COLLECTOR OF CENTRAL EXCISEversusPONDS INDIA LTD.

               COLLECTOR OF CENTRAL EXCISE                                  A
                            v.
                    POND'S INDIA LTD.

                         OCTOBER 19, 1989

 [SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.]                              B

      Central Excises and Salt Act 1944: Section 4(4)(d)(i)-Cost of
packing-Whether includible in value of goods for purposes of assess-
ment to excise duty.

      The Respondent-assessee used to manufacture talcum powder             C
and face powder and were clearing the same on payment of excise duty.
The assessee claimed deduction of cost of packing for transportation in
respect of small packings of powder ranging 'from 0.27 paise to 11. 76
paise per dozen packings and the same was first approved by the
Department but later the Department having noticed that the small
packs were first packed in dozen, and thereafter packed in secondary        D
packings for easy transportation to the wholesale dealer, disallowed the
claim of dednction.

      The Assistant Collector in view of this Court's decision in post-
manufacturing expenses cases took the view that the amount claimed:by
the Respondent was not deductible and accordingly issued a show cause       E
notice to the Respondent raising a demand on the respondent to pay the
differential duty on the cost of secondary packings which was stated to
be Rs.3,46,151.92 P. for the period from 2.12.85 to 31.5.1986. The Asstt
Collector by his order dated 27 .2.87 disallowed the Respondent's claim
for exclusion of the cost of packing for transportation and thus rejected
the claim.                                                                  F

      The Respondent preferred an appeal to the Collector of Customs
but did not succeed and thus appealed to the Customs, Excise and Gold
(Control) Tribunal. The Respondent relied on the decision of this Court
in Union of india v. Godfrey Philips India Ltd., [1985] 3 Suppl SCR
123 and contended that in view of the decision of this Court, the cost of G
third stage packing, the outer cartons, intended for transport could be
inclnded in the assessable value only if packing was necessary for the
sale of goods in the wholesale market. The Tribunal however relying on
the decision of this Court in Union of India & Ors. v. Bombay Tyre
International Ltd., [1984] l SCR 347 held that the Cost of outer or
bigger cartons in which the smaller cartons containing powder tins ·are H

                                  479
      480         SUPREME COURT REPORTS                 [1989] Supp. 1 S.C.R.

      packed is not includible in the assessable value as the delivery of the
A
      goods can be taken in smaller cartons at the factory gate by a buyer in
      the course of wholesale trade.

             Being aggrieved by that decision the Revenue came up in appeal
      to this Court under Section 3SL(b) of the Act.
B
            Allowing the appeal and remanding the case to the Tribunal with
      directions, this Court,

            HELD: (Per Sabyasachi Mukharji, J.)

            What is to be included in the value has to be determined in terms
c     of Section 4(4)(d)(i) of the Act. [485F]

            The question is not for what purpose a particular kind of packing
      is done but the test is whether a particular packing is one in order to put
      the goods in the condition in which they are generally sold in the
D     wholesale market at the factory gate and if they are generally sold 'in the
      wholesale market at the factory gate in a certain packed condition,
      whatever may be the reason for such packing, the cost of such packing
      would be includible in the value of the goods for assessment to excise
      duty. [490B-C]

E            In the present case, it has been factually found by the Collector
      that. the talcum powder and face powder are packed either in metal
      containers or in plastic containers, and thereafter they are put in dozen
      packing also of cardboard packings, which are inner cartons, and con-
      tain one dozen. The same are then put in the master carton for purpose
      of delivery to wholesale dealers. [490C-D]
F
            The correct position seems to be that the cost of that much of
      packings, be they primary or secondary, which are required to make
      the articles marketable would be includible in the valut. How much
      packing is necessary to make the goods marketable is a q.lestion of fact
      to be determined by application of the correct approach. Packing which
G     is primarily done or mainly done for protecting the goods\ and not for
      making the goods marketable should not be included. l49IH; 492AJ

            The Tribunal was in error in approaching the problem before it
      by looking al the question whether the goods packed in the smaller
      cartons conld he sold in a wholesale market in the course of wholesale
1-1   trade at the factory gate without the outer cartons in which the smaller
                C.C.E. v. POND'S INDIA [MUKHARJI, J.]               481

cartons are packed. The question is oot whether these goods could be so    A
sold but the question is whether these goods are so sold usually and as
such used to become marketable in such manner. [492B-C)

(Per S. Ranganathan, J.)

