Union of India & Ors Vs. Godfrey
Philips India Ltd. [1985] INSC 219 (30 September 1985)
BHAGWATI, P.N. (CJ) BHAGWATI, P.N. (CJ)
PATHAK, R.S.
SEN, AMARENDRA NATH (J)
CITATION: 1986 AIR 806 1985 SCR Supl. (3) 123
1985 SCC (4) 369 1985 SCALE (2)619
CITATOR INFO:
E&D 1987 SC 701 (19) R 1987 SC1576 (3) D
1987 SC1794 (29) RF 1987 SC2414 (23) R 1988 SC1531 (46) R 1989 SC1933 (28) 1990
SC 374 (4,7,TO10,14,16,17) RF 1990 SC1276 (4) R 1990 SC1676 (24) C&F 1991
SC 14 (11) D 1991 SC 818 (18) RF 1992 SC1075 (3) RF 1992 SC2169 (20)
ACT:
Central Excise and Salt Act 1944, Section
4(4) (d) (i) and Explanation thereto - 'value' - 'in a packed condition' - Cost
of such packing - Whether to be included for excise duty - Primary packing and
secondary packing - Difference between.
Cigarettes - Manufactured and packed in
paper/card board packets and then in cartons - Cartons packed in corrugated
fibre board containers - Cost of corrugated fibre board containers Exclusion
for levy of excise duty - Whether arises.
Promissory estoppel Doctrine of promissory
estoppel - Applicability of Explained.
Constitution of India 1950, Article 141
Supreme Court - Enunciation of law by a Bench of the Court - Whether
Co-ordinate Bench entitled to express disagreement.
Words and Phrases 'Value' - 'in a packed
condition' - Meaning of - Central Excise and Salt Act, 1944 Section 4(4)(d)(i).
HEADNOTE:
The respondents in the appeals were
manufacturers of cigarettes. They manufactured cigarettes in their factories
and the cigarettes so manufactured were packed initially in paper/card board
packets of 10 and 20 and these packets were then packed together in paper/card
board cartons/outers.
These cartons/outers were then placed in
corrugated fibre board containers and these corrugated fibre board containers
filled with cartons/outers containing packets of cigarettes of 10 and 20 were
delivered by the respondents to the Wholesale dealers at the factory gate.
The wholesale price charged by the
respondents for the cigarettes sold to the wholesale dealers included not only
the 124 cost of primary packing in packets of 10 and 20, but also the cost of
secondary packing in cartons/outers and the cost of final packing in corrugated
fibre board containers.
On May 19, 1976 the Cigarette Manufactures
Association made a representation to the Central Board of Excise and Customs
pointing out that corrugated fibre board containers "are not an Integral
or essential requirement for the sale of cigarettes and are used for the sole
purpose of protecting cigarettes from any damage that may arise during
transportation , and that the cost of such corrugated fibre board containers
should not therefore be included in the value of goods for the purpose of
excise duty. The Board accepted this plea of the Association and by a letter
dated May 24, 1976 intimated to the Association that "Instructions have
been issued to the Collectors of Central Excise that the cost of corrugated
fibre board containers in question does not form part of the value of
cigarettes for the purposes of excise duty". This representation contained
in the letter dated May 24, 1976 continued to hold the field until November 2,
1982 when the Central Board of Excise and Customs addressed a circular to all
Collectors of Central Excise, stating that the matter had been re-examined and
the earlier advice should be treated as cancelled.
In the appeals by the Revenue to this Court,
the question for consideration was whether the cost of packing is includible in
the value of the cigarettes for the purpose of assessment to excise duty.
On behalf of the appellant-Revenue it was
contended that on a true construction of section 4 (4)(d)(1) read with the
Explanation, that whatever be the packing, primary or secondary, in which the
cigarettes were packed when delivered to the buyer in the course of wholesale
trade at the factory gate, the cost of such packing would be liable to be
included in the value of the cigarettes, and that lt was a totally unwarranted
gloss on the Language of section 4 (4)(d)(1) read with the Explanation to make
a distinction between primary and secondary packing because that section did
not make any such distinction and on the contrary, provided in the clearest
terms for inclusion of the cost of the entire packing in which the cigarettes
were packed when delivered to the whole-sale buyer at the time of removal.
On behalf of the respondents - companies, it
was contended that though section 4(4) (d)(i) read with the Explanation did not
make any distinction between the primary packing and secondary 125 packing, the
cost of only such secondary packing was liable to be included in the value of
the cigarettes as was necessary for sale of the cigarettes in the wholesale
trade, and not the cost of secondary packing which was necessitated in order to
protect the packed cigarettes ant to prevent them, from being damaged during
the course of transportation from the factory gate to the godown or warehouse
of the wholesale dealer. It was further contented that the cost of corrugated
fibre board containers was not includible in the value of the goods because the
letter dated 24th May, 1976 constituted an exemption order within the meaning
of Rule 8 sub-rule (2) of the Central Excise Rules, 1944 and the respondents
were accordingly exempted from payment of excise duty on the cost of corrugated
fibre board containers wed for packing the cigarettes, and the doctrine of
promissory estoppel was invoked against the Government on the basis of the
representation contained in the letter dated 24th May, 1976.
