1989 (8) TMI 77 - SC - Central Excise

Court excludes cost of packing from excise duty assessable value. Appeals allowed, Tribunal orders set aside.

The Court allowed the appeals, setting aside the Tribunal's orders. It held that the value of drums should be excluded from the assessable value for ... Assessable value under Section 4(4)(d)(i) - cost of packing incurred by the manufacturer - packing supplied by buyer not includible - excise duty as duty on the act of manufacture - secondary packing necessary to put goods in condition sold in wholesale marketAssessable value under Section 4(4)(d)(i) - cost of packing incurred by the manufacturer - packing supplied by buyer not includible - secondary packing necessary to put goods in condition sold in wholesale market - Whether the cost or value of drums/containers supplied by the buyer can be included in the assessable value of fusel oil/styrene monomer under Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944 - HELD THAT: - The Court held that excise is a duty on the act of manufacture and that only those packing costs which are necessary to bring the manufactured article into a marketable condition or which are incurred by the manufacturer (and recovered by him) fall within the expression 'cost of such packing' in Section 4(4)(d)(i). The word 'cost' denotes expenditure borne by the assessee, and the scheme of clause (d) contemplates abatements or additions referable to amounts borne by the assessee (cf. clause (ii) dealing with taxes payable by the assessee). Where goods are marketable from storage (as here, fusel oil/styrene monomer kept in tanks and sold in bulk), incidental containers used only to facilitate transport in particular consignments are not necessary to make the goods marketable; such secondary packing used for transit does not fall within clause (i) unless it is the degree of packing necessary for the condition in which the goods are generally sold in the wholesale market. The factual finding that 90% of the goods were delivered in tankers (marketable without drums) and only 10% in drums supplied by buyers established that drums were not necessary to make the goods marketable and, further, no cost was incurred by the assessee for such buyer supplied drums. Consequently, the notional cost/value of drums supplied by the buyer cannot be notionally added to the assessee's sale price for computing assessable value under Section 4(4)(d)(i). The Court approved the approaches of the Bombay and Karnataka High Courts on this point and distinguished cases where packing cost is actually incurred or charged by the manufacturer. [Paras 15, 16, 21, 23, 25]The value/cost of drums supplied by the buyer is not includible in the assessable value of the fusel oil/styrene monomer under Section 4(4)(d)(i); the appeals are allowed and the Tribunal's orders set aside.Final Conclusion: Appeals allowed. For sales of fusel oil/styrene monomer marketable without packing and where packing (drums) is supplied by the buyer (and no cost is incurred or charged by the manufacturer), the notional value of such drums is excluded from the assessable value for excise duty; the Tribunal's orders including drum value are set aside. Issues Involved:1. Inclusion of the value of drums supplied by the buyer in the assessable value of fusel oil/Styrene Monomer.2. Interpretation of Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944.3. Applicability of previous judicial decisions on the current case.Detailed Analysis:1. Inclusion of the value of drums supplied by the buyer in the assessable value of fusel oil/Styrene Monomer:The appellant contended that the value of drums supplied by the buyer should not be included in the assessable value of fusel oil/Styrene Monomer. The Assistant Collector had included the value of the drums in the assessable value, which was initially overturned by the Collector (Appeals) but later restored by the Tribunal. The appellant argued that the fusel oil/Styrene Monomer is sold in bulk and does not necessarily need to be supplied in drums. The appellant also emphasized that they were not the manufacturers of the drums, which were supplied by the customers. Therefore, no excise duty should be collected from the appellant on such drums.2. Interpretation of Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944:The appellant argued that the cost of packing should only be included in the assessable value when the packing is either manufactured or purchased by the assessee. The Tribunal's interpretation was that since the goods were delivered in packed condition and the containers were not returnable, their value had to be included in the assessable value. The appellant relied on the decision in Collector of Central Excise v. Indian Oxygen Ltd., where it was held that rental charges for gas cylinders supplied by the assessee could not be included in the assessable value.The Court analyzed the provisions of Section 4(4)(d)(i) and concluded that the cost of packing should be included in the assessable value only when it is incurred by the manufacturer. The Court emphasized that the term 'cost' in the section refers to the cost incurred by the assessee and not by the buyer. This interpretation aligns with the principles laid down in Union of India v. Bombay Tyre International Ltd., which clarified that the measure of tax should not be confused with the nature of the tax.3. Applicability of previous judicial decisions on the current case:The Court referred to several previous decisions, including Union of India v. Bombay Tyre International Ltd., K. Radha Krishaiah v. Inspector of Central Excise, and Union of India v. Godfrey Philips India Ltd. The Court reiterated that the measure of excise duty is the price and not the value, and the price charged by the manufacturer represents the measure. The Court also noted that the decision in Godfrey Philips India Ltd. clarified that secondary packing necessary for selling goods in the wholesale market should be included in the assessable value.The Court concluded that the goods in question were marketable without being packed in drums, as evidenced by the fact that 90% of the goods were delivered in tankers. Therefore, the value of the drums, whether supplied by the assessee or the buyer, should not be included in the assessable value.Judgment:The appeals were allowed, and the orders of the Tribunal were set aside. The Court held that the value of the drums should be excluded from the assessable value for the purpose of excise duty. The Court emphasized that the goods were marketable without being packed in drums, and the cost of packing incurred by the buyer should not be included in the assessable value. The judgment was delivered by Sabyasachi Mukharji, J., with separate concurring judgments by Ranganathan, J., and Verma, J.