      Section 4(4)(d)(i) of the Act lays down that where goods are         B
delivered by the factory gate in a packed condition, the cost of the
packing should be included in the assessable value. The clause makes.no
distinction between primary and secondary packing or further subse-
quent packing. [492G)

      There is therefore, much to be said for the view that, in judging
the condition of packing whose cost is to be included in the assessable    C
value, one should go by the conduct of the parties and the nature of the
packing in which the goods generally are-not, can be-placed in the
wholesale market. [493H; 494AJ

      Mis. Hindustan Polymers v. The Collector of Central Excise,          D
[1989) 3 SCR 974 case, referred to.

    CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2043
(NM) of 1989.

     From the Judgment and Order dated 28.11.1988 of the Customs.          E
Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal
No. E.A. No. 3302/87A in Order No. 558/88-A.

     K. Parasaran, Attorney General, A.K. Ganguli and P. Parmesh-
waran for the Appellant.
                                                                           F
     Soli J. Sorabji, S. Ganesh, R. Narain, P.K. Ram and D.N.
Mishra for the Respondent.

     The following Judgments of the Court were delivered

      SABYASACAI MUKHARJI, J. This is an appeal under section              G
35L(b) of the Central Excises & Salt Act, 1944 (hereinafter called 'the
Act') from the judgment and order of the Customs, Excise & Gold
(Control) Appellate Tribunal, New Delhi, (hereinafter called 'tlie Tri-
bunal') date 28th November, 1988.

     M/s. Ponds India Ltd., (hereinafter referred to as 'the respon-       H
    482         SUPREME COURT REPORTS               [1989) Supp. 1 S.C.R.

    dent') used to manufacture telcum powder and face powder falling
A
    under tariff item 14F of the Central Excise Tariff, which are now under
    sub-heading No. 3304.00 and were clearing the same on payment of
    duty. The assessee claimed deduction of cost of packing for transporta-
    tion in respect of small packings of 15, 18, 20, 30, 40 & 100 gms.
    powder ranging from 0.27 paise to 0. 76 paise per dozen packings and
B   the same was approved provisionally by the office of the Asstt. Col-
    lector of Central Excise, Pondicherry. The said approval was by an
    order dated 10th December, 1985. It is alleged that it was later noticed
    that the small packs were first packed in dozen and then packed in
    secondary packings for easy transportation to the wholesale dealer,
    and it was found that the secondary packings were a must for delivery to
    the wholesale dealers, (emphasis indicated). The Asst!. Collector came
c   to the conclusion that the amount as claimed by the respondent was
    not deductible as per this Court's decisions in respect of post-
    manufacturing expenses. In the premises, a show-cause notice was
    issued to the respondent on October 30, 1986 and a demand was made
    for the differential duty on the cost of secondary packings which was
D   stated to be Rs.3,46,151.92 for the period from December 2, 1985 to
    May 31, 1986. The Asst!. Collector by his order dated February 27,
     1987 disallowed the respondent's claim for exclusion of the cost of
    packing of transportation and thus rejected its claim. He inter alia,
    observed as follows:

E               "Therefore, I consider that the cost of secondary packings
                viz, card board cartons are rightly includible in the assess-
                able value of items mentioned in PL No. 405/ 85-86 and
                406/85-86 dated 10.12.85 under Section 4(4)(d)(i) of the
                Central Excises and Salt Act, 1944, and the provisional
                assessments are to be finalised accordingly. T.he assessees
F               are also liable for payment of differential duty of
                Rs.3,46,151.92 as demanded in the.show cause notice cited
                under Section l!A of the Central Excises and Salt Act read
                with rule 9B of the Central Excise Rules, 1944."

          There was an appeal to the Collector of Customs which was
G   disposed of by an order dated 15th September, 1987. It is necessary to
    set out the said observations of the Collector, in view of the conten-
    tions sought to be raised in these matters. He, inter alia, observed as
    follows:

                "I have carefully considered the submission of the appel-
H               lants made in their grounds of appeal and repeated during
    C.C.E. v. POND'S INDIA [MUKHARJI, J.)                 483