^
HELD 1.[per Bhagwati, C.J.. Pathak and
Sen,j.j] The Central Government and the Central Board of Excise and Customs
were clearly bound bypromissory estoppel to exclude the cost of corrugated
fibre board containers from the value of the goods for the purpose of assessment
of excise duty for the period 24th May 1976 to 2nd November 1982. The
respondents would be entitled to exclusion of the cost of corrugated fibre
board containers from the value of the cigarettes only during the period 24th
May 1976 to 2nd November 1982. [147 B, C] In the instant case, a representation
was undoubtedly made by the Central Board of Excise and Customs and approved
and accepted by the Central Government, that the cost of corrugated fibre
boards containers would not be includible in the value of the cigarettes for
the purpose of assessment to excise duty. The respondents acted upon this
representation and continued the use of corrugated fibre containers for packing
the cartons/outers of cigarette and did not recover from the wholesale dealers
the amount of excise duty attributable to the cost of such corrugated fibre
board containers during the period 24th May 1976 to 2nd November 1982. It would
be most inequitable to allow the Excise authorities to assess excise duty on
the basis that the value of the cigarettes manufactured by the respondents
should include the cost of corrugated fibre board containers, when lt was
clearly represented by the Central Board of Excise and Customs that the cost of
corrugated fibre board containers would not be includible in the value of the
cigarettes for the purpose of assessment of excise duty. [146 C-F] 126
2. What has been laid down in Motilal Sugar
Mills case [1979] 2 S.C.R. 641 represents the correct law in regard to the
doctrine of promissory estoppel. The observations in Jeet Ram's case [1980] 3
S.C.R. 689 to the extent that they conflict with the statement of the law in
Motilal sugar Mills case and introduce reservations cutting down the full width
and amplitude of the propositions of law laid down in that case are dissented
from. If the Bench of two Judges in Jeet Ram's case found themselves unable to
agree with the law laid down in Motilal sugar Mills case they could have
referred Jeet Ram's case to a larger Bench. It was not right on their part to
express their disagreement with the enunciation of the law by a co-ordinate
Bench of the same Court in Motilal Sugar Mills case. [145 c-e]
3. Union of India v. Bombay International
Ltd. 11984] 1 S.C.C. 467 broadly dealt with the question of cost of packing,
and it was conceeded on behalf of the respondents in that case that the cost of
primary packing must be regarded as falling within the terms of s. 4(4)(d)(i)
read with the Explanation and lt was only the cost of secondary packing which
gave rise to dispute between the parties. [131 F; 134 F] (Per Bhagwati, C.J.)
1. 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? If it does, it would be liable to be
included in the value of the article for the purpose of excise duty. lt must
therefore follow that if the packed condition in which the cigarettes
manufactured by the respondents are generally sold in the wholesale market at
the factory gate includes packing in corrugated fibre board containers the cost
of such corrugated fibre board containers would be liable to be included in the
value of the cigarettes for the purpose of excise duty. [135 B-D]
2. The condition for applicability of the
inclusive defenition of value in s. 4 (4)(d)(i) 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 packings and "such packing" must obviously
mean the packing in which the goods are when they are delivered at the time of
removal. The question therefore to be 127 asked is - what is the packed
condition in which the goods are A 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 include in the
'value' of the goods. The explanation to s. 4 (4)(d)(i) provides as exclusive
definition of the term "packing" and it includes not only outer
packing but also what may be called inner packing.
1135 F-G]
3. Ordinarily bobbin, pirl, spool, reel and
warp beam on which yarn is wound would not be regarded as packing of such yarn,
but brought within the definition of "packing" by the Explanation.
The Explanation thus extends the meaning of the word "packing" to
cover items which would not ordinarily be regarded as forming part of
"packing". The Explanation then proceeds to say that
"packing" means wrapper, container or any other thing in which the
excisable goods are wrapped or contained. [135H;136B]
4. It is apparent from the wide language of
the Explanation that every kind of container in which it can be said that the
excisable goods are contained would be "packing" within the meaning
of the Explanation and this would necessarily include a fortiorari corrugated
fibre board containers in which the cigarettes are contained. [136 C]
5. The question is not for what purpose a
particular kind of packing la done. The test is whether particular kind of
packing is done in order to put the goods in the condition in which they are
generally sold in the wholesale market at the factory gate and of 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. [137 E-F] In the instant case, there can therefore be no doubt that
corrugated fibre board containers in which the cigarettes are contained fall
within the definition of "packing" in the Explanation and if they form
part of the packing in which the goods are packed when delivered at the time of
removal, it is difficult to resist the conclusion that under s, 4 (4)(d)(i)
read with the Explanation, the cost of such corrugated fibre board containers
would be liable to be included is the value of the cigarettes- [136 E-F] 128
6. Rule 8 of the Central Excise Rules, 1944
deals with the power to authorise exemption from duty in special cases.
