Assessable value includes ordinary wholesale packing and free-supplied labels when they contribute to marketable condition; penalty reduced.

Cost of cartons forming the ordinary wholesale packing of plastic pet jars was includible in assessable value because the goods left the factory in that packing and it was necessary for their marketable condition. The value of free-supplied labels was also includible on the same principle, as they formed part of the material adding to the goods' marketability. The penalty was treated as excessive on the facts and was reduced, even though the valuation addition was sustained. The appeal was therefore partly allowed: assessable value inclusion was upheld, while the penal consequence was moderated.

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Issues: (i) whether the cost of cartons and labels supplied free by customers was includible in the assessable value of the plastic pet jars; and (ii) whether the penalty required interference and reduction.

Issue (i): whether the cost of cartons and labels supplied free by customers was includible in the assessable value of the plastic pet jars.

Analysis: The governing test was whether the packing was the packing in which the goods were ordinarily sold in the course of wholesale trade and whether such packing was necessary for putting the excisable goods in the condition in which they were generally sold at the factory gate. Since the goods admittedly left the factory in cartons and cartons formed the ordinary wholesale packing, their cost formed part of assessable value. On the same principle, the value of labels supplied by customers was also includible as free-supplied material and as part of the value added to the goods for their marketable condition.

Conclusion: The inclusion of the cost of cartons and labels in the assessable value was upheld and the finding was against the assessee.

Issue (ii): whether the penalty required interference and reduction.

Analysis: The penalty was considered excessive on the facts, even though the substantive valuation issue was decided against the assessee.

Conclusion: The penalty was reduced from Rs. 65 lakhs to Rs. 25 lakhs and this issue was partly in favour of the assessee.

Final Conclusion: The valuation addition was sustained, but the penal consequence was moderated, resulting in a partly allowed appeal.

Ratio Decidendi: Cost of packing or free-supplied materials is includible in assessable value when the packing is the ordinary wholesale packing or the supplied item contributes to the marketable condition or value of the excisable goods.

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