By TIOL News Service

NEW DELHI, AUG 11, 2011: THE issue in the present case is as 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. [Under the old Section 4 of the central Excise Act]

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.

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 packing charges.

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 ( 2002-TIOL-49-SC-CX ) 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 Limited 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].

Tribunal rejected the appeal filed by the appellant and upheld the order of the Commissioner of Central Excise [Appeals]

The Supreme Court observed 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. 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.

In Union of India & Ors. V. Bombay Tyre International Ltd. reported at ( 2002-TIOL-374-SC-CX ) the Supreme Court had an occasion to deal with the said provision and it was observed: -

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 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."

In Union of India & Ors. v. Godfrey Philips India Ltd. & Ors. reported at ( 2002-TIOL-384-SC-CX ) the Supreme 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.

In the decision of Government of India v. Madras Rubber Factory Ltd . reported at 1995 ( 2002-TIOL-49-SC-CX ) 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 the Supreme Court took notice of the definition of value as given in sub-Section 4 of Section 4 of the Act. After noticing the 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 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.

The Supreme Court noted that 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 decision in the case of Madras Rubber Factory Ltd . The 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 Supreme Court.

Therefore, the Supreme Court agreed and confirmed the findings recorded by the Tribunal as also by the authorities below and dismissed this appeal.

(See 2011-TIOL-75-SC-CX in 'Excise')