Sub-rule (2) Rule 8 postulates the making of
a special order by the Central Board of Excise and Customs in each case
exempting from payment of duty any exciseable goods. [139 C,G] 7- The letter
dated 24th May 1976 could not possibly be regarded as a special order by the
Central Board of Excise and Customs in the case of each of the manufacturers of
cigarettes exempting cigarettes from payment of duty to the extent of the cost
of packing by way of corrugated fibre board containers. The argument of the
respondents based on sub-rule (2) of Rule 8 must be therefore rejected. 1139 G;
140 A]
8. The doctrine of promissory estoppel is
well- established in the administrative law of India. It represents a principle
evolved by equity to avoid injustice and, though commonly named promissory
estoppel, lt is neither in the realm of contract nor in the realm of estoppel.
The basis of this doctrine is the inter position of equity which has always,
true to its form " stepped in to mitigate the rigour of strict law.
9. The doctrine of promissory estoppel is
applicable against the Government in the exercise of its governmental, public
or executive functions at the doctrine of executive necessity or freedom of
future executive action cannot be invoked to defeat the applicability of the
doctrine of promissory estoppel. [144 G] Central London Property Trust Limited
v. High Trees House Limited, [1966] 1 ALL E. R. 256, Rederiaktiebolaget
Amphitrite v. The King [1921] 3 K.B. 500, Roberston Minister of Pension, [1949]
1 K.B. 227, Union of India v. Indo Afghan Agencies, [1968] 2 S.C.R. 366 and
Century Spinning and Manufacturing Company Limited v. Ulhasnagar Council,
[1970] 3 S.C.B. 854, referred to.
10. The doctrine of promissory estoppel being
an equitable doctrine, must yield the equity so requires, If it can be shown by
the Government or public authority that having regard to the facts as they have
transpired, it would be inequitable to hold the Government or public authority
to the promise or representation made by it. The Court would not raise an
equity in favour of the person to when the promise or representation is made
and enforce the promise or representation against the Government or public
authority. The doctrine of promissory 129 estoppel would be displaced in such a
case, because on the facts A equity would not require that the Government or
public authority should be held bound by the promise or representation made by
it. [145 G; 146 A] (Per Pathak & Sen, JJ. dissenting) The corrugated fibre
board containers are not necessary for selling the cigarettes in the wholesale
market at the factory gate. The cost of such packing cannot be included in the
'value' for the purpose of assessment of excise duty.
[148 G; 151 Bl (Per R.S. Pathak, J.)
1. Under s. 3 of the Central Excise and Salt
Act, 1944 the levy of excise duty is made on manufactured cigarettes, the
excisable goods. Section 4 of the Act provides how the 'value' shall be
determined. The expression "value" has been extended to include the
cost of packing. The packing itself is not the subject of the levy of excise
duty. [148 B]
2. For the purpose of computing the measure
of the levy, the statute has given an extended meaning to the expression
'value' in clause (d) of sub-s. (4) of sec. 4 of the Act. The expression must
be strictly construed. What is being included in the value now is something
beyond the value of the manufactured commodity itself. [148 C]
3. The corrugated fibre board containers are
employed only for the purpose of avoiding damage or injury during transit. The
wholesale dealer who takes delivery may have his depot a very short distance
only from the factory gate or may have such transport arrangements available
that damage or injury to the cigarettes can be avoided. The corrugated fibre
board containers are not necessary for selling the cigarettes in the wholesale
market at the factory gate. [148 F-G]
4. The position expressed by the Central
Board of Excise and Custom in its letter dated May 24, 1976 was right when lt
declared that the Collector of the Central Excise has been instructed that the
cost of corrugated fibre board containers in question does not form part of the
value of cigarettes for the purpose of excise duty."[148 H] Union of India
v. Bombay Tyre International Ltd., [1984] 1 S.C.C. 467, referred to.
130 (Per A.N. Sen, J.)
