NATIONAL LEATHER CLOTH MANUFACTURING CO.versusUNION OF INDIA & ANR.

                     [2010] 8 S.C.R. 971


   NATIONAL LEATHER CLOTH MANUFACTURING CO.                         A
                              . v.
                   UNION OF INDIA & ANR.
               (Civil Appeal No. 3403 of 2003)
                        JULY 23, 2010
                                                                    B
            [D.K. JAIN AND ANIL R. DAVE, JJ.]

     Central Excise Act, 1944:

     Section 4(4)(d)(i) - Valuation of excisable goods for          c
assessment of excise duty - Cost of secondary packing -
Exclusion of - HELD: By including cost of packing in value
of goods, legislature has sought to extend the levy beyond
the manufactured article itself and, therefore, the provision has
to be strictly construed - Cost of additional packing in the
                                                                    0
nature of secondary packing cannot be added in the value of
goods in terms of s.4(4)(d)(i) for assessment of excise duty-
Interpretation of Statutes.

     The assessee, a manufacturer of coated fabrics, sold
its product to wholesalers at the factory gate in polythene         E
bags. It further packed three rolls in hessian cloth, in order
to send the same to up-country customers. The assessee
made a claim for refund of the amount representing
differential excess duty on account of cost of hessian
cloth used in further packing. The claim was rejected by            F
the Revenue on merits and also as barred by time. The
High Court dismissed the assessee's writ petition.

     In the instant appeal filed by th2 assessee, the only
question for consideration before the Court was:                    G
"whether the cost of packing of fabric in hessian cloth,
which according to the assessee, is not required for sale
of their goods at the factory gate and is necessitated to
protect the fabric from damage during the course of
                              971                                   H
    972      SUPREME COURT REPORTS                [2010] 8 S.C.R.


A transportation to up-country customers is includible in
  the assessable value of the coated fabrics manufactured
  by the assessee for the purpose of levy of excise duty?

          Partly allowing the appeal, the Court

B      HELD: 1.1 As per s.4(4)(d)(i) of the Central Excise Act,
  1944, the cost of packing is to be included in working out
  the value of the goods, unless the packing is of a durable
  nature and is returnable by the buyer to the assessee. By
  inciuding the cost of packing in the value of goods, the
C legislature has sought to extend the levy beyond the
  manufactured article itself and, therefore, the provision
  has to be strictly construed. Although the provision is
  clear and unambiguous, yet the concept of "primary
  packing" and "secondary packing" was evolved by this·
o Court in Bombay Tyre International Ltd.* The test laid down
  was that it is only the cost of packing ordinarily required
  for selling the goods in the course of wholesale trade to
  a wholesale buyer at the factory gate which would be
  includible in the value of the goods and not the cost of
E any additional or special packing. [para 11-12) [978-E-H;
  979-A-C]

        *Union of India & Ors. Vs. Bombay Tyre International Ltd.
    & Ors. (1984) 1 sec 467, relied on.

F      1.2 The cost of secondary packing in hessian cloth
  cannot be included in the value of the goods in terms of
  s. 4(4)(d)(i) of the Act, {or the purpose of assessment of
  excise duty. Since, admittedly, the fabric manufactured
  by the assessee was sold by the assessee to the
G wholesalers at the factory gate only in polythene bags,
  the further packing of three rolls in hessian cloth for the
  convenience of the up-country customers in
  transportation of the goods was not iti the course of
  normal delivery to the customers in the wholesale trade
H at the factory gate and was, therefore, not required to
NATIONAL LEATHER CLOTH MANUFACTURING CO. 973
          v. UNION OF INDIA & ANR.
make the product marketable. [para 16] [980-F-H; 981-A]            A

     Commissioner of Central Excise, Allahabad & Ors. Vs.
Hindustan Safety Glass Works Ltd. & Ors. 2005 (2) SCR 229
= (2005) 3 SCC 468; and Union of India & Ors. Vs. Godfrey
Philips India Ltd. 1985 (3) Suppl. SCR 123 = (1985) 4 SCC          B
369; Geep Industrial Syndicate Ltd. Vs. Union of India 1992
(61) E.L.T. 328 (S.C.) - relied on.

     Commissioner of Central Excise, Calcutta Vs. Hindustan
National Glass & Industries Ltd. 2005 (2) SCR 744 = (2005)
3 sec 489 - cited.                                                 c
                      Case Law Reference:

 1984 (1) sec 467                referred to ·   para 7

 2005 (2 ) SCR 229               relied on       para 7            D
 2005 (2 ) SCR 744               cited           para 7

 1985 ( 3 ) Suppl. SCR 123 relied on             para 13
 1992 (61) E.L.T. 328 (S.C.)     relied on       para 14
                                                              '    E
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3403 of 2003.

