Holding

Packing that is not necessary to place the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate cannot be included in the assessable value; the manufacturer must prove its non‑necessity.

Summary

Geep Industrial Syndicate Ltd, a manufacturer of batteries and torches, packed its products in small boxes, medium cartons and then 7‑ply corrugated cartons. The issue was whether the cost of the 7‑ply cartons had to be included in the assessable value of the goods under Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944. The Court reiterated the test that packing is includable only if it is necessary to place the goods in the condition in which they are generally sold in the wholesale market at the factory gate. Since the 7‑ply cartons were used merely to protect the goods during transport after delivery and not to make them marketable, the Court held that their cost is not part of the value. The burden of proving that packing is unnecessary lies on the manufacturer. Consequently, the appeals filed by the assessee were allowed and the revenue’s appeal was dismissed.

Issues considered

Whether the cost of 7‑ply corrugated cartons is includable in the value of goods under Sec. 4(4)(d)(i) of the Central Excises and Salt Act, 1944.
What is the proper test for determining "necessary" packing for the purpose of assessing excise duty.
Who bears the burden of proving that a particular packing is not necessary.

Legislation cited

Central Excises and Salt Act, 1944s. 4(4)(d)(i)

Subjects

Excise dutyPacking valueAssessable valueSection 4(4)(d)(i)Necessary packingBurden of proofWholesale market

Judgment

GEEP INDUSTRIAL SYNDICATE LTD. ETC. A
v.
COLLECTOR OF CENTRAL EXCISE, ALLAHABAD

FEBRUARY 4, 1997

[B.P. JEEVAN REDDY AND KS. PARIPOORNAN, JJ.] B

Excise Law:

Central Excises ~nd Salt Act, 1944: Section 4(4)(d)(i).
c
Excise dutj-Packing-"Value" of-In computing value of goods pack-
ed-Test detennination of-Batteries and torches were initially packed in
small boxes which were packed in medium size cartons and which, in tum,
were packed in ''7-ply conugated carlons"-Held: Test was to determine
whether packing provided at the time of delivery of the goods at the gate was
necessary for th i purpose of putting them in a condition in which they were D
generally sold in the wholesale market at the factory gate-In the instant case,
packing was necessary only for protecting goods from damage-Hence, "value"
of packing not liable to be included in value of said goods.

Excise duty-f'acking-"Value" of--bt computing value of goods pack- E
ed-Onus to establish-Held: Is on the manufacturer.

Words and Phrases:

"Value''-Meaning of-fn the context of S.4(4)(d)(i) of the Central
Excises and Salt Act, 1944. F

The appellant-assessee was engaged in the manufacture of batteries
and torches. These goods were initially packed in small boxes, which were
packed in medium size cartons, The medium size cartons were, in turn,
packed in larger corrugated cartons, called "7-ply corrugated cartons." The G
Central Excise and Gold (Control) Appellate Tribunal held that the value
of the "7·ply corrugated cartons" was liable to be included in the value of
the goods packed under Section 4(4)(d)(i) of the Central Excises and Salt
Act, 1944. Being aggrieved the appellant preferred the present appeal.

Allowing the appeal, this Court H
' 907
J-
908 SUPREME COURT REPORTS [1997] 1 S.C.R.

A HELD: 1.1. Whatever packing is provided at the time of delivery of
the goods at the gate is the packing necessary for the purpose of putting
the excisable-articles in the condition in which they are generally sold in
the wholesale market at the factory gate. Unless the manufacturer estab-
lishes that a particular packing, provided at the time of such delivery, was
B not really necessary for that purpose, the value of the packing cannot be
excluded. [913-B]

1.2. In the year 1986, in Geep Industrial Syndicate relating to this
very assessee herein, this Court held that packing in wooden boxes was not
--'---
necessary for putting the articles in the condition in which they are
c generally sold in the wholesale market at the factory gate and that it was
done only for the purpose of protecting them from damage during the
course of transport, i.e., transport after delivery. The 7-ply corrugated
cartons have now taken the place of wooden boxes. But for this, there is
no change in the factual situation since 1986. In such a factual situation,
it would not be permissible to arrive at a different conclusion than the one
D arrived at in 1986. [913-D-E]
...(-
~

Geep J.ndustrial Syndicate Ltd. v. Union of India, (1992) ELT 328;
Government of India v. Madras Rubber Factory Ltd., [1995] 4 SCC 349 and ,.
CCE v. Ponds (India) Ltd., [1989] 4 sec 759, relied on.
E Union of India v. Bombay Tyre International, [1984] 1 SCC 467 and
Union of India v. Godfrey Phillips India Ltd., [1985] 4 sec 369, referred
to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4608-12
of 1996 Etc. )-
F
From the Judgment and Order dated 18.10.95 and 6.11.95 of the
Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in
Appeal Nos. E/2361-62/92-A and E/2796/93-A and E/1261/94-A, 962/95-A
(Final Order No. 532-534/95-A and 695-96 of 1995-A.
G
Soli J. Sorabjee, V. Lakshmikumaran, V. Balachandran and Ms.
Nisha Bagchi for the Appellants in C.A. Nos. 4608-12 and 4960/96 and
Respondent in C.A. No. 14407/96. ~