1. Excise duty which is levied on the goods
is ultimately passed on to the consumers of the goods and they have ultimately
to bear the burden. So far as the consumers are concerned they buy cigarettes,
loose or in packets or even in cartons. Cartons packed in corrugated fibre
board containers are not purchased by the consumers. So far as the retail
sellers are concerned who may buy from wholesalers, they usually buy loose
packets of cigarettes or packets of cigarettes packed in cartons. So far as the
buyers in the wholesale trade are concerned, they buy the cartons of cigarettes
In which the packets of cigarettes are course of their wholesale trade for
selling the sale to retailers or to their customers. It is only for the sake of
convenience in the matter of smooth delivery of cartons in which the packets of
cigarettes are packed that the cartons may be further packed in corrugated
fibre board containers for facility of transport and smooth transit of the
cartons before delivery of the sake to the whole ale buyer. [151 B- D]
2. On a proper construction of s.4(4)(d)(i)
of the Act read with the Explanation any secondary packing done for the purpose
of facilitating transport and smooth transit of the goods to be delivered to
the buyer in the wholesale trade cannot be included in the value for the
purpose of assessment of excise duty. [150 G-H] In the instant case, the cost
of corrugated fibre board containers which the cartons containing the packets
of cigarettes is packed, cannot be included in the value for the purpose of
assessment of excise duty. [151 A] Union of India v. Bombay Type International
Lit. [1984] S.C.C. 467, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1136 of 1977.
From the Judgment and Order dated 29.4.1976
of the Bombay High Court in Misc. Petn. No. 548 of 1974.
AND Civil Appeal No. 1244 of 1977.
131 From the Judgment and Order dated
15.12.1975 of the Bombay A High Court in Spl. Misc. Petition No. 293 of 1974.
AND Civil Appeal Nos. 55-61 of 1979.
From the Judgment and Order dated 18.8.1977
of the Andhra Pradesh High Court in Writ Appeals Nos. 252, 435, 550, 553 and
560 of 1976 and Writ Petition Nos. 3114 and 6044 of 1975.
K. Parasaran, Solicitor General, N.C.
Talukdar, Suraj Udai Singh, Dalveer Bhandari, C.V. Subba Rao and R.N. Poddar
for the Appellants.
N.A. Palkhiwala, J.C. Bhatt, D.B. Engineer,
B.H. Antia, Ravinder Narain, O.C. Mathur, Kamal Mehta, Talat Ansari, Mrs. A.K.
Verma, Ashok Sagar, Sukumaran, D.N. Mishra, Kamal Mehta and Ms. Rainu Walia for
the appearing Respondents. D S. Roy Chowdhury, Jatin Ghosh, D.N. Gupta, S.
Ramsubramaniam, D.N. Gupta and S.K. Nandy for
the Intervener.
The following Judgments were delivered
BHAGWATI, C.J. These appeals by special leave raise a number of questions
relating to excise duty leviable on cigarettes manufactured by the respondents.
Barring one, all the other questions are now settled as a result of the
decision of this Court in Union of India v. Bombay Tyre International Ltd.
[1984] 1 S.C.C. 467, and all that is required is to direct the assessing
authorities to assess the excise duty leviable on the respondents on the basis
of the law laid down in-Bombay Tyre International case (supra).
The only question which remains to be
considered is in regard to cost of packing includible in the value of the
cigarettes for the purpose of assessment to excise duty.
The respondents in these appeals are
manufacturers of cigarettes. They manufacture cigarettes in their factories and
the cigarettes so manufactured are packed initially in paper/card board packets
of 10 and 20 and these packets are then packed together in paper/card board
cartons/outers.
These cartons/outers are then placed in
corrugated fibre board containers and it is 132 these corrugated fibre board
containers filled with cartons/outers containing packets of cigarettes of 10
and 20 which are delivered by the respondents to the whole sale dealers at the
factory gate. It was common ground between the parties that the whole-sale
price charged by the respondents for the cigarettes sold to the whole-sale
dealers includes not only the cost of primary packing in packets of 10 and 20,
but also the cost of secondary packing in cartons/outers and the cost of final
packing in corrugated fibre board containers. So far as the two items of cost,
namely cost of primary packing into packets of 10 and 20 and the cost of
secondary packing in cartons/outers, are concerned, there was no dispute
between the parties that these two items of cost must be included in
determining the value of the cigarettes for the purpose of assessment to excise
duty, since such packing would admittedly fall within the terms of section
4(4)(d)(i) of the Central Excises and Salt Act, 1944 (hereinafter referred to
as the Act) read with the Explanation to that provision. But the question
whether the cost of final packing in corrugated fibre board containers would be
liable to be included in the value of the cigarettes for the purpose of
assessment to excise duty raised a serious controversy between the parties. The
appellant contended that on a true construction of Section 4(4)(d)(i) read with
the Explanation, whatever be the packing, primary or secondary, in which the
cigarettes were packed when delivered to the buyer in the course of whole- sale
trade at the factory gate, the cost of such packing would be liable to be
included in the value of the cigarettes. The argument of the appellant was that
lt was a totally unwarranted gloss on the language of Section 4(4)(d)(i) read
with the Explanation to make a distinction between primary and secondary
packing because that section did not make any such distinction and on the
contrary, provided in the clearest terms for inclusion of the cost of the
entire packing in which the cigarettes were packed when delivered to the
whole-sale buyer at the time of removal.