    From the Judgment & Order dated 10.07.2002 of the High
Court of Judicature at Bombay in writ Petition No. 1001 of
1981.                                                              F

    Jay Savla. Meenakshi Ogra for the Appellant.

    R.P. Bhat, Rajiv Nanda, B.K. Prasad, Anil Katiyar for the
Respondents.
                                                                   G
    The Judgment of the Court was delivered by

     D.K. JAIN, J. 1. This appeal, by special leave, is directed
against the judgment and order dated 10th July 2002, passed
by the High Court of Judicature at Bombay, whereby the High        H
    974     SUPREME COURT REPORTS                   [2010) 8 S.C.R.


A Court has dismissed the writ petition filed by the appellant (for
  short "the assessee") and affirmed the order passed by the
  Assistant Commissioner of Central Excise, Bombay-II ("the
  Adjudicating Authority" for short), rejecting the claim preferred
  by the assessee for refund of the excess amount of excise duty
B paid by them as time barred as also on merits on account of
  disallowance of post manufacturing expenses for the purpose
  of valuation of the goods in terms of Section 4 of the Central
  Excise Act, 1944 (for short "the Act") as it existed at the relevant
  time.
c        2. The background facts, giving rise to this appeal, are as
    follows:

         The assessee was engaged in the manufacture of coated
    fabrics. The price of goods declared by the assessee in the
o   price list, as required under Rule 173C of the Central Excise
    Rules, 1944 (for short "the Rules"), was approved by the
    Revenue from time to time. However, for the first time, in the
    two revised price lists, both dated 12th November 1980, the
    assessee indicated that prices declared by them earlier
E   contained certain post manufacturing expenses, which had to
    be excluded while computing the value of the fabric for the
    purpose of assessment to excise duty. The claim was rejected
    by the Adjudicating Authority vide order dated 7th January
    1981. Thereafter, the assessee, vide their letter dated 7th July
F   1981, made a claim of consolidated refund, amounting to
    Rs.40,18,805.60, for the period from 13th November 1977 to
    12th November 1980, representing differential excess duty
    paid by them on various elements of post manufacturing
    expenses. One of the deductions so claimed, with which we are
    concerned in this appeal, was on account of cost of material
G   used for packing the final product. Having failed to get any
    response, the assessee filed a Writ Petition (No.1001of1981)
    in the Bombay High Court seeking appropriate directions for
    refund along with interest thereon. On 8th February 1982, the
    assessee revised their refund claim to Rs.40,59,856.40/-.
H   During the pendency of the petition, certain interim orders
 NATIONAL LEATHER CLOTH MANUFACTURING CO. 975
      v. UNION OF INDIA & ANR. [D.K. JAIN, J.]
  regarding deposit of the said amount by the revenue and               A
  submission of documentary evidence by the assessee before
  the Adjudicating Authority were passed by the High Court.
  Eventually, upon consideration of the evidence adduced by the
  assessee, vide order dated 12th April 1984, the Adjudicating
  Authority rejected their claim for excluding the cost of polythene    B
  bags, printed as well as plain, and hessian cloth used for
  packing the fabrics. The Adjudicating Authority was of the view
  that the packing of coated fabrics in polythene bags for delivery
  to the customers located in Bombay as also packing of three
  such rolls in hessian cloth and stitching them into one bundle        c
  for dispatch to up-country customers was in the normal course
· of trade and, therefore, there was nothing special about such
  packing so as to exclude its cost from the value of the fabric.
  The Adjudicating Authority also held that the refund claim was
 ba~dbytime.                                                            o
      3. On rejection of the claim, the assessee amended the
 writ petition in order to challenge the validity of order dated 12th
 April 1984. As stated above, the order of the Adjudicating
 Authority has been affirmed by the High Court. Rejecting the
 plea of the assessee that additional packing of three rolls of         E
 fabric in hessian cloth was. done at the specific request of the
 up-country customers in order to protect the packed fabric from
 damage during the course of transportation and, therefore, at
 least the cost of such secondary packing should be excluded
 from the assessable value, the High Court held as follows:             F

      "... in view of the clear finding given by the adjudicating
      authority to the effect that the Assessee has been uniformly
      using hessian cloth for all the delivery to the up-country
      customers, irrespective of any specific request, the use of G
      hessian cloth as secondary packing has to be held to be
      normal packing which are offered to the wholesalers at the
      factory gate. In view of the clear finding given by the
      Adjudicating Authority and in the light of decision of the
      Apix. Court in the case of Union of India Vs. MRF reported H
    976       SUPREME COURT REPORTS                [201 OJ 8 S.C.R.