 personal hearing. I find that the appellant's claim is solely   A
 based on the judgment of the Hon'ble Supreme Court iii
the case of Godfrey Philips and which has been followed by
different High Courts also from time to time. First of all, it
is necessary to consider whether the goods sold by the ap-
pellants viz. talcum powder and face powder required an
outer carton packing for purpose of safety in transit, which     B
was the case before the Hon'ble Supreme Court in case of
M/s Godfrey Philips. It ·cannot be disputed that talcum
powder and face powder are packed either in metal con-
tainers or in plastic packing also of cardboard. packings,
which are inner cartons and contain one dozen. The··same
are then put in the master carton for purpose of delivery to
wholesale dealers. In the I-lon'ble Supreme Court's judg-        C
meat, it is stated that the corrugated fibre board containers
are employed only for purpose of avoiding damage or
injury during transit. But that is not as in the case of the
 appellants. There is no likelihood of any damage or injury
to .the tins or the plastic containers employed as a primary     D
 packing even if the goods are transported without the outer
packing. Unlike cigarettes, even dampness is not going to
affect the goods because they are hermetically sealed when
put in the primary packing. Therefore, the ratio of the
judgment of Hon'ble Justice Pathak which is quoted by the
appellants is not a~ailable in the case of different goods       E
which are not perishable as cigarettes are. The second
point is that cigarettes are sold by carton of 200 cigarettes
each, even in wholesale trade. That is not the case in the
appellant's wholesale trade where the goods are sold by
number of dozens and in some cases by numbers of tins or
other packings which are primary packing (this was seen          F
from the invoice produced during personal hearing).
'I)lerefore, 1t cannot be said that the outer cartons are emp-
loyed only for the purpose of avoiding damage or injury to
the goods during transit. In view thereof, the Hon'ble
Supreme oCourt's decision in the case of MRF becomes
applicable. In case of talcum powder and face powder, it is      G
necessary to put the dozen cartons inside the outer cartons,
for giving delivery whether at the factory gate, or at a place
of delivery other than the factory gate, because it is not
convenient for the wholesale dealers to collect the goods
in dozens' packing. Wholesale trade is not generally in
quantities less than a dozen. Therefore, even while giving       H
    484        SUPREME COURT REPORTS                [1989] Supp. I S.C.K.

               delivery by the wholesale dealers, to other dealers, the
A              outer carton is necessary as otherwise it will become
               difficult for him to give such delivery of 50 dozens or JOO
               dozens of the goods. It is not disputed that the outer carton
               packing is the packing in which the goods are cleared from
               the factory, and are put into the stream of wholesale trade
B               ....... the ratio of the Godfrey Philips case is not applic-
               able in .the appellant's case. I find that the talcum powder
               and face powder are cleared in the master carton packing in
               the factory and it is in that packing the same are put in the
               stream of wholesale trade. Further, I do not find that the
               master cartons are employed solely for purpose of protect-
               ing the goods during transit. But the same are used for
c              giving delivery in wholesale trade by the appellants. There-
               fore, the order of the Asstt. Collector, including the cost of
               master cartons in assessable value of the goods is correct
               and proper and needs no interference. That being the only
               point for determination in appeal, the appeal is rejected."
D
          There was an appeal to the Tribunal. It was contended on behalf
    of the respondent herein before the Tribunal that the only question for
    determination was, whether the cost of third stage packing, the outer
    carton, intended for transport can be included in the assessable value.
    It was pleaded that all goods were cleared from the factory in the outer
E   cartons With the smaller carton containing dozen containers of
    powder. It was further contended that the facts of this case were same
    as in the case of cigarettes dealt with by this Court in Union of India &
    Ors. v. Godfrey Philips India Ltd., [1985] 3 Suppl SCR 123. It is
    contended that in view of the said decision of this Court, cost of
    cartons was included only if packing was necessary for the sale of goods
F   in the wholesale market. It is submitted that it was not so necessary. for
    sale. The Tribunal noted that the question of inclusion of cost of
    secondary packing in Section 4(4}(d}(i) of the Act, be it at the first
    stage, second or third stage of packing, has to be decided in each case
    depending upon the facts applicable. The Tribunal found that so far as
    the smaller carton is concerned, the inclusion of the cost of the same in
G   the assessable value was not in dispute and the appellants have con·
    ceded that the value is includible following the ratio of the judgment of
    this Court. It also noted that it was nobody's case that the number of
    tins contained in the smaller carton constitute retail packing rather
    than wholesale packing. The Tribunal felt that the only question to be
    decided was, whether the goods packed in the smaller cartons could be
H   sold to the wholesale buyer in the course of wholesale trade at the
                 C.C.E. v. POND'S INDIA [MUKHARJI, J.]                 485

