polythene boxes and then these polythene boxes
were placed in cardboard cartons. There were certain varieties of
H
batteries which were packed directly in cardboard cartons. There was
C.C.E. v. POND'S INDIA [MUKHARJI, J.)
491
no doubt that packing in polythene bags and cardboard cartons was
A
includible in the determination of the value of batteries and torches for
the purpose of levy of excise duty. The question was whether the
wooden boxes in which the cardboard cartons were placed at the time
of delivery at the factory gate was to be includible in the value. There
.. was some dispute between the parties whether the cardboard cartons
were packed in wooden boxes in all cases. It was stated that when they B
were delivered in the course of the wholesale trade at the factory gate,
they were not packed in wooden boxes as a matter of course but they
were packed in wooden boxes only in those cases where delivery was
taken by wholesale dealers outside the city of Allahabad in that case.
This Court fotind that it was not necessary to determine the disputed
question of fact. It was held that even if the cardboard cartons were C
packed in 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 fibreboard 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 D
necessary for putting the cigarettes in the corrugated fibreboard 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.
The Tribunal in the instant case observed as under:
E
"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 that the cost of F
the outer or bigger carton in which the small cartons containing the powder tins are packed, is not includable in the
assessable value as the delivery of the goods can be taken in
smaller cartons at the factory gate by a buya in the course of
wholesale trade. The outer carton have to be held to be for
the purpose of transport of the goods and are not required G
for the sale of the goods at the factory gate."
(emphasis supplied).
In my opinion, the correct position seems to be that the cost of
that much of packings, be they primary or secondary, which are
required to make the articles marketable would be includible in the H
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value. How much packing is necessary to make the goods marketable
is a question of fact to be determined by application of the correct
approach. Packing, which is primarily done or mainly done for protecting the goods, and not for making the goods marketable should not
~e included. In the instant case, therefore, could the powder be sold in
smaller cartons at the wholesale market? The fact that these were
usually sold in the wholesale market would be a good pointer for this
question. Having considered the order of the Tribunal, which I have
set out hereinbefore, I am of the opinion that the Tribunal was in error
in approaching the problem before it by looking at the question
whether the goods packed in the smaller cartons could be sold in a
wholesale market in the course of wholesale trade at the factory gate
without the outer cartons in which the smaller cartons are packed. The
question is not whether these goods could be so sold, but the question is
whether these goods are so sold usually and as such used to become
marketable in such manner. In my opinion, there has been a misdirection by the Tribunal on this aspect of the matter. If the above be the
true test, then the judgment and the order of the Tribunal must be set
aside and the appeal must be allowed and the matter remanded back to
the Tribunal to determine afresh this question from the stand point
indicated above.
I accordingly allow the appeal, set aside the judgment and
order of the Tribunal and remand the matter back to the Tribunal to
decide it in accordance with the aforesaid directions. In the facts and
the circumstances of the case, there will be no orders as to costs.
RANGANATHAN, J. I agree. But, as it has been contended 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
F
Philips, [1985] Suppl. 3 S.C.R. 123 and Geep, (C.A. Nos. 642-45 of
1982, I should like to add a few words.
S. 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 disG
tinction between primary packing and secondary or further subsequent
packing. However, a restriction was read into the wide language of the
clause by this Col!rt 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
H
line should be drawn somewhere, the Court indicated that while the
C.C.E. v. POND'S INDIA [RANGANATilAN, J.J
493
cost of pnmary packing was indisputably includible, the position A
would be different in regard to secondary packing. The Court
observed 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. "If any special secondary packing is provided by the
assessee", the Court observed, "at the instance of a wholesale buyer
which is not generally provided as a normal feature of the wholesale
trade, the cost of such packing shall be deducted from the wholesale
cash price." The exclusion indicated by these words is very limited and
clearly does not extend to the cost of any packing in which the goods
are generally sold by the manufacturer in the wholesale market.
However, the reference in Bombay Tyres, (supra) to secondary
packing "which is necessary" led to a further refinement in Godfrey
Philips and Geep. In these cases, the conclusion of the Court was that
B
c
the cost of packing of the goods in "corrugated fibre containers" and
"wooden boxes" respectively was not includible in arriving at the D
assessable value. Had the matter been free from authority, one might
have been inclined to agree with the reasoning of Bhagwati, C.J., that
the ·condition of packing i.n which the goods are usually placed in the
wholesale market would be conclusive of the issue and that, the condition in which the goods are generally placed in the wholesale market
notwithstanding, a theoretical enquiry by the excise authorities into E
the purpose-of such packing or as to whether such packing was "necessary" or not would be totally uncalled for. Indeed, this was the test
applied by one of us (Mukharji, J.) in Hindustan Polymers for holding
that the cost of drums for packing fuse! oil was not includible in the
assessable val.ue because the goods viz. fuse! oil was generally sold in
the wholesale market in the raw state, without any packing whatever, F
leaving it to the wholesale consumer to draw it from the manufacturer's tanks into his trucks, containers or drums. It will be appreciated
that if this position were not to be accepted and an enquiry were to be
made as to whethecsuch ·general packing is "necessary" or not, such
«
an investigation might operate both ways. For example, on that basis,
it could be argued, in the Hindustan Polymers case, that though the G
goods were actually sold wholesale in a free condition, a container is
"necessary" from a theoretical stand point to 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 H
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