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whether the cost of packing charges expended/incurred by the appellant-company is liable to be included in the assessable value of the motorcycles manufactured by the appellant-company. 3. The appellant-company, previously known as M/s. Eicher Limited – unit Royal Enfield Motors, are manufacturing motorcycles falling under Chapter 87 of the Central Excise Tariff Act, 1985. The issue relates to non-inclusion of the value of packing charges by the assessee-company in the assessable value for motorcycles despite the fact that the said motorcycles were cleared by the assessee to the dealers located outside Chennai by sending them to their various depots on stock transfer basis and in packed condition from their factory during the period from April, 1999 to December, 1999. 4. At the time of removal from the factory to depot the motorcycles were cleared in fully packed condition. It is also established from records that Rs. 190/- is being charged as packing charges by the appellant and, therefore, the said amount which was collected as packing charges must have been passed on to the buyers.

Central Excise India

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                                                                         REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                          CIVIL APPELLATE JURISDICTION

                          CIVIL APPEAL NO.  4406 OF 2010

M/s. Royal Enfield (Unit of M/s. Eicher Ltd.)                     ....Appellant

                                          VERSUS

Commissioner of Central Excise, Chennai                  ....Respondent

                                       JUDGMENT

Dr. MUKUNDAKAM SHARMA, J.

1.    By   this   judgment   and   order   we   propose   to   dispose   of   this   appeal 

      which   is   filed   by   the   appellant-company   challenging   the   judgment 

      and order dated 24.11.2009 of the Customs, Excise and Service Tax 

      Appellate   Tribunal   [for   short   "the   Tribunal"],   Chennai,   whereby   the 

      Tribunal   rejected   the   appeal   filed   by   the   appellant   and   upheld   the 

      order of the Commissioner of Central Excise [Appeals], Chennai.

2.    The issue that arises for our consideration in the present case is as 

                                        Page 1 of 12

      to   whether   the   cost   of   packing   charges   expended/incurred   by   the 

      appellant-company is liable to be included in the assessable value of 

      the motorcycles manufactured by the appellant-company.

3.    The appellant-company, previously known as M/s. Eicher Limited  - 

      unit   Royal Enfield Motors,   are   manufacturing   motorcycles   falling 

      under   Chapter   87   of   the   Central   Excise   Tariff   Act,   1985.   The   issue 

      relates   to   non-inclusion   of   the   value   of   packing   charges   by   the 

      assessee-company   in   the   assessable   value   for   motorcycles   despite 

      the fact that the said motorcycles were cleared by the assessee to the 

      dealers   located   outside   Chennai   by   sending   them   to   their   various 

      depots   on   stock   transfer   basis   and   in   packed   condition   from   their 

      factory during the period from April, 1999 to December, 1999. 

4.    At the time of removal from the factory to depot the motorcycles were 

      cleared in fully packed condition. It is also established from records 

      that Rs. 190/- is being charged as packing charges by the appellant 

      and,   therefore,   the   said   amount   which   was   collected   as   packing 

      charges   must   have   been   passed   on   to   the   buyers.   The   appellant-

      company   filed   price   declaration   in   Annexure-II   for   the   vehicles   sold 

      from   their   depots   and   therein   declared   the   depot   sale   price   per 

      vehicle   and   claimed   abatement   of   Rs.   190/-   per   vehicle   towards 

                                        Page 2 of 12

      packing charges. 

5.    A show cause notice dated 4.10.1999 was issued by the respondent 

      to   the   appellant-company   for   the   period   from   April,   1999   to 

      September,   1999   directing   them   to   show   cause   as   to   why   the 

      aforesaid   abatement   claimed   of   Rs.   190/-   should   not   be   disallowed 

      and   as   to   why   a   differential   duty   of   Rs.   4,41,043/-   and   Cess   of 

      Rs.   2,228/-   should   not   be   demanded.   Thereafter,   another   similar 

      show cause notice dated 24.2.2002 was also issued for a subsequent 

      period,   i.e.,   from   October,   1999   to   December,   1999   demanding 

      differential duty of Rs. 2,45,602/- and Cess of Rs. 1,279/-.