M. Gaurishankar Murthi, G. Prakash and V.K. Verma for the
H Respondents in C.A. No. 4608-12/96,.4960/96 and Appellants in C.A. No.
GEEP INDL. SYNDICATE v. COLI.ECTOR OF CENTI\ALEXCISE A!LAHBAD [B.P. JEEVAN REDDY, J.J909

14407/96. A
The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J. These appeals are preferred against the
orders of Central Excise and Gold (Control) Appellate Tribunal. Civil
Appeals No. 4608-4612 of 1996 and 4960 of 1996 are preferred by the B
assessee, Geep Industrial Syndicate Limited, while Civil Appeal No. 14407
of 1996 is preferred by the Revenue. Though preferred against different
orders, the issue is one and the same. The assessee is engaged in the
manufacture of batteries and torches. These goods are initially packed in
small boxes. These small boxes are packed in medium size cartons. The C
medium size cartons are in turn packed in larger corrugated cartons, called
"7-ply corrugated cartons". The assessee does not dispute that the value of
small boxes and medium size cartons is liable to be included in the value
of the goods packed, The dispute is only with respect to the inclusion of
the value of 7- ply corrugated cartons. Differing views have been expressed
by different Benches of the Tribunal on this question in the case of this D
very assessee, as would be evident from ·the fact that while against some
orders, the assessee has filed appeals,. certain other orders have been
appealed against by the Revenue.

Sri Soli J. Sorabjee, learned counsel appearing for the assessee, E
submitted that the factual and legal situation in the present appeals is the
same as was considered by this Court in Geep Industrial Syndicate Limited
v. Union of India, (1992) 61 E.L.T. 328. Learned counsel submitted that
the said decision rendered by a three-Judge Bench between the same
parties is binding and conclusive on the question at issue. Sri Sorabjee
submitted further that even according to the principles enunciated in Union F
of India v. Bombay Tyre International, [1984) 1 S.C.C. 467 and Government
of India v. Madras Rubber Facto'Y Limited, [1995) 4 S.C.C. 349, the assessee
is entitled to succeed. Sri Gauri Shankar Murthy; learned counsel appear-
ing for the Revenue, however, submitted that according to the principles
affirmed by this C~urt in Madras Rubber Factory after a full consideration G
of all the earlier decisions, the value. of 7-ply corrugated cartons is also
liable to be included in the value of the goods Packect.

Inasmuch as differing interpretations are placed upon the princitles
affirmed in Madras Rubber Factory, it is necessary to ascertain, in the first
instance, the precise principle enuneiated in the· said decision. After refer- H
910 SUPREME COURT REPORTS [1997] 1 S.C.R.
A ring to the definition of "value" in Section 4(4)( d)(i), this court observed in
Para-24:

"The provision in the sub-clause is a plain one and does not admit

B
of any ambiguity. 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 ·
1
a durable nature and is returnable by the buyer. to the assessee,
should the cost of such packing be not included in the value of the
goods. The concept of primary and secondary packing has, how-
ever, been urged by the assessees and recognised to some extent
c in the decisions of this Court including Bombay Tyre International.
While it may not be possible for us to wish away the said distinc-
tion, we cannot but remind ourselves that this is a refinement not
borne out by the express language of the enactment and must,
therefore, be resorted to with care and circumspection."

D
In para 25, the Court referred to the holding in Bombay Tyre Inter- ·~

national on this aspect to the effect: "(I)t 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
E 'value' of the article for the purpose of the excise levy." Reference was then
made to the decision of this Court in Union of India v. Godfrey Phillips
India Limited, [1985] 4 S.C.C. 369. It was pointed out that the said decision
was rendered by the very same Bench which decided Bombay Tyre Inter-
national. It was also pointed out that the test evolved by the majority (R.S.
p Pathak and AN. Sen, JJ.) and minority (P.N. Bhagwati, 0.) was identical
and that the different conclusions arrived at by them was mainly at-
tributable to the difference in perception of the factual situation (see Para
30). The Court then referred to the decision in Geep Industrial Syndicate
Limited and pointed out again that the factual position in this case too was
perceived to be the same as in Godfrey Phillips, viZ., that the wooden boxes
G were not necessary for putting the torches and batteries in the conditions
in which they are generally sold in the wholesale market at the factory gate.
It was stressed that so far as the test applicable is concerned, there was no
departure from the one enunciated in Bombay Tyre Intemational.