factory gate without the outer carton in which the number of smaller
                                                                              A
cartons were packed. It is important to emphasise this question in view
of the contentions raised in this appeal. The case of the revenue was
that since the goods were sold in lots packed in the bigger outer
cartons, the value of the same should be included for the purpose of
assessment. According to the Tribunal, there was· however, no plea
raised by the revenue as to the capability or otherwise of the sale of        B
powder tins in the wholesale market in the smaller cartons described as
the inner-outer. The Tribunal noted that in the facts of the instant
case, the talcum powder packed in tin containers is in no danger so far
as the contamination of the powder is concerned and the packing, it
was pleaded before them, was required for the p"urpose of preventing
damage to the tin containers which were sophisticated in nature taking
into account th,e product being marketed, and it recorded that inner          c
cartons contain 12 tins or so which is a wholesale packing and it was
not made out that the smaller carton was not sufficient to protect the
tins or that the sale could be made in the course of wholesale trade at
the factory g_ate. There was no plea on record that the smaller carton is
flimsy and not sufficient for the purpose of marketing the tins and their     D
storage in the course of wholesale trade. the Tribunal referred to the
observations of this Court in Union of India & Ors. v. Bombay Tyre
International Ltd., [1984] 1 SCR 347, and following the same came to
the conclusion that the cost of outer or bigger cartons in which the
smaller cartons containing powder tins are packed, is not includible in
the assessable value as the delivery of the goods can be taken in smal-       E
ler cartons at the factory gate by a buyer in the course of wholesale
trade. The outer cartons were held to be for the purpose of transport
of the goods and were not required for the sale of the goods at the
factory gate. The revenue seeks to challenge this basis.

     What is to be included in the value, has to be determined in            F
terms of section 4(4)(d)(i) of the Act. The question has been examined
from all points of views by this Court.

       The question of secondary packing was examined by this Court
in Bombay Tyres International's case (supra). There, this Court
observed that for the purpose of determining the 'value', broadly G
speaking both olds. 4(a) and the news. 4(1)(a) speak of the price for
sale in the course of wholesale trade of an article for delivery at the
time and place of removal, namely, the factory gate. Where the price
contemplated under the old s. 4{a) or under new s. 4(l)(a) is not
ascertainable, the price is determined under the olds. 4(b) or the new
s. 4( l)(b ). Now, the price of an article is related to its value (using this H
    486         SUPREME COURT REPORTS                [1989] Supp. 1 S.C.R.

    term in a general sense) and into that value have poured several com-
A   ponents, including those which have enriched its value and given to the
    article its marketability in the trade. Therefore, the expenses incurred
    on account. of the several factors which have contributed to its value
    upto the date of sale, which apparently would be the date of delivery,
    are liable to be included. Consequently, where the sale is effected at
B   the factory gate, expenses incurred by the assessee upto the date of
    delivery on account of storage charges, outward handling charges,
    interest on inventories (stocks carried by the manufacturer after clea-
    rance), charges for other services after delivery to the buyer, namely,
    after-sales service and marketing and selling organisation expenses
    including advertisement expenses marketing and selling organisation
    expenses and after-sales service promote the marketability of the arti-
c   cle and enter into its value in the trade. Where the sale in the course of
    wholesale trade is effected by the assessee through its sales organisa-
    tion at a place or places outside the factory gate, the expenses incurred
    by the assessee upto the date of delivery under the aforesaid heads
    cannot, on the same grounds, be deducted. This Court further
D   observed that the news. 4(4)(d)(i) of the Act has made express provi-
    sion for including the cost of packing in the determination of 'value'
    for the purpose of excise duty. 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, (emphasis
    supplied). Therefore, the cost which is incurred for making the goods
E   available in the wholesale market and in which the goods are generally
    available in such market, would be the 'value' which is includible
     under s. 4(4)(d)(i) of the Act. There is no dispute 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 con-
    sumer, must be regarded as falling within s. 4(4)(d)(i) of the Act.
F    There is often, as in this case, 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. The question with which this Court was
    concerned in that case was: is all the packing, no matter to what
G   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? This Court observed that
    one must remember that while packing is necessary to make the excis-
    able article, marketable, the statutory provision calls for strict
    construction because the levy is sought to be extended beyond the
H   manufactured article itself. Therefore, this Court observed that the
                 C.C.E. v. POND'S INDIA [MUKHARJI, J.J                 487

degree of secondary packing which is necessary for putting the excis-
                                                                           A
able 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. To that extent, this Court observed, the cost of secondary
packing cannot be deducted from the wholesale cash price of the excis-
able article at the factory gate. It was further held therein that if any B
special secondary packing is provided by the assessee at the instance of a
wholesale buyer which is not generally provided as a normal feature of
the wholesale trade, the cost of the such packing shall be deducted from
the wholesale cash price. Therefore, it is clear by virtue of that deci-
sion that the cost of 'packing which is necessary to make the excisable
article martketable, that is to say, in which it is generally sold in the
wholesale market at the factory gate', is to be included. Therefore,          c
according to the said decision and by virtue of the terms of the section,
the cost of that much of secondary packing, which is necessary only to
put the excisable good in condition in which it is generally sold in
wholesale market is the degree of packing which cost can be included
and not beyond that.                                                       D