The respondents on the other hand urged that
though it was true that Section 4(4)(d)(i) read with the Explanation did not
make any distinction between primary packing and secondary packing, the cost of
only such secondary packing was liable to be included in the value of the
cigarettes as was necessary for sale of the cigarettes in the whole sale trade
and not the cost of secondary packing which was necessitated in order to
protect the packed cigarettes and to prevent them from being damaged during the
course of transportation from the factory gate to the godown or warehouse of
the whole-sale dealer. The packing in corrugated fibre board containers,
contended the respondents, was not 133 necessary or essential for the purpose
of sale of the cigarettes to the whole-sale dealer at the factory gate but it
was done only A with a view to facilitating transportation of the cigarettes
from the factory gate to the godown or warehouse of the whole-sale dealer and
protecting the cigarettes against damage during such transportation and
therefore the cost of such packing was not liable to be included in the value
of the cigarettes.
These were the rival contentions urged on
behalf of the parties and we shall now proceed to examine them.
We have broadly dealt with the question of
cost of packing in the Judgment delivered by us in Bombay Tyre International
case (supra) and it would be convenient at this stage to reproduce what we have
said in that Judgment in regard to the cost of packing:
"The case in respect of the cost of
packing is somewhat complex. The new Section 4(4)(d)(i) has made express
provision for including the cost of packing in the determination of
"value" for the purpose of excise duty. Inasmuch as the case of the
parties is that the new Section 4 substantially reflects the position obtaining
under the unamended Act, we shall proceed on the basis that the position in
regard to the cost of packing is the same under the Act, both before and after
the amendment of the Act.Section 4(4)(d)(i) reads :
x x x x x x x It is relevant to note that 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. In other words, it is the packing in which it is ordinarily sold in
the course of wholesale trade to the wholesale buyer. The degree of packing in
which the excisable article is contained will vary from one class of articles
to another. From the particulars detailed before us by the assessees, it is
apparent 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
consumer, for example a tube of toothpaste or a bottle of tablets in a
card-board carton, or biscuits in a paper wrapper or 134 in a tin container, must
be regarded as falling within A section 4(4)(d)(i). That is indeed conceded by
learned counsel for the assessee. It is the cost of secondary packing which has
raised serious dispute. Secondary packing is of different grades. There is the
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. Is all the packing, no matter
to what degree, in which the wholesale dealer takes delivery of the goods to be
considered for including the cost thereof in the "value" ? We must
remember that while packing is necessary to make the excisable article marketable
the statutory provision calls for strict construction because the levy is
sought to be extended beyond the manufactured article itself. It 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 "value" of the article for the purpose of the excise
levy. To that extent, the cost of secondary packing cannot be deducted from the
wholesale cash price of the excisable article at the factory gate." It
will be noticed that so far as primary packing is concerned, it was conceded on
behalf of the respondents in that case that the cost of primary packing must be
regarded as falling within the terms of section 4(4)(d)(i) read with the
Explanation and it was only the cost of secondary packing which gave rise to
dispute between the parties. But we did not proceed to decide whether the cost
of every degree of secondary packing would be liable to be included in the
value of the goods or whether a distinction could be drawn between one degree
of secondary packing and another.
We posed the question: Is all the packing, no
matter to what degree, in which the whole-sale 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?" 'We did not answer
this question specifically, leaving it to a later date when this question would
directly come up for consideration on the facts of a Particular case.
We however laid 135 down the general
proposition 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 whole- sale 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
. Where therefore a question arises whether the cost of any particular kind of
secondary packing is liable to be included in the value of article, we would
have to ask does the packed condition in which the article is generally sold in
the whole-sale market at the factory gate include such secondary packing? If it
does, it would be liable to be included in the value of the article for the
purpose of excise duty. On this reasoning it must follow that if the packed
condition in which the cigarettes manufactured by the respondents are generally
sold in the whole-sale market at the factory gate includes packing in
corrugated fibre board containers, the cost of such corrugated fibre board
containers would be liable to be included in the value of the cigarettes for
the purpose of excise duty.
We may leave aside for the moment the above
observations made by us in the Judgment in Bombay Tyre International case
(supra) and turn to examine the language of Section 4(4)(d)(i) read with the
Explanation. Section 4(4) (d) (i) enacts an inclusive definition of value"
and provides that E "value" in relation to and excisable goods,
"where the goods are delivered at the time of removal in a packed
condition, includes the cost of such packing except the cost of the packing
which is of a durable nature and is returnable by the buyer to the assessee.