A         in 1995 (77) ELT 433, the cost of the secondary
          packaging in which the goods are ordinarily sold to the
          wholesalers is liable to be included in the assessable
          value. In this view of the matter denial of deduction on
          account of secondary packaging from the assessable
B         value as post manufacturing expenses is justified. Apart
          from that, it is not the case of the assessee that the
          secondary packing is of a durable nature and is returned
          by the buyer to the assessee. Therefore, the cost of such
          packing has to be included in the assessable value."
c       4. The High Court also held that the refund claim was
    beyond the period prescribed under the Act. Aggrieved, the
    assessee is before us in this appeal.

          5. Vide order dated 31st March 2003, leave was granted
D   limited to the question "whether the cost of secondary packing
    is to be included in the assessable value of the appellant's
    goods?"

          6. We have heard learned counsel for the parties.

E       7. In support of the appeal, Mr. Jay Savla, learned counsel
  appearing for the appellant, submitted that the High Court as
  well as the Adjudicating Authority failed to appreciate the
  distinction between the primary and the secondary packing, as
  enunciated by this Court in Union of India & Ors. Vs. Bombay
F Tyre International Ltd. & Ors. 1 . Learned counsel contended that
  admittedly the rolls of coated fabric were packed in polythene
  bags for sale at the factory gate in the course of wholesale trade
  and the bundling of three such rolls in hessian cloth was an
  additional packing done at the request of up-country customers
G in order to protect the goods from damage and, therefore, the
  cost of such packing could not be included in the value of the
  cloth. In support of the plea that additional packing according
  to the requirement of the buyer constitutes secondary packing
  and, iherefore, its cost cannot be included in the value of the
H   1.   (1984) 1 sec 467.
NATIONAL LEATHER CLOTH MANUFACTURING CO. 977
     v. UNION OF INDIA & ANR. [D.K. JAIN, J.]
fabric, reliance was placed on the decisions of this Court in A
Commissioner of Central Excise, Allahabad & Ors. Vs.
Hindustan Safety Glass Works Ltd. & Ors2 . and Commissioner
of Central Excise, Calcutta Vs. Hindustan National Glass &
Industries LtcP.
                                                                    8
     8. Per contra, Mr. R.P. Bhat, learned senior counsel
appearing for the revenue, while supporting the decision of the
High Court, submitted that in view of the finding by the
Adjudicating Authority, affirmed by the High Court to the effect
that hessian cloth was the standard packing for the fabric for C
sale in the wholesale market, its cost was includible in the value
of the goods in terms of Section 4 of the Act.

     9. The short question arising for consideration is whether
the cost of packing of fabric in hessian cloth, which, according
to the assessee, is not required for sale of their goods at the D
factory gate and is necessitated to protect the fabric from
damage during the course of transportation to up-country
customers is includible in the assessable value of the coated
fabric manufactured by the assessee for the purpose of levy of
excise duty?                                                     E

    10. Section 4 of the Act, in so far as it is relevant for our
purpose, reads as follows :

      "4. Valuation of excisable goods for purposes of charging
      of duty of excise.-(1) Where under this Act, the duty of F
      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 G
      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
2.   (2005) 3 sec 468.
3.   (2005) 3 sec 489.                                              H
    978         SUPREME COURT REPORTS                 [2010] 8 S.C.R.


A         person and the price is the sole consideration for the sale:




          (4)    For the purposes of this section,-
B



          (d)    'value', in relation to any excisable goods,-

C         (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;

o         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;"

         11. The Section provides as to how the value of excisable
E   goods is to be determined. The expression "value" has been
    extended to include the cost of packing. As per Section
    4(4)(d)(i) of the Act, the cost of packing is to be included in
    working out the value of the goods, unless the packing is of ::i
    durable nature and is returnable by the buyer to the assessee.
F   Explanation thereto enumerates various types of packing, of
    which cost has to be included in the value of the goods. It is
    evident that by including the cost of packing in the value of
    goods, the legislature has sought to extend the levy beyond the
    manufactured article itself and, therefore, the provision has to
G   be strictly construed.