       In the application of this principle, about which there is no dis-
pute, there has been some divergence of the emphasis put on by what
criterion that cost should be determined. This question came up for
consideration in Union of India v. Godfrey Philips India Ltd., [1985]
Supp. 3 SCR 123. There, Chief Justice Bhagwati observed that                  E
whenever a question arises whether the cost of any particular kind of
secondary packing is liable to be included in the value of the article;
the question to be asked is does the packed condition in which the
article is generally sold in the wholesale market at the factory gate
include such secondary packing? The learned Chief Justice observed
that if it does, it would be liable to be included in the value of the        F
article for the purpose of excise duty. It, therefore, followed that ifthe
packed condition in which the cigarettes manufactured by the respon-
dents were generally sold in that case in the wholesale market at the
factory gate included packing in corrugated fibre board containers, the
cost of such corrugated fibre board containers was liable to be included
in the value of the cigarettes for the purpose of excise duty. The            G
learned Chief Justice further observed that the condition for applica-
bility of the inclusive definition of "value" ins. 4(4)(d)(i) of the act is
that the goods are delivered at the time of removal "in a packed
condition" and where this condition is satisfied, the "value" of the
goods would include "the cost of such packing" arid "such packing"
must obviously mean the pacl(ing in which the goods are when they are         H
    488         SUPREME COURT REPORTS                [1989] Supp. 1 S.C.R.

  delivered at the time of removal. Therefore, according to the learned
A
  Chief Justice, the question to be asked is-what is the packed condi-
  tion in which the goods are when delivered at the time of removal?
  Whatever is the packing of the goods at the time when they are
  delivered at the time of removal, the cost of such packing would be
  liable to be included in the 'value' of the goods. The Explanation to
B s. 4(4)(d)(i) of the Act provides an exclusive definition of the term
  "packing" and it includes not only outer packing but also what may be
  called inner packing. The question that the Chief Justice posed was not
  for what purpose a particular kind of packing was done. The test was
  whether a particular kind of packing was done in order to put the
  goods in the condition in which these were generally sold in the
  wholesale market at the factory gate and if these were generally sold in
c the wholesale market at the factory gate in a certain packed condition,
  whatever may be the reason for such packing, the cost of such packing
  would be includible in the value of the goods for assessment to excise
  duty. Pathak, J. (as the learned Chief Justice was then) and Sen, J.
  gave separate judgments in the aforesaid case. Setting out the passage
D from  the Bombay Tyres International's case (supra), which is referred
  to hereinbefore, Pathak, J. posed the question: is the packing neces-
  sary for putting the cigarettes in the condition in which they are gener-
  ally sold in the wholesale market at the factory gate? And answering
  that question, Pathak, J. held it is not. It is true that there is a diver-
  gence between the views of Bhagwati CJ, Pathak, J and Sen, J. But in
E my opinion, there is a unanimity in the test that is to be applied, that is
  to say, that much of the cost would be included only which is necessary
  for putting the article in the condition in which it is generally sold in
  the wholesale market. The principle behind this is-in order for
  manufacture to be taxable, article must become goods. In order to
  become goods, these must come to the market or be capable of coming
F to the market as definite and identifiable goods. So whatever expenses
  are necessary for making that possible, that much of the cost would be
  included in the "value". But what is subsequent to that, that is to say,
  any cost merely facilitating transport or merely ensuring security in
  transit are costs which are post-manufacture, i.e. after articles have
  become goods as a result of manufacture and are capable of becoming
G manufactured and thereafter dealt with. This, in my opinion, is the
  true test and read in that light, I do not find that there is really any
  divergence of opinion between Bhagwati, CJ, Pathak, J. and Sen, J. of
   course, there is divergence of emphasis in the approach in which the
  question has to be looked into. This aspect of the matter was also dealt
  with by this Court in Mis Hindustan Polymers v. The Collector of Central
H Excise, [1989] 3 SCR 974 (Civil Appeals Nos. 4339-41of1986)-judgment in
                 C.C.E. v. POND'S INDIA [MUKHARJI, J.J                489

which was delivered on 23rd August, 1989, where one of us
(Sabyasachi Mukharji, J) after analysing these several cases of this         A
Court observed that: '

            "In order, therefore, to be manufacture, there must be
            activity which brings transformation to the article in such a
            manner that different and distinct article comes into being B
            which is known as such in the market. If in order to be able
            to put it in the market, a certain amount of packing or user
            of containers or wrappers or putting them either in drums
            or containers, are required, then the value or the cost of
            such wrapper or container or drum must be included in the
            assessable value and if the price at which the goods are sold
            does not include that value then it must be so included by C
            the very force of the terms of the section."

