Cost of packing charges to be included in assessable value

PJ/Case Laws/2011-12/1339

Case: ROYAL ENFIELD v/s COMMISSIONER OF CENTRAL EXCISE, CHENNAI

Citation: 2011 (270) E.L.T. 637 (S.C.)

Issue:- Clearance of Motorcycles in packed condition - Cost of packing charges to be included in assessable value.

Brief Facts:- Appellant-company, previously known as M/s. Eicher Limited - unit Royal Enfield Motors, are manufacturing motorcycles falling under Chapter 87 of the Central Excise Tariff Act, 1985. The issue relates to non-inclusion of the value of packing charges by the assessee-company in the assessable value for motorcycles despite the fact that the said motorcycles were cleared by them to the dealers located outside Chennai by sending them to their various depots on stock transfer basis and in packed condition from their factory during the period from April, 1999 to December, 1999.

At the time of removal from factory to depot the motorcycles were cleared in fully packed condition. It is also established from records that Rs. 190/- is being charged as packing charges by the appellant and, therefore, the said amount which was collected as packing charges must have been passed on to the buyers. The appellant-company filed price declaration in Annexure-II for the vehicles sold from their depots and therein declared the depot sale price per vehicle and claimed abatement of Rs. 190/- per vehicle towards packing charges.

A show cause notice dated 4-10-1999 was issued to the appellant for the period from April, 1999 to September, 1999 denying the benefit of abatement. Thereafter, another similar show cause notice dated 24-2-2002 was also issued for a subsequent period, i.e., from October, 1999 to December, 1999 demanding differential duty.

The Assistant Commissioner disallowed abatement claimed by the assessee towards the cost of packing and upheld the demand made in the show cause notices. Reference was made to judgment given in Government of India v/s M/s Madras Rubber Factory Limited [1995 (77) ELT 433 (SC)] and in Commissioner of Central Excise, Jaipur v/s M/s Eicher Limited [2001 (136) ELT 1029 (Tri-Delhi)] wherein in respect of the same assessee it was held that cost of packing is to be included in the assessable value of the motorcycles manufactured by it.

The appeal was rejected by the Commissioner (Appeal). Being aggrieved, assessee filed an appeal before the Tribunal which also was rejected by the impugned judgment and order dated 24- 11-2009.

Therefore, appeal was filed in the Supreme Court by the appellant-company.

Appellant’s Contention:- Appellant relied upon provisions of Section 4 of the Central Excise Act, 1944 and submitted that the cost of packing material cannot be included in the assessable value because the said cost of the packing material cannot be said to be the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal.

Appellant also submitted that the requisite packing is done so as to avoid scratch to the painted body and breakage of the lights fitted on to the motorcycles during transportation, and therefore, the cost of the aforesaid packing was not includable as per Section 4 of the Central Excise Act to the value of the motorcycles.

Appellant relied upon the following judgments of this Court:

- Unionof India & Ors. v. Bombay Tyre International Ltd. reported at 1983 (14) E.L.T. 1896 (S.C.);
- Union of India & Ors. v. Godfrey Philips India Ltd. & Ors. reported at 1985 (22) E.L.T. 306 (S.C.)
- Hindustan Polymers v. Collector of Central Excise reported at 1989 (43) E.L.T. 165 (S.C.).

Respondent’s Contention:- Respondent submitted that the submissions of appellant are untenable in view of the settled position of law in the decision of this Court in the case of Government of India v. M/s. Madras Rubber Factory Limited.

Respondent also drew attention to the fact that the appellant has been realizing Rs. 190/- as packing charges from the buyers, therefore, the entire amount is passed on to the buyers by the appellant-company.

Respondent also submitted that the cases relied upon by the appellant are distinguishable on facts.

Reasoning of Judgment:- The Supreme Court noted that the provisions extracted hereinbefore from the Central Excise Act would indicate that there is express provision in Section 4 for including the cost of packing in the determination of value for the purpose of excise duty. According to the said provision where goods are delivered at the time of removal from the factory gate in a packed condition the value would include the cost of such packing but would not include such cost of packing which is of a durable nature and is returnable by the buyer to the assessee.

The following cases were relied upon:

- Union of India & Ors. v. Bombay Tyre International Ltd. reported at 1983 (14) E.L.T. 1896 (S.C.)

- Union of India & Ors. v. Godfrey Philips India Ltd. & Ors. reported at 1985 (22) E.L.T. 306 (S.C.)

- Government of India v. Madras Rubber Factory Ltd. reported at 1995 (77) E.L.T. 433 (S.C.)

It was held in those cases that the cost of such packing would be included in the assessable value.

It was noted that the facts of the said judgments were almost similar to the facts of the present case. The authorities below as also the Tribunal found that the facts of the present case entirely fit in the facts of decision in the case of Madras Rubber Factory Ltd. The said three Authorities as also the Tribunal on analyzing the records came to a finding that the packing which is given by the appellant-company to their motorcycles is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate and, therefore, such cost is liable to be included in the value of the goods and the cost of such packing cannot be excluded. The aforesaid conclusions are based on cogent reasons and are also supported by a well-reasoned decision of three Judges Bench of this Court.

Although appellant submitted that the facts of this case are more akin to the cases of Bombay Tyre International Ltd and also to that of Godfrey Philips India Ltd. & Ors. Case, the Supreme Court held that having considered the above situation of facts and law, were of the considered opinion, that all the aforesaid decisions, which are relied upon by the appellant, were taken notice of in the subsequent decision in Madras Rubber Factory Ltd. and this Court after detailed discussion of such cases has given a very reasoned order which is applicable to the facts of the present case in full force. Findings of the Tribunal as well as of the authorities below confirmed.

Decision:- Appeal dismissed.

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PJ/Case Laws/2011-12/1339

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