6.    The Assistant Commissioner of Central Excise, Chennai `C' Division 

      passed   an   order-in-original   disallowing   the   abatement   of   Rs.   190/- 

      claimed by the assessee towards the cost of packing and upheld the 

      demand   made   in   the   show   cause   notices.     While   recording   the 

      aforesaid   finding   and   the   conclusion,   the   Assistant   Commissioner 

      referred to the decision of this Court in the case of  Government of 

      India   v.   M/s.   Madras Rubber Factory   Limited  reported   in  1995 

      (77) ELT 433 (SC): (1995) 4 SCC 349  and on another order of the 

      Customs,   Excise   and   Service   Tax   Appellate   Tribunal,   New   Delhi   in 

      the case of Commissioner of Central Excise, Jaipur v. M/s. Eicher 

                                        Page 3 of 12

      Limited reported in 2001 (136) ELT 1029 [Tri. Delhi] in which the 

      Tribunal,   in   respect   of   the   same   assessee,   held   that   the   cost   of 

      packing is to be included in the assessable value of the motorcycles 

      manufactured   by   it.   Aggrieved   by   the   aforesaid   order-in-original   of 

      the   Assistant   Commissioner   the   appellant-company   filed   an   appeal 

      before the Commissioner of Central Excise [Appeals], Chennai which 

      got rejected by order dated 23.07.2003 while relying on the decision 

      of   CESTAT,   Delhi   in   the   case   of  Commissioner   of   Central   Excise, 

      Jaipur [supra].

7.    Being   aggrieved   by   the   said   order   of   the   Commissioner   of   Central 

      Excise   [Appeals],   Chennai   assessee-company   filed   an   appeal   before 

      the   Tribunal,   Chennai   which   also   was   rejected   by   the   impugned 

      judgment   and   order   dated   24.11.2009   and,   therefore,   the   present 

      appeal was filed in this Court by the appellant-company on which we 

      heard the learned counsel appearing for the parties.

8.    During the course of hearing our attention was drawn to Section 4 of 

      the Central Excise Act, 1944 [for short "the Act"], the relevant portion 

      of   which   is   extracted   below   for   better   understanding   and   ready 

      reference: -

           "Section 4. Valuation  of excisable goods for purposes of charging  

                                        Page 4 of 12

of duty of excise -

(1) Where under this Act, the duty of excise is chargeable on any  

excisable goods with reference to value, such value, shall, subject  

to the other provisions of this section, be deemed to be -

        (a)   the   normal   price   thereof,   that   is   to   say,   the   price   at  

        which such goods are ordinarily sold by the assessee to a  

        buyer in the course of wholesale  trade  for delivery at the  

        time   and   place   of   removal,   where   the   buyer   is   not   a  

        related   person  and  the  price is  the  sole  consideration   for  

        the sale: 

                        ........................................

                        ........................................

(4) For the purposes of this section, -

        (a) "assessee" means the  person who  is liable  to  pay the  

        duty of excise under this Act and includes his agent;

        (b) "place of removal" means -

                  (i)   a   factory   or   any   other   place   or   premises   of  

                  production or manufacture of the excisable goods;

                  (ii)   a   warehouse   or   any   other   place   or   premises  

                  wherein   the   excisable   goods   have  been   permitted  

                  to be deposited without payment of duty;

                  (iii)   a   depot,   premises   of   a   consignment   agent   or  

                  any   other   place   or   premises   from   where   the  

                  excisable goods are to be sold after their clearance  

                  from the factory and,

                  From where such goods are removed;

        (ba)   "time   of   removal",   in   respect   of   goods   removed   from  

        the place of removal referred to in sub-clause (iii) of clause  

        (b),   shall   be   deemed   to   be   the   time   at   which   such   goods  

        are cleared from the factory;

                        ........................................

                        ........................................

        (d) "value", in relation to any excisable goods, -

                  (i)   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.

        Explanation  -   In   this   sub-clause,   "packing"   means   the  

        wrapper, container, bobbin, pirn, spool, reel or warp beam  

        or   any   other   thing   in   which   or   on   which   the   excisable  

                             Page 5 of 12

                     goods are wrapped, contained or wound;

                                   ........................................

                                   ........................................"

9.    Relying   on   the   same   counsel   appearing   for   the   appellant-company 

      submitted before us that the cost of the packing material cannot be 

      included in the assessable value because the said cost of the packing 

      material   cannot   be   said   to   be   the   price   at   which   such   goods   are 

      ordinarily sold by the assessee to a buyer in the course of wholesale 

      trade for delivery at the time and place of removal. He also submitted 

      that   the   requisite   packing   is   done   so   as   to   avoid   scratch   to   the 

      painted body and breakage of the lights fitted on to the motorcycles 

      during   transportation,   and   therefore,   the   cost   of   the   aforesaid 

      packing was not includable as per Section 4 of the Central Excise Act 

      to   the   value   of   the   motorcycles.   In   support   of   the   aforesaid 

      contentions   he   relied   and   referred   to   various   judgments   of   this 

      Court,   viz.,  Union   of   India   &   Ors.   V.   Bombay   tyre   International 

      Ltd. reported at 1983 (14) ELT 1896 (SC); Union of India & Ors. v. 