      Therefore, in all cases, according to that decision, the question
must be examined whether packing, and if so, what packing is neces-
sary to make the article marketable as such or could these goods be          o
sold without the containers, drums or packing? This Court in that case
took into account the fact that 90% of the goods were delivered in
tankers belonging to the assessee and only 10% of the goods were in
packed condition at the time of removal. This was taken as an indicia
of in what condition of packing the goods are sold. As mentioned
hereinbefore, that principle has been clearly laid down in the Bombay        E
 Tyres lnternational's case (supra) in the sense that only that degree of
secondary packing which is neg:ssary for putting the assessable article
in the condition in which it is generally sold in the wholesale market
should be included in the 'value' of the article. The majority judgment
in Godfrey Philips' case (supra) also clarified this position. It is true
that Pathak, J. and Sen, J. made it clear that secondary packing does        F ·
for the purpose of "facilitating transport and smooth transit of the
goods to be delivered to the buyer in the wholesale trade would not·be
included in the value". Chief Justice Bhagwati held in the said case
that the fibre board containers in which the cigarettes were packed fell
within the definition of 'packing' in the Explanation to s. 4(4)(d)(i)
and if these formed part of the packing in which the goods were packed       G
when delivered at the time of removal, then such cost of corrugated
fibre board containers would be liable to be included in the value of
cigarettes. But Chief Justice emphasised that the test to determine
whether the cost of •my p,.;,ticular kind of secondary packing is liable
to be included in the value of the article is whether a particular kind of
packing is done in order to put the goods in the conditiou in which they     H
    490         SUPREME COURT REPORTS              [1989] Supp. 1 S.C.R.

  are generally. sold in the wholesale market at the factory gate. In my
A
  opinion, the views expressed by the majority of the Judges in Godfrey
  Philips' case (supra) were in consonance with the view of the this
  Court in the Bombay Tyres International's case (supra). The question
  is not for what purpose a particular kind of packing is done but the test
  is whether a particular packing is done in order to put the goods in the
B condition in which they are generally sold in the wholesale market at
  the factory gate and if they are generally sold in the wholesale market
  at the factory gate in certain packed condition, whatever may be the
  reason for such packing, the cost of such packing would be includible
  in the value of the goods for assessment to excise duty.

        In the present case, .it has been factually found as indicated
c hereinbefore, by the Collector that the telcum powder ancl face
  powder are packed either in metal containers or in plastic containers,
  and thereafter they are put in dozen packing also of cardboard pack-
  ings, which are inner cartons, and contain one dozen. The same are
  then put in the master carton for purpose of delivery to wholesale
D dealers. But in Godfrey Philips' case (supra), the corrugated fibre-
  board containers were employed for the purpose of avoiding damage
  or injury during transit. On the other hand, in this case, it was found
  that there was no damage or in jury to the tins or plastic containers
  employed as a primary packing even if the goods are transported with-
  out the outer packing. The second point is that cigarettes are sold in
E cartons of 200 cigarettes each, even in wholesale trade. That is not the
  case in the appellants' wholesale trade herein where the goods are sold
  by number of dozens and in some cases by numbers of tins or other
  packings which are primary packing. Therefore, it cannot be said that
  the outer cartons are employed only for the purpose of avoiding
  damage or injury to the goods during transit. But it may be indicative
F of the fact that the goods are so sold.

          It may be mentioned in this connection that our attention was
    d:awn to the unanimous order of three-Judge Bench presided over by
    the Chief Justice Bhagwati of this Court in Civil Appeals Nos. 642-45
    of 1982 in Geep Industrial Syndicate Ltd. v .. The Union of India & Ors.
G   There, the question that arose for determination was whether the cost
    of secondary packing in wooden boxes was liable to be added in
    determination of the value of batteries and torches for the purpose of
    excise duty. The torches and batteries manufactured by the appellants
    were first packed in polythene boxes and then these polythene boxes
    were placed in cardboard cartons. There were certain varieties of
H   batteries which were packed directly in cardboard cartons. There was
                   C.C.E. v. POND'S INDIA [MUKHARJI, J.)                 491

