- (1.) These appeals by special leave raise a number of questions relating to excise duty leviable on cigarettes manufactured by the respondents. Barring one, all the other questions are now settled as a result of the decision of this Court in Union of India v. Bombay Tyre International Ltd., (1984) 1 SCC 467 : (AIR 1984 SC 420) and all that is required is to direct the assessing authorities to assess the excise duty leviable on the respondents on die basis of the law laid down, in Bombay Tyre International case (supra). The only question which remains to be considered is in regard to cost of packing includible in the value of the cigarettes for the purpose of assessment to excise duty.
(2.) The respondents in these appeals are manufacturers of cigarettes. They manufacture cigarettes in their factories and the cigarettes so manufactured are packed initially in paper/card board packets of 10 and 20 and these packets are then packed together in paper/card board cartons / outers. These cartons / outers are then placed in corrugated fibre board containers and it is these corrugated fibre board containers filled with cartons / outers containing packets of cigarettes of 10 and 20 which are delivered by the respondents to the wholesale dealers at the factory gate. It was common ground between the parties that the wholesale price charged by the respondents for the cigarettes sold to the wholesale dealers includes not only the cost of primary packing in packets of 10 and 20, but also the cost of secondary packing in cartons / outers and the cost of final packing in corrugated fibre board containers. So far as the two items of cost, namely, cost of primary packing into packets of 10 and 20 and the cost of secondary packing in cartons / outers are concerned, there was no dispute between the parties that these two items of cost must be included in determining the value of the cigarettes for the purpose of assessment to excise duty, since such packing would admittedly fall within the terms of S. 4(4)(d)(i) of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act) read with the Explanation to that provision. But the question whether the cost of final packing in corrugated fibre board containers would be liable to be included in the value of the cigarettes for the purpose of assessment to excise duty raised a serious controversy between the parties. The appellant contended that on a true construction of S. 4(4)(d)(i) read with the Explanation, whatever be the packing, primary or secondary, in which the cigarettes were packed when delivered to the buyer in the course of wholesale trade at the factory gate, the cost of such packing would be liable to be included in the value of the cigarettes. The argument of the appellant was that it was a totally unwarranted gloss on the language of S. 4(4)(d)(i) read with the Explanation to make A distinction between primary and secondary packing because that section did not make any such distinction and on the contrary, provided in the clearest terms for inclusion of the cost of the entire packing in which the cigarettes were packed when delivered to the wholesale buyer at the time of removal. The respondents on the other hand urged that though it was true that S. 4(4)(d)(i) read with the Explanation did not make any distinction between primary packing and secondary packing, the cost of only such secondary packing was liable to be included in the value of the cigarettes as was necessary for sale of the cigarettes in the wholesale trade and not the cost of secondary packing which was necessitated in order to protect the packed cigarettes and to prevent them from being damaged during the course of transportation from the factory gate to the godown or warehouse of the wholesale dealer. The packing in corrugated fibre board containers, contended the respondents, was not necessary or essential for the purpose of sale of the cigarettes to the wholesale dealer at the factory gate but it was done only with a view to facilitating transportation of the cigarettes from the factory gate to the godown or warehouse of the wholesale dealer and protecting the cigarettes against damage during such transportation and therefore the cost of such packing was not liable to be included in the value of the cigarettes. These were the rival contentions urged on behalf of the parties and we shall now proceed to examine them.
(3.) We have broadly dealt with the question of cost of packing in the judgment delivered by us in Bombay Tyre International case (AIR 1984 SC 420) (supra) and it would be convenient at this stage to reproduce what we have said in that judgment in regard to the cost of packing : "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 : ............................... 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"? 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." It will be noticed that so far as primary packing is concerned, it was conceded on behalf of the respondents in that case that the cost of primary packing must be regarded as falling within the terms of S. 4(4)(d)(i) read with the Explanation and it was only the cost of secondary packing which gave rise to dispute between the parties. But we did not proceed to decide whether the cost of every degree of secondary packing would be liable to be included in the value of the goods or whether a distinction could be drawn between one degree of secondary packing and another. We posed the question : "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 did not answer this question specifically, leaving it to a later date when this question would directly come up for consideration on the facts of a particular case. We however laid down the general proposition 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 duty". Where therefore a question arises whether the cost of any particular kind of secondary packing is liable to be included in the value of the article, we would have to ask does the packed condition in which the article is generally sold in the wholesale market at the factory gate include such secondary packing? If it does, it would be liable to be included in the value of the article for the purpose of excise duty. On this reasoning it must follow that if the packed condition in which the cigarettes manufactured by the respondents are generally sold in the wholesale market at the factory gate includes packing in corrugated fibre board containers, the cost of such corrugated fibre board containers would be liable to be included in the value of the cigarettes for the purpose of excise duty.;