      Godfrey Philips India Ltd. & Ors.  reported at  1985 (22) ELT 306 

      (SC)  and  Hindustan   Polymers   v.   collector   of   Central   Excise 

      reported at 1989 (43) ELT 165 (SC).

10. Counsel   appearing   for   the   respondent,   however,   submitted   that   the 

                                        Page 6 of 12

   aforesaid submissions are untenable in view of the settled position of 

   law in the decision of this Court in the case of Government of India 

   v. M/s. Madras Rubber Factory Limited  [supra]. He also drew our 

   attention to the fact that the appellant has been realizing Rs. 190/- 

   as packing charges from the buyers, therefore, the entire amount is 

   passed   on   to   the   buyers   by   the   appellant-company.   He   also 

   submitted   that   the   cases   relied   upon   by   the   counsel   appearing   for 

   the   appellant   are   distinguishable   on   facts.   In   the   light   of   the 

   aforesaid   submissions   made   on  behalf   of   the   counsel   appearing   for 

   the parties we would proceed to discuss and answer the issue raised 

   before us.

11. The   provisions   extracted   hereinbefore   from   the   Central   Excise   Act 

   would   indicate   that   there   is   express   provision   in   Section   4   for 

   including   the   cost   of   packing   in   the   determination   of   value   for   the 

   purpose   of   excise   duty.   Sub-Section   4   (d)(i)   along   with   explanation 

   has   relevant   bearing   on   the   present   case.   According   to   the   said 

   provision where goods are delivered at the time of removal from the 

   factory gate in a packed condition the value would include the cost of 

   such packing but would not include such cost of packing which is of 

   a durable nature and is returnable by the buyer to the assessee. 

                                      Page 7 of 12

12. In  Union   of   India   &   Ors.   V.   Bombay   Tyre   International   Ltd. 

  reported at 1983 (14) ELT 1896 (SC): (1984) 1 SCC 467 this Court 

  had an occasion to deal with the said provision and in paragraph of 

  the said judgment this Court has held thus: -

  "15.   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   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) reads:

         "(4) For the purposes of this section,--

               *         *         *

            (d) "value" in relation to any excisable goods,--

            (i) 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."

            Explanation.--In   this   sub-clause   `packing'   means   the  

            wrapper,   container,   bobbin,   pirn,   spool,   reel   or   warp  

            beam   or   any   other   thing   in   which   or   on   which   the  

            excisable goods are wrapped, contained or wound;"

  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 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 the  assessees, 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  

                                        Page 8 of 12

   tablets  in a cardboard  carton,  or biscuits  in a paper  wrapper  or  

   in   a   tin   container,   must   be   regarded   as   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   has   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  

   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?  

   We must remember that while packing is necessary to make the  

   excisable   article   marketable,   the   statutory   provision   calls   for  

   strict   construction   because   the   levy   is   sought   to   be   extended  

   beyond   the   manufactured   article   itself.   It   seems   to   us   that   the  

   degree   of   secondary   packing   which   is   necessary   for  putting   the  

   excisable   article   in   the   condition   in   which   it   is   generally  sold   in  

   the wholesale market at the factory gate is the degree of packing  

   whose   cost   can   be   included   in   the   "value"   of   the   article   for  the  

   purpose of the  excise levy.  To that  extent,  the  cost of secondary  

   packing cannot be deducted from the wholesale cash price of the  

   excisable article at the factory gate."

13. In  Union   of   India   &   Ors.   v.   Godfrey   Philips   India   Ltd.   &   Ors. 

   reported   at  1985   (22)   ELT   306   (SC)  this   Court   again   considered  a 

   similar issue. What was decided by the majority of Judges in the said 

   case   was   that   the   cost   of   packing   done   for   protection   of   excisable 

   goods   during   the   transportation   is   also   includible   in   assessable 

   value.   The   said   case   basically   revolved   round   the  cost   of   corrugated 

   fibreboard containers and all the three learned Judges uniformly reiterated the 

                                         Page 9 of 12

   principles   and   the   test   evolved   in  Bombay   Tyre   International  but   arrived   at 

   divergent conclusions (the majority comprising Pathak and Sen, JJ. taking one 

   view and Bhagwati, C.J., the other) on the basis of differing perceptions as to 

   the factual situation in that case. As was noted in the said case the majority 

   and minority came to different conclusions not on account of their adopting a 

   different test or principle but only on account of their differing perceptions of 

   the factual situation. So far as the test applicable is concerned, all the three 

   learned Judges were at one and in agreement.