   no doubt that packing in polythene bags and cardboard cartons was            A
   includible in the determination of the value of batteries and torches for
   the purpose of levy of excise duty. The question was whether the
   wooden boxes in which the cardboard cartons were placed at the time
   of delivery at the factory gate was to be includible in the value. There
.. was some dispute between the parties whether the cardboard cartons
   were packed in wooden boxes in all cases. It was stated that when they       B
   were delivered in the course of the wholesale trade at the factory gate,
   they were not packed in wooden boxes as a matter of course but they
   were packed in wooden boxes only in those cases where delivery was
   taken by wholesale dealers outside the city of Allahabad in that case.
   This Court fotind that it was not necessary to determine the disputed
   question of fact. It was held that even if the cardboard cartons were        C
   packed in wooden boxes in all cases, it was clear that the cost of such
   secondary packing in wooden boxes was not includible in determina-
   tion of the value of batteries and torches. This Court agreed with the
   Godfrey Philips's case (supra) that corrugated fibreboard containers
   were used. as secondary packing only in order to ensure cartons or
   outers against injury or damage during transport and that it was not         D
   necessary for putting the cigarettes in the corrugated fibreboard contain-
   ers for their sale in the wholesale market at the factory gate and the
   cost of such secondary packing was therefore not liable to be included
   in determination of the value of the cigarettes for the purpose of excise
   duty.
                                                                                E
        The Tribunal in the instant case observed as under:

              "We observe that in the facts of the present case, the
              rationale of the judgment of the Hon'ble Supreme Court
              above is squarely applicable. We hold following with
              respect to the ratio of the decision above that the cost of F
              the outer or bigger carton in which the small cartons con-
              taining the powder tins are packed, is not includable in the
              assessable value as the delivery of the goods can be taken in
              smaller cartons at the factory gate by a buya in the course of
              wholesale trade. The outer carton have to be held to be for
              the purpose of transport of the goods and are not required G
              for the sale of the goods at the factory gate."
                                                        (emphasis supplied).

      In my opinion, the correct position seems to be that the cost of
 that much of packings, be they primary or secondary, which are
 required to make the articles marketable would be includible in the H
    492         SUPREME COURT REPORTS                [1989] Supp. 1 S.C.R.

A value. How much packing is necessary to make the goods marketable
    is a question of fact to be determined by application of the correct
    approach. Packing, which is primarily done or mainly done for pro-
    tecting the goods, and not for making the goods marketable should not
    ~e included. In the instant case, therefore, could the powder be sold in
    smaller cartons at the wholesale market? The fact that these were
B   usually sold in the wholesale market would be a good pointer for this
    question. Having considered the order of the Tribunal, which I have
    set out hereinbefore, I am of the opinion that the Tribunal was in error
    in approaching the problem before it by looking at the question
    whether the goods packed in the smaller cartons could be sold in a
    wholesale market in the course of wholesale trade at the factory gate
    without the outer cartons in which the smaller cartons are packed. The
c   question is not whether these goods could be so sold, but the question is
    whether these goods are so sold usually and as such used to become
    marketable in such manner. In my opinion, there has been a misdirec-
    tion by the Tribunal on this aspect of the matter. If the above be the
    true test, then the judgment and the order of the Tribunal must be set
D   aside and the appeal must be allowed and the matter remanded back to
    the Tribunal to determine afresh this question from the stand point
    indicated above.

          I accordingly allow the appeal, set aside the judgment and
    order of the Tribunal and remand the matter back to the Tribunal to
E   decide it in accordance with the aforesaid directions. In the facts and
    the circumstances of the case, there will be no orders as to costs.

          RANGANATHAN, J. I agree. But, as it has been contended by
    Sri Soli Sorabjee that the Tribunal's conclusion in this case has to be
    upheld straightaway in view of the decision of this Court in Godfrey
F   Philips, [1985] Suppl. 3 S.C.R. 123 and Geep, (C.A. Nos. 642-45 of
    1982, I should like to add a few words.