The condition for applicability of this inclusive definition of 'value' is that
the goods are delivered at the time of removal in a packed conditions and where
this condition is satisfied, the value" of the goods would include
"the cost of such packing" and "such packing" must
obviously mean the packing in which the goods are when they are delivered at
the time of removal. The question which has to be armed is: what is the packed
condition 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 Section 4(4)(d)(i) provides an
exclusive definition of the term "packing" and it includes not only
outer packing but also what may be called inner packing. Ordinarily bobbin,
pirl, spool, reel and warp beam on 136 which yarn is wound would not be
regarded as packing of such yarn, but they are brought within the definition of
"packing" by the Explanation. The Explanation thus extends the
meaning of the word 'packing" to cover items which would not ordinarily be
regarded as forming part of packing. The Explanation then proceeds to say that
"packing means wrapper, container or any other thing in which the
excisable goods are wrapped or contained. It is apparent from the wide language
of the Explanation that every kind of container in which it can be said that
the excisable goods are contained would be packing" within the meaning of
the Explanation and this would necessarily include a fortiorari corrugated
fibre board containers in which the cigarettes are contained. When Bombay Tyre
International case was argued before us, it was at one stage sought to be
contended, though rather faintly, that it is only the immediate packing in
which the excisable goods are contained, that is primary packing alone, which
would be liable to be regarded as 'packing within the meaning of the
Explanation. But this argument was given up when it was pointed out that even secondary
packing would be within the terms of the Explanation, because such secondary
packing would also constitute a wrapper or a container in which the excisable
goods are wrapped or contained. That is why we held in the Judgment in Bombay
Tyre International case (supra) that secondary packing is also included within
the term "packing in the Explanation. There can therefore be no doubt that
corrugated fibre board containers in which the cigarettes are contained fall
within the definition of packing" in the Explanation and if they form part
of the packing in which the goods are packed when delivered at the time of
removal, it is difficult to resist the conclusion that under Section 4(4)(d)(i)
read with the Explanation, the cost of such corrugated fibre board containers
would be liable to be included in value of the cigarettes.
But then it was contended on behalf of the
respondents that it is not the cost of every kind of secondary packing which is
includible in the value of the excisable goods.
Whether the cost of secondary packing is
includible or not must depend upon the necessity or essentiality of such
secondary packing for sale of the excisable goods at the factory gate in the
course of wholesale trade. The argument was that where the secondary packing is
necessitated in order to protect the packed excisable goods from damage during
the course of transportation from the factory gate to the godown or warehouse
of the wholesale dealer, the cost of such secondary packing cannot be included
in the value of the goods. The respondents thus sought to draw a 137
distinction between secondary packing necessary for the purpose A of selling
the goods at the factory gate in the course o wholesale trade and the secondary
packing used in order to protect the goods against damage during the course of
transportation so that they may safely reach the consumer in proper condition.
We find it difficult to appreciate this distinction so far as assessment to
excise duty is concerned. Obviously every wholesale dealer would like to take
delivery of the goods from the manufacturer in such packing that he can safely
transport the goods to his godown or warehouse and sell the same to the
retailer or consumer in marketable condition. The wholesale dealer would
therefore insist that the goods purchased by him in wholesale should be
properly packed so that they do not get damaged during transportation or even
storage. The manufacturer would accordingly have to deliver the goods at the
factory gate in such packed condition as demanded by the wholesale dealer. It
is apparent that unless the goods are in such packed condition the wholesale
dealer would not ordinarily take delivery of the goods and necessarily
therefore such would be the packed condition in which the goods are generally
sold in the wholesale market at the factory gate. It makes no difference to the
applicability of the definition in Section 4(4)(d)(i) read with Explanation
that the packing of the goods ordinarily sold by the manufacturer in the
wholesale trade is packing for the purpose of protecting the goods against
damage during transportation or in the warehouse. The question is not for what
purpose a particular kind of packing is done. The test is whether a particular
kind of packing is done in order to put the goods in the 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 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. Of course, as pointed out by us in the judgment in Bombay Tyre
International case if any 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 such` special packing would
not be includible in the value of the goods and would have to be deducted from
the wholesale cash price.
That takes us to the next contention of the
respondents based on the letter dated 24th May 1976 addressed by the Under
Secretary, Central Board of Excise and Customs to the Cigarette Manufacturers'
Association. It is necessary, in order to 138 appreciate the contention based
on this letter, to state a few facts. On 19th May 1976 the Cigarette
Manufacturer's Association made a representation to the Central Board of Excise
and customs pointing out that corrugated fibre board containers are not an
integral or essential requirement for the sale of cigarettes and are used for
the sole purpose of protecting cigarettes from any damage that may arise during
transportation and that the cost of such corrugated fibre board containers
should not therefore be included in the value of the goods for the purpose of
excise duty. The Central Board of Excise and Customs after examining this
question accepted the plea of the Cigarette Manufacturers' Association and by a
letter dated 24th May 1976 intimated to the Cigarette Manufacturers'
Association that "instructions have been issued to the Collector of
Central Excise that the cost of corrugated fibre board containers in question
does not form part of the value of cigarettes for the purposes of excise duty .