14. Finally   in   the   decision   of  Government   of   India   v.   Madras   Rubber 

   Factory   Ltd.  reported   at  1995   (77)   ELT   433   (SC)  a   three-Judge 

   Bench   of   this   Court   held   that   where   the   goods   are   delivered   in   a 

   packed   condition   at   the   time   of   removal   the   cost   of   such   packing 

   shall   be   included.   While   recording   the   aforesaid   conclusion   this 

   Court took notice of the aforesaid definition of value as given in sub-

   Section   4   of   Section   4   of   the   Act.   After   noticing   the   aforesaid 

   definition it was held that the provision in the sub-clause is a plain 

   one   and   does   not   admit   of   any   ambiguity   as   what   it   says   is   that 

   where   the   goods  are  delivered   in  a  packed   condition,   at  the  time   of 

   removal,   the   cost   of   such   packing   shall   be   included   and   that   only 

   where such packing is of a durable nature and is returnable by the 

   buyer   to   the   assessee,   should   the   cost   of   such   packing   be   not 

                                       Page 10 of 12

   included in the value of the goods. It was also held in that decision 

   that   the   concept   of   primary   and   secondary   packing   which   is 

   recognized   to   some   extent   in   the   decision   of   this   Court   in  Bombay 

   Tyre   International   Ltd.  case   [supra],   which   is   not   possible   to   be 

   wished away and is merely a refinement and is not borne out by the 

   express language of the enactment and, therefore, the same is to be 

   resorted   to   with   care   and   circumspection.   Thereafter,   the   Court 

   proceeded   to   discuss   the   case   of  Bombay   Tyre   International   Ltd. 

   [supra] and also the decision in  Godfrey Philips India Ltd. & Ors. 

   [supra].   Having   discussed   both   the   cases,   this   Court   laid   down   the 

   test in the following terms: - 

         "43.   ..........Whether   packing,   the   cost   whereof   is   sought   to   be 

         included   is   the   packing   in   which   it   is   ordinarily   sold   in   the 

         course   of   a   wholesale   trade   to   the   wholesale   buyer.   In   other 

         words,   whether   such   packing   is   necessary   for   putting   the 

         excisable article in the condition in which it is generally sold in 

         the wholesale market at the factory gate. If it is, then its cost is 

         liable  to be  included  in  the  value  of  the  goods; and  if  it is  not, 

         the cost of such packing has to be excluded.

         ......................."

15. The   aforesaid   decision   was   rendered   by   this   Court   with   respect   to 

   "tyres" which also were sold at the factory gate in a packed condition 

   for onward easy transportation. In the background of the said case, it 

                                     Page 11 of 12

   was   held   that   the   cost   of   such   packing   would   be   included   in   the 

   assessable value. 

16. Almost   similar   are   the   facts   of   the   present   case.   The   authorities 

   below   as   also   the   Tribunal   found   that  the   facts   of   the   present   case 

   entirely fit in the facts of the aforesaid decision in the case of Madras 

   Rubber Factory Ltd.  [supra]. The said three authorities as also the 

   Tribunal on analyzing the records came to a finding that the packing 

   which   is   given   by   the   appellant-company   to   their   motorcycles   is 

   necessary for putting the excisable article in the condition in which it 

   is   generally   sold   in   the   wholesale   market   at   the   factory   gate   and, 

   therefore, such cost is liable to be included in the value of the goods 

   and   the   cost   of   such   packing   cannot   be   excluded.     The   aforesaid 

   conclusions are based on cogent reasons and are also supported by a 

   well-reasoned decision of three Judges Bench of this Court.

17. Although,   the   counsel   appearing   for   the   appellant-company 

   vehemently submitted that the facts of this case are more akin to the 

   cases   of  Bombay   Tyre   International   Ltd.  [supra]   and   also   to   the 

   that   of  Godfrey   Philips   India   Ltd.   &   Ors.  case   [supra]   having 

   considered   the   above   situation   of   facts   and   law,   we   are   of   the 

   considered opinion, that all the aforesaid decisions, which are relied 

                                     Page 12 of 12

  upon by the counsel appearing for the appellant, were taken notice of 

  in the subsequent decision in  Madras Rubber Factory Ltd.  [supra] 

  and   this   Court   after   detailed   discussion   of   such   cases   has   given   a 

  very   reasoned   order   which   is   applicable   to   the   facts   of   the   present 

  case in full force.

18. Therefore,   we   agree   and   confirm   the   findings   recorded   by   the 

  Tribunal as also by the authorities below and dismiss this appeal but 

  leaving the parties to bear their own costs.

                                                    ............................................J

                                                     (Dr. MUKUNDAKAM SHARMA)

                                                   .............................................J

                                                 (ANIL R. DAVE)

NEW DELHI,

AUGUST 10, 2011.                                    Page 13 of 12

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