          S. 4(4)(d)(i) of the Act lays down that where goods are delivered
    at the factory gate in a packed condition, the cost of the packing
    should be included in the assessable value. The clause makes no dis-
G   tinction between primary packing and secondary or further subsequent
    packing. However, a restriction was read into the wide language of the
    clause by this Col!rt in the Bombay Tyre International case, [1984] 1
    S.C.R. 347. Posing the question whether the cost of all packing, no
    matter to what degree, in which the wholesale dealer takes delivery of
    the goods, should be included in determining the assessable value or a
H   line should be drawn somewhere, the Court indicated that while the
                  C.C.E. v. POND'S INDIA [RANGANATilAN, J.J                 493

    cost of pnmary packing was indisputably includible, the position               A
    would be different in regard to secondary packing. The Court
    observed 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. "If any special secondary packing is provided by the          B
    assessee", the Court observed, "at the instance of a wholesale buyer
    which is not generally provided as a normal feature of the wholesale
    trade, the cost of such packing shall be deducted from the wholesale
    cash price." The exclusion indicated by these words is very limited and
    clearly does not extend to the cost of any packing in which the goods
    are generally sold by the manufacturer in the wholesale market.
                                                                                   c
           However, the reference in Bombay Tyres, (supra) to secondary
    packing "which is necessary" led to a further refinement in Godfrey
    Philips and Geep. In these cases, the conclusion of the Court was that
    the cost of packing of the goods in "corrugated fibre containers" and
    "wooden boxes" respectively was not includible in arriving at the D
    assessable value. Had the matter been free from authority, one might
    have been inclined to agree with the reasoning of Bhagwati, C.J., that
    the ·condition of packing i.n which the goods are usually placed in the
    wholesale market would be conclusive of the issue and that, the condi-
    tion in which the goods are generally placed in the wholesale market
    notwithstanding, a theoretical enquiry by the excise authorities into E
    the purpose-of such packing or as to whether such packing was "neces-
    sary" or not would be totally uncalled for. Indeed, this was the test
    applied by one of us (Mukharji, J.) in Hindustan Polymers for holding
    that the cost of drums for packing fuse! oil was not includible in the
    assessable val.ue because the goods viz. fuse! oil was generally sold in
    the wholesale market in the raw state, without any packing whatever, F
    leaving it to the wholesale consumer to draw it from the manufac-
    turer's tanks into his trucks, containers or drums. It will be appreciated
    that if this position were not to be accepted and an enquiry were to be
    made as to whethecsuch ·general packing is "necessary" or not, such
«   an investigation might operate both ways. For example, on that basis,
    it could be argued, in the Hindustan Polymers case, that though the G
    goods were actually sold wholesale in a free condition, a container is
    "necessary" from a theoretical stand point to place the fluid goods on
    the market and that, therefore, the cost of the drums would have to be
    included in the assessable value. But this was not the view taken by
    this Court. There is, therefore, much to be said for the view that, in
    judging the condition of packing whose cost is to be included in the H
    494          SUPREME COURT REPORTS                 [1989] Supp. 1 S.C.R.

A   assessable value, one should go by the conduct of the parties and the
    nature of the packing in which the goods generally are-not, can be-
    placed in the wholesale market.

           It is, however, urged for the respondent that such an enquiry has
    been held necessary by Godfrey Philips. But, as pointed out by my
B   learned brother, even the majority decision in that case does not go to
    the length suggested on behalf of the appellant and justify an investiga-
    tion as to the state of packing in which the goods could be placed in the
    market. That would only be an exercise in theoretical speculation. On
    that basis, for insta_nce, in the present case, it could be said, for the
    same reasons as have been given by the Tribunal, that the goods could
    be collected from the factory even in units of tin containers, leaving it
c   free to the purchasers to make their own arrangements to pack them in
    cardboard cartons to convey them to their place of business. This
    would render even the cost of the first outer packing of cardboard
    containers irrelevant in the determination of the assessable value. That
    was not the contention even of the respondents and indeed, if carried to
D   its logical conclusion, would render the cost of all packing, other than
    primary packing, excludible from the assessable value. It seems to me,
    therefore, that what is to be really seen is this: What is the condition of
    packing considered by the manufacturers, having regard to the nature
    of the business, the type of goods concerned, the unit of sale in the
    wholesale market and other relevant considerations, to be generally
E   necessary for placing the goods for sale in the wholesale market at the
    factory gate. in Godfrey Philips and Geep, this Court was concerned
    with a special type of packing which seemed intended more to protect
    the packed goods against injury or damage rather than to enable it
    being placed on the market. Indeed, in Godfrey Philips, this was a
    factual position that had been accepted by the departmental authori-
F   ties earlier for a period of a little over six years which they later wanted
    to go back upon. Can the same be said of the goods and the packing
    with which we are concerned here is a question to be decided on the
    facts, as the appellate controller did and not as a proposition of law
    settled by, or the automatic consequence of the decision in, the
    Godfrey Philips case, as seems to have been done by the Tribunal and
G   as is being argued for the respondents. I would, therefore, agree that
    the matter should be remanded to be reconsidered in the light of our
    observations.

    Y.Lal                                                    Appeals allowed.