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  

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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  

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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  

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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   

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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   

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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  

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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.  

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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   

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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  

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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  

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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  

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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  

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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.

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