2005 (2) TMI 123 - SC - Central Excise

Supreme Court: Wooden crate cost is part of glass sheet value. Packing must enhance marketability.

The Supreme Court held that the cost of wooden crates used for packing glass sheets is includible in the assessable value of the glass sheets. The Court ... Interpretation of Section 4(4)(d)(i) - inclusion of packing cost - packing necessary to make goods marketable - packing as sold in the wholesale market at the factory gate - durable and returnable packing exception - burden of proof on the assessee to show exclusion of packing costInterpretation of Section 4(4)(d)(i) - inclusion of packing cost - packing necessary to make goods marketable - packing as sold in the wholesale market at the factory gate - durable and returnable packing exception - burden of proof on the assessee to show exclusion of packing cost - Whether the cost of wooden crates/boxes used for packing sheet glass is includible in the assessable value of the glass. - HELD THAT: - Section 4(4)(d)(i) requires inclusion of packing cost in valuing excisable goods unless the packing is durable and returnable. The legal test, as stated in Bombay Tyre International and consistently applied in later decisions, is whether the packing is that in which the goods are ordinarily sold in the course of wholesale trade for delivery at the factory gate - i.e., whether the packing is necessary to put the goods in the condition in which they are generally sold in the wholesale market at the factory gate. The question of the purpose for which packing is done (for protection during transit or otherwise) is not decisive; rather, the determinative inquiry is whether such packing is ordinarily required to make the articles marketable. That inquiry is factual and case-specific, with the burden on the assessee to prove that the packing is not so required. Applying this test to sheet glass, the Court accepted the findings that sheet glass is fragile and, for wholesale deliveries, cannot ordinarily reach the market without special packing (typically wooden crates or frame packing). Where there is no arrangement making packing returnable, the durable-returnable exception does not apply. Earlier tribunal findings to the contrary were based on an incorrect factual appreciation (relying on isolated local deliveries or on the existence of special transport arrangements by particular buyers) and are therefore unsustainable. The Court followed prior three-Judge authority holding wooden crates' cost includible and rejected a restricted reading of the Explanation to Section 4(4)(d)(i).The cost of wooden crates/boxes used for packing sheet glass is includible in the assessable value of the glass, since such packing is necessary to put the goods in the condition in which they are ordinarily sold in the wholesale market at the factory gate, and no durable-returnable exception applies.Final Conclusion: The Appeals are allowed, the impugned Tribunal judgments are set aside, and the cost of wooden crates/boxes is held includible in the assessable value of the sheet glass sold by the respondents. Issues Involved:1. Whether the cost of wooden crates/boxes used for packing glass sheets is includible in the assessable value of the glass sheets.Issue-wise Detailed Analysis:1. Statutory Provision and Legal Precedents:The primary legal question revolves around the interpretation of Section 4 of the Central Excise Act, particularly Section 4(4)(d)(i), which deals with the valuation of excisable goods for the purpose of charging excise duty. The relevant portion of Section 4 states that the value of excisable goods includes the cost of packing unless it is of a durable nature and returnable by the buyer to the assessee. The term 'packing' is broadly defined to include wrappers, containers, or any other thing used for wrapping or containing the goods.2. Judicial Interpretation:The Supreme Court has previously interpreted this provision in several landmark cases:- Union of India v. Bombay Tyre International Ltd.: The Court recognized that the degree of packing required to make an article marketable varies and only the cost of packing necessary for marketability is includible.- Union of India v. Godfrey Philips India Ltd.: The majority opinion held that packing necessary to prevent damage during transit, which is not required for marketability at the factory gate, is not includible.- Geep Industrial Syndicate Ltd. v. Union of India: It was held that the cost of secondary packing in wooden boxes was not includible in the value of batteries and torches.- CCE v. Ponds India Ltd.: The Court reiterated that the cost of packing necessary to make goods marketable at the factory gate is includible.- Hindustan Polymers v. Collector of C. Ex.: The cost of drums used for transporting fusel oil was not includible as the goods were not sold in drums generally in the wholesale trade.- Government of India v. Madras Rubber Factory Ltd.: The Court summarized the principles from previous cases, emphasizing that the test is whether the packing is necessary to put the goods in the condition in which they are generally sold in the wholesale market at the factory gate.3. Application of Legal Principles:In the present case, the Assistant Collector found that the cost of wooden crates is recovered by the respondents from the buyers and that the goods are generally cleared from the factory gate duly packed in wooden cases. The respondents did not provide evidence to show that the glass sheets were marketable without wooden packing.4. Argument Analysis:- For the Appellant (Customs Department): The fragile nature of glass sheets necessitates special packing for marketability. The respondents failed to prove that the glass sheets could be marketed without wooden packing.- For the Respondents (Manufacturers): They relied on an earlier Tribunal decision and other cases where it was held that glass sheets were marketable without wooden packing. They argued that the cost of wooden crates should not be included as it was for preventing damage during transit.5. Tribunal's Findings and Errors:The Tribunal had previously held that the cost of wooden crates was not includible based on the finding that glass was delivered to local customers without wooden packing. However, this was based on a misunderstanding of the legal principles and factual errors, as the local deliveries were to customers who had made special arrangements for transport.6. Supreme Court's Conclusion:The Supreme Court held that the cost of wooden crates is includible in the value of glass sheets as they are necessary for making the goods marketable. The Court emphasized that the test is not whether the packing is done to prevent damage but whether it is necessary for marketability. The burden to prove that the cost of packing is not includible lies on the assessee, which the respondents failed to discharge.7. Final Judgment:The appeals were allowed, and the impugned judgments of the Tribunal were set aside. The Supreme Court concluded that the cost of wooden crates used for packing glass sheets is includible in the assessable value of the glass sheets. There was no order as to costs.