1989 (10) TMI 54 - SC - Central Excise

Whether the goods packed in the smaller cartons could be sold to the wholesale buyer in the course of wholesale trade at the factory gate without the outer carton in which the number of smaller cartons were packed? Held that - 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 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 protecting the goods, and not for making the goods marketable should not be included. In the instant case having considered the order of the Tribunal it can be concluded 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 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 misdirection 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 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. Appeal allowed.

Issues Involved:
1. Inclusion of cost of secondary packing in assessable value under Section 4(4)(d)(i) of the Central Excises & Salt Act, 1944.
2. Applicability of Supreme Court judgments in Godfrey Philips and Bombay Tyres International cases.

Detailed Analysis:

1. Inclusion of Cost of Secondary Packing in Assessable Value

Facts and Contentions:
The respondent, a manufacturer of talcum and face powder, claimed a deduction for the cost of secondary packing (outer cartons) used for transportation. The Assistant Collector disallowed this claim, asserting that secondary packing costs should be included in the assessable value under Section 4(4)(d)(i) of the Central Excises & Salt Act, 1944. The respondent appealed, arguing that the outer cartons were used solely for transportation and not necessary for the sale of goods in the wholesale market.

Tribunal's Decision:
The Tribunal ruled in favor of the respondent, stating that the cost of outer cartons should not be included in the assessable value as the goods could be sold in smaller cartons at the factory gate. The Tribunal concluded that the outer cartons were used only for transportation purposes.

Supreme Court's Analysis:
The Supreme Court examined whether the cost of secondary packing should be included in the assessable value. The Court referred to its previous judgments, notably in Bombay Tyres International and Godfrey Philips, which established that the cost of packing necessary to make the goods marketable in the wholesale market at the factory gate should be included in the assessable value. The Court emphasized that the degree of packing necessary for marketability is a factual determination.

Conclusion:
The Supreme Court found that the Tribunal erred by focusing on whether the goods could be sold without the outer cartons rather than whether they were generally sold in that manner. The case was remanded to the Tribunal to reassess the necessity of the outer cartons for marketability.

2. Applicability of Supreme Court Judgments in Godfrey Philips and Bombay Tyres International Cases

Godfrey Philips Case:
The Supreme Court in Godfrey Philips held that the cost of secondary packing is includible in the assessable value if the packing is necessary for the goods to be generally sold in the wholesale market at the factory gate. The Court distinguished between packing necessary for marketability and packing for transportation purposes.

Bombay Tyres International Case:
The Bombay Tyres International case established that the cost of packing necessary to make the goods marketable should be included in the assessable value. The Court clarified that only the degree of secondary packing necessary for marketability is includible.

Application to Present Case:
The Supreme Court reiterated the principles from these cases, emphasizing that the cost of packing necessary for marketability should be included in the assessable value. The Court noted that the Tribunal misapplied these principles by not adequately determining whether the outer cartons were necessary for the goods to be generally sold in the wholesale market.

Conclusion:
The Supreme Court remanded the case to the Tribunal to reassess the necessity of the outer cartons for marketability, following the principles established in the Godfrey Philips and Bombay Tyres International cases.

Final Judgment:
The Supreme Court allowed the appeal, set aside the Tribunal's judgment, and remanded the matter back to the Tribunal for reassessment in accordance with the principles outlined. No orders were made as to costs.

Separate Judgment by S. Ranganathan, J.:
Justice Ranganathan agreed with the majority but added that the Tribunal's conclusion should be reconsidered in light of the Supreme Court's observations. He emphasized that the condition of packing necessary for placing the goods in the wholesale market should be determined based on the nature of the business and the type of goods.

Summary:
The Supreme Court clarified that the cost of secondary packing necessary for marketability should be included in the assessable value under Section 4(4)(d)(i) of the Central Excises & Salt Act, 1944. The case was remanded to the Tribunal to reassess whether the outer cartons were necessary for the goods to be generally sold in the wholesale market, following the principles established in the Godfrey Philips and Bombay Tyres International cases.

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