The respondents and other manufacturers of cigarettes, acting upon this
representation made by the Central Board of Excise and Customs, proceeded on
the basis that the cost of corrugated fibre board containers was not liable to
be included in the value of cigarettes for the purpose of assessment to excise
duty and did not recover from the wholesale dealers to whom they sold the
cigarettes, any amount by way of excise duty attributable to the cost of such
corrugated fibre board containers. This representation contained in the letter
dated 24th May 1976 continued to hold the field until 2nd November, 1982 when
the Central Board of Excise and Customs addressed a circular letter to all the
Collectors of Central Excise stating that the matter had been re-examined in
consultation with the Ministry of Law and in view of the provisions of Section
4, the cost of packing "whether initial or secondary in which the
excisable goods are packed at the time of the removal may form part of the
assessible value of such goods" and the earlier advice inconsistent with
this position should be treated as cancelled. The question which was raised on
behalf of the respondents on this set of facts was as to whether during the
period between 24th May 1976 and 2nd November 1982 the respondents were liable
to pay excise duty on the basis that the cost of corrugated fibre board
containers was includible in the value of the goods. It was contended on behalf
of the respondents that the cost of corrugated fibre board containers was not
includible is the value of the goods and there were two arguments urged in
support of this contention. The first argument was that the letter dated 24th
May 1976 constituted an exemption order within the meaning of Rule 8 sub-rule
(2) of the Central Excise Rules, 1944 and the respondents were accordingly 139
exempt from payment of excise duty on the cost of corrugated A fibre board
containers used for packing the cigarettes.
The second argument invoked the doctrine of
promissory estoppel against the Government on the basis of the representation
contained in the letter dated 24th May 1976.
The first argument is in our opinion not
well-founded but so far as the second argument is concerned, we find that there
is considerable force in it. Our reasons are as follows.
Rule 8 of the Central Excise Rules, 1944 deals
with the power to authorise exemption from duty in special cases and it reads
as follows:- "Rule 8. Power to authorise exemption from duty in Special
cases (1) The Central Government may from time to time, by notification in the
Official Gazette, exempt (subject to such conditions as may be specified in the
notification) any excisable goods from the whole or any part of duty leviable
on such goods.
(2) The Central Board of Excise and Customs
may by special order in each case exempt from the payment of duty, under
circumstances of an exceptional nature, any excisable goods.
The respondents obviously could not invoke
the aid of Rule 8 sub-rule (1) since the letter dated 24th May 1976 was a
communication addressed by the Central Board of Excise and Customs and could
not even by the farthest stretch of imagination be construed as a notification
by the Central Government. The respondents were therefore constrained to place
reliance on Rule 8 sub-rule (2) because that sub-rule confers power on the
Central Board of Excise and Customs to grant exemption and if at all, the
letter dated 24th May 1976 could be justified only under that sub-rule. But we
fail to see how Rule 8 sub-rule (2) can possibly avail the respondents. That
sub-rule postulates the making of a special order by the Central Board of
Excise and Customs in each case exempting from payment of duty any excisable
goods. The letter dated 24th May 1976 could not possibly be regarded as a
special order by the Central Board of Excise and Customs in the case of each of
the manufacturers of cigarettes exempting cigarettes from payment of duty to
the extent of the cost of packing by way of corrugated fibre board containers.
We 140 do not think the letter dated 24th May 1976 could be brought within the
terms of sub-rule (2) of Rule 8 and the argument of the respondents based on
that sub-rule must be rejected.
The respondents are however on firmer ground
in their plea of promissory estoppel against the Central Board of Excise and
Customs and the Central Government. The representation contained in the letter
dated 24th May, 1976 was undoubtedly made by the Central Board of Excise and
Customs but we may safely assume, and for this assumption there is clear
warrant in the proceedings in special Civil Application No. 787 of 1976 in the
Gujarat High Court, that this representation was made with the approval of the
Central Government and it was accepted by the Central Government as correctly
representing the stand of the Revenue. It is significant to note that when the petitioners
in Special Civil Application No. 787 of 1976 in the Gujarat High Court
contended that the value of corrugated fibre board containers was not
includible in the value of the goods manufactured by the petitioners, it was
conceded on behalf of the Union of India and the Excise Authorities both in the
affidavit in reply filed in the case as also in the course of the arguments
that the cost of corrugated fibre board containers used for packing by the
petitioners would not form part of the value of the goods for assessment of
excise duty. The representation contained in the letter dated 24th May 1976
could therefore legitimately be regarded by the respondents as a representation
of the Central Government. The respondents could reasonably assume that such a
representation could never have been made by the Central Board of Excise and
Customs with out the approval of the Central Government and if it did not have
the approval of the Central Government, it would have been immediately objected
to and the Central Government would have promptly directed the Central Board of
Excise and Customs to withdraw it. The question is whether this representation
made by the Central Board of Excise and Customs and approved and accepted by
the Central Government could validly found the plea of promissory estoppel.