H The decision in Madras Rubber Factory next referred to the opinions
GEEP IND!. SYNDICA'IE v. COLLECTOR OF CEN1RAL EXCISE ALLAHBAD [B.P. JEEVAN REDDY, J.]911

. of Sabyasachi Mukharji, J. and S. Ranganathan, J. in C.C.E. v. Ponds A
·-,.- (India) Limited {1989] 4 S.C.C. 759 and expressed its entire and respectful
agreement with the test evolved.by Mukharj~ J. which reads: ·

"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 condition in which they are generally sold
B
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......The correct position seems to be that c
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 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."
D
The Bench also expressed its respectful concurrence with the opinion
of Ranganathan, J. where the learned Judge pointed out that the words
"which is necessary" in the test evolved in Bombay Tyre International has
led to certain further refinement in. Godfrey Phillips and Geep Industrial
Syndicate and then observed: E

".... .in judging the condition of packing whose cost is to be included
in the 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. .... what is to be really F
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 cons_iderations, to be generally necessary for
placing the goods for sale in the wholesale market at the ~actory
gate. In Godfrey Phillips and Geep, this Court was concerned with G
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 in the market. Indeed, in Godfrey Phillips, this was
a factual position that had been accepted by the departmental
authorities earlier for a period of a little over six years which they H
_)_
912 SUPREME COURT REPORTS [1997) 1 S.C.R.

A late~ wanted to go back upon."

After considering some other cases, the decision in Madras Rubber
factory stated the test in the following words:

"The test is: whether packing, . the cost whereof is sought to be
B included is the packing in which it is ordinarily sold in the Course
of :a wholesale trade to the wholesale buyer. In other words,
w~ether 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
c the value of the goods; and if it is not, the cost of such packing
has to be excluded."

Sri Sorabjee placed a· good amount of emphasis upon the word
"necessary" occurring in the above test. It appeared as if the learned
D counsel was emphasising the said expression to the exclusion of all others
in che said test. The test, as stated by this Court in Madras Rubber Factory,
is "whether packing, the cost of 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". The same was reiterated employing the words Bom-
bay Tyre bitemational, to wit: "In other words, whether such packing is
E necessary for putting the excisable article in the condition in which it is ·
generally sold in the whole~ale market at the factory gate". We think it
appropriate to point out that the test evolved by this Court in Madras
Rubber Factory should be read and understood in the context of the
preceding discussion including the express and repeated affirmance of the
test evolved by Mukharji and Ranganathan, JJ. in Ponds India Limited
F which is, in truth, nearer to the definition of the word "value" in Section
4(4)(d)(i) of the Act. The word "necessary'' in the test evolved by Bombay
Tyre International and as reiterated in Madras Rubber Factory need not be
over emphasised. According to Madras Rubber Factory, the lnte test is in
tenns of the one evolved by Mukhmji and Ra11ga11athan, JJ. in Ponds India
G Limited, viz., "whether packing, the cost whereof is sought to be included
is the packing in which it is ordinarily sold in the course of wholesale trade
to the wholesale buyer". While judging the necessity of the packing, what
one must see is whether it is necessary for putting the excisable article in
)-
the condition in which they are generally sold in the wholesale market at
the factory gate and this must be judged from the conduct of the manufac-
H turer himself. Ordinarily speaking, no manufacturer would provide a pack-
GEEP IND!.. SYNDICAIB '· COLLECTOR OF CENTRAL EXCISE ALl.AHBAD [B.P. JEEVAN REDDY, J.]913

ing which is not necessary for putting the excisable articles in the condition A
in which they are sold in the wholesale market at the factory gate. (Where
a special kind of packing is provided by the manufacturer at the specific
request of a buyer, the situation would be different but that is not the
situation herein). Therefore, one can proceed on tht; footing that whatever
packing is provided at the time of delivery of the goods at the gate is the
packing necessary for the purpose of putting the excisable articles in the B
condition in which they are generally sold in the wholesale market at the
factory gate. Unless thr manufacturer establishes that a particular packing,
provided at the time of such delivery, was not really necessary for that
purpose, the value of the packing cannot be excluded. In our respectful
opinion, the above is the correct understanding of the principle and the
ratio of Madras Rubber Factory.
c
Now coming to the facts of the case before us, we find that the actual
situation !-'.Onsidered by this Court in 1986 in Geep, Industrial Syndicate (this
very assessee) and the factual situation now obtaining is no different. It was
held by this Court in the said decision that packing in wooden boxes was D
.+ not necessary for putting the articles in the condition in which they are
generally sold in the wholesale market at the factory gate and that it was
done only for the purpose of protecting them from damage during the
course of transport, i.e., transport after delivery. The 7-ply corrugated
cartons nave now taken the place of wooden boxes. But for. this; there is
no change in the factual situation since 1986. In such a factual situation, it E
would not be permissible for us to arrive at a different conclusion than the
one arrived at in 1986*. On this ground alone, we hold in favour of the
assessee.

For the reasons recorded hereinabove, Civil Appeals Nos. 4608- 4612
of 1996 'and 4960 of 1996 (preferred by the assessee) are allowed and Civil
F
Appeal No. 14407 of 1996 (preferred by the Revenue) is dismissed. There
shall be no order as to costs.

v.s.s · Appeals preferred by the assessee
allowed and Appeal preferred by G
the Revenue dismissed.

The decision in Geep !11dus1rial Syndicate vias actually rendered on April 2, 1986 though
reported in Excise Law Times in the year 1992.