         12. Although the provision is clear and unambiguous, yet
    the concept of "primary ._,acking" and "secondary packing" was
    evolved by this Court in Bombay Tyre International Ltd.
H   (supra). In that case, while observing that the degree of packing
NATIONAL LEATHER CLOTH MANUFACTURING CO. 979
     v. UNION OF INDIA & ANR. [D.K. JAIN, J.]
would vary from one class of excisable goods to another and             A
the packing may be of different grades, which may be
necessary to make an article marketable, it was held "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               B
packing whose cost can be included in the "value" of the article
for the purpose of the excise levy." Thus, the test laid down was
that it is only the cost of packing ordinarily required for selling
the goods in the course of wholesale trade to a wholesale buyer
at the factory gate which would be includible in the value of the       c
goods and not the cost of any additional or special packing.

      13. In Union of India & Ors. Vs. Godfrey Philips India Ltd. 6 ,
a question arose as to whether the cigarettes manufactured and
packed in cardboard packets, each containing 10 to 20
cigarettes and those packets were packed in corrugated                  D
fibreboard cartons/containers, the cost of corrugated fibreboard
containers was liable to be included in determination of the
value of the .cigarettes for the purpose of excise duty. The
majority view was that since the corrugated cartons were
employed as secondary packing only for the purpose of                   E
avoiding damage or injury during transit and were not necessary
for selling the cigarettes in the wholesale market at the factory
gate, their cost was not to be included in the value of the
cigarettes for the purpose of levy of excise duty.
                                                                        F
      14. In Geep Industrial Syndicate Ltd. Vs. Union of lndia 5 ,
the assessee was manufacturing batteries and torches. The
torches and batteries manufactured by them were first packed
in polythene bags and then these polythene bags were placed
in cardboard cartons. The cardboard cartons were placed in              G
the wooden boxes at the time of delivery at the factory gate.
Though there was no dispute about the inclusion of cost of
polythene bags and cardboard cartons, the dispute was whether

4.   (1985) 4 sec 369.
5.   1992 (61) E.L.T. 328 (S.C.)                                        H
    980      SUPREME COURT REPORTS                  [2010] 8 S.C.R.


A the cost of wooden boxes, in which the cardboard boxes were
  packed, was to be included in the value of batteries and
  torches. It was held by a bench of three Judges of this Court
  that the wooden boxes were in the nature to secondary packing
  and, therefore, their cost was not includible in the value of
s batteries and torches.

       15. In Hindustan Safety Glass Works Ltd. (supra) referring
  to the ratio of decisions in Bombay Tyre International Ltd.
  (supra) and Geep Industrial Syndicate Ltd. (supra), again a
C bench of three learned Judges summed up the test on the issue,
  as follows:-

          "14 ... The test is whether the packing is done in order to
          put the goods in a marketable condition. Another way of
          testing would be to see whether the goods are capable of '
D         reaching the market without the type of packing concerned.
          Each case would have to be decided on its own facts. It
          must also be remembered that Section 4(4)(d)(i) specifies
          that the cost of packing is includible when the packing is
          not of a durable nature and returnable to the buyer. Thus,
E         the burden to show that the cost of packing is not includible
          is always on the assessee. Also under Section 4(a) the
          value is to be the normal price at which such goods are
          ordinarily sold in the course of wholesale trade for delivery
          at the time and place of removal."
F      16. Having examined the facts of the instant case on the
  touchstone of the test laid down in the aforementioned cases,
  we are of the opinion that since admittedly the fabric
  manufactured by the assessee was sold by the assessee to
  the wholesalers at the factory gate only in polythene bags, the
G further packing of three rolls in hessian cloth was not in the
  course of normal delivery to the customers in the wholesale
  trade at the factory gate and was, therefore, not required to
  make the product marketable. The additional packing in the
  nature of a secondary packing was done for the purpose of
H convenience of the up-country customers in the transportation
NATIONAL LEATHER CLOTH MANUFACTURING CO. 981
     v. UNION OF INDIA & ANR. [D.K. JAIN, J.)
of the goods manufactured by the assessee. We, therefore,            A
hold that the cost of secondary packing in hessian cloth cannot
be included in the value of the goods in terms of Section
4(4)(d)(i) of the Act for the purpose of assessment of excise
duty.
                                                                     B
      17. In so far as the question of limitation is concerned, as
already stated, leave was granted only on the afore-noted
limited issue and, therefore, we express no opinion on that
aspect.

     18. We, accordingly, allow the appeal partly and set aside      C
the impugned order to the extent indicated above, leaving the
parties to bear their own costs.

R.P.                                     Appeal partly allowed.