2010 (7) TMI 21 - SC - Central Excise

Valuation - Section 4 of Central Excise Act 1944 - Cost of secondary packing - Adjudicating Authority rejected their claim for excluding the cost of polythene 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 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. - Held that - admittedly the fabric manufactured by the assessee was sold by the assessee to the wholesalers at the factory gate only in polythene bags the 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 convenience of the up-country customers in the transportation of the goods manufactured by the assessee. We therefore 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. - Regarding period of limitation beyond one year for filing of refund claim SC has rendered no opinion.

Summary

Issues:
Refund claim for excess excise duty paid, exclusion of post manufacturing expenses, inclusion of secondary packing cost in assessable value, interpretation of Section 4 of the Central Excise Act, 1944.

Refund Claim for Excess Excise Duty Paid:
The appellant, engaged in manufacturing coated fabrics, sought a refund of excess excise duty paid on post manufacturing expenses. The claim was initially rejected by the Adjudicating Authority and later by the High Court as time-barred and on merits. The appellant contended that certain post manufacturing expenses, like the cost of material used for packing the final product, should be excluded from the assessable value of the goods. The High Court affirmed the rejection, stating that the cost of secondary packaging ordinarily sold to wholesalers at the factory gate must be included in the assessable value.

Exclusion of Post Manufacturing Expenses:
The appellant challenged the rejection of their claim for excluding the cost of secondary packing in hessian cloth from the assessable value of the coated fabric. The High Court held that the use of hessian cloth for packing was normal practice and not specific to customer requests, thus justifying its inclusion in the assessable value. The appellant argued that the additional packing was done at the request of up-country customers to protect the fabric during transportation, making it secondary packing not required for normal sale at the factory gate.

Inclusion of Secondary Packing Cost in Assessable Value:
The key issue revolved around whether the cost of secondary packing, like hessian cloth used for bundling three rolls of fabric, should be included in the assessable value for excise duty levy. The appellant contended that such packing, necessitated by customer requests to protect goods during transportation, should not be included. The Court analyzed Section 4 of the Act, emphasizing that packing costs are to be included unless the packing is durable and returnable by the buyer. The Court referred to precedents to establish that only packing necessary for making goods marketable at the factory gate should be included in the value.

Interpretation of Section 4 of the Central Excise Act, 1944:
Section 4 of the Act outlines the valuation of excisable goods for excise duty purposes. The Court interpreted the provision, emphasizing that the legislature intended to extend the levy beyond the manufactured article itself by including packing costs in the value of goods. The Court referred to previous judgments to establish the distinction between primary and secondary packing, holding that only packing necessary for selling goods in wholesale trade at the factory gate should be included in the assessable value.

In conclusion, the Supreme Court allowed the appeal partially, setting aside the order to include the cost of secondary packing in the assessable value of the goods. The Court held that such packing, not required for normal sale at the factory gate, should not be included for excise duty assessment, based on the interpretation of Section 4 of the Act and relevant precedents.