Now the doctrine of promissory estoppelis
well- established in the administrative law of India. It represents a principle
evolved by equity to avoid injustice and, though commonly named promissory
estoppel, it is neither in the realm of contract nor in the realm of estoppel.
The basis of this doctrine is the inter position of equity which has always,
true to its form, stepped in to mitigate the rigour of strict law. This
doctrine, though of ancient vintage, was rescued from obscurity by the decision
of 141 Mr. Justice Denning as he then was, in his celebrated judgment in
Central London property Trust Limited v. High Trees House Limited, (1956) 1 All
E. R. 256-. The true principle of promissory estoppel is that where one party
has by his word or conduct made to the other a clear and unequivocal promise or
representation which is intended to create legal relations or affect a legal
relationship to arise in the future, knowing or intending that it would be
acted upon by the other party to whom the promise or representation is made and
it is in fact so acted upon by the other party, the promise or representation
would be binding on the party making it and he would not be entitled to go back
upon it, if it would be inequitable to allow him to do so, having regard to the
dealings which have taken place between the parties. It has often been said in
England that the doctrine of promissory estoppel cannot itself be the basis of
an action: it can only be a shield and not a sword: but the law in India has
gone far ahead of the narrow position adopted in England and as a result of the
decision of this Court in Motilal Sugar Mills v. State of Uttar Pradesh, [1979]
2 S.C.R. 641, it is now well-settled that the doctrine of promissory estoppel
is not limited in its application only to defence but it can also found a cause
of action. The decision of this Court in Motilal Sugar Mills case (supra)
contains an exhaustive discussion of the doctrine of promissory estoppel and we
find ourselves wholly in agreement with the various parameters of this doctrine
outlined in that decision.
More importantly, it is necessary to point
out that the decision in Motilal Sugar Mills case (supra) marks a significant
development in the law relating to the doctrine of promissory estoppel. The
principal question debated in that case was as to whether and if so, to what
extent, is the doctrine of promissory estoppel applicable against the
Government. It was contended on behalf of the State of Uttar Pradesh that the
plea of promissory estoppel is not available against the exercise of executive
functions of the State, for the State cannot bind itself, so as to fetter its
future executive action. There is contention was sought to be supported by
relying on the observations of Rowlatt J. in an early decision in
Roderiaktiebolaget Amphitrite v. The King (1921) 3 K.B. 500. But this Court
observed in Motilal Sugar mills case (supra) that what Rowlatt J. said in that
case did not represent the correct law on the subject and pointed out that the
doctrine of executive necessity propounded by Rowlatt J. was disapproved by
Denning, J. as he then was, in Roberston v. Minister of Pensions (1949) 1 K.B.
227. Denning, J. categorically 142 expressed the view in Roberston's case (supra)
that the crown cannot escape its obligation under the doctrine of promissory
estoppel by praying in aid the doctrine of executive necessity . This Court
also in Union of India v. Indo Afgan Agencies [1968] 2 S.C.R. 366, exploded the
doctrine of executive necessity. Shah, J. speaking on behalf of the Court
negative the argument urged on behalf of the Government that it is not
competent for the Government to fetter its future executive action which may
necessarily be determined by the needs of the community when the question
arises and no promise or undertaking can be held to be binding on the
Government so as to hamper its freedom of executive action and observed at page
376 of the Report:
We are unable to accede to the contention
that the executive necessity releases the Government from honouring its solemn
promises relying on which citizens have acted to their detriment. Under our
constitutional set-up no person may be deprived of his right or liberty except
in due course of and by authority of law; if a member of the Executive seeks to
deprive a citizen of his right or liberty otherwise than in exercise of power
derived from the law common or statute- the Courts will be competent to and
indeed would be bound to protect the rights of the aggrieved citizens.
The learned judge also after examining the
decisions cited before him summed up the position in the following words:
Under our jurisprudence the Government is not
exempt from liability to carry out the representation made by it as to its
future conduct and it cannot on some undefined and undisclosed ground of
necessity or expediency fail to carry out the promise solemnly made by it, nor
claim to be the Judge of its own obligation to the citizen on an ex-parte
appraisement of the circumstances in which the obligation has arisen.
The defence of executive necessity was thus
clearly negatived by this Court and it was pointed out that it did not release
the Government from its obligation to honour the promise made by it, if the
citizen, acting in reliance on the promise, had altered his position. The
doctrine of promissory estoppel was in such a case applicable against the
Government and it could not be defeated by invoking the defence of executive
necessity. This 143 Court in Motilal Sugar Mills case (supra) also negatived
the argument that if the Government were held bound by every representation
made by it regarding its intention, the result would be that the Government
would be bound by a contractual obligation even though no formal contract in
the manner required by Article 299 of the Constitution was executed. It was
held by this Court that a party who has, acting in reliance on a promise or
representation mate by the Government, altered his position, is entitled to
enforce the promise or the representation against the Government, even though
the promise or representation is not in the form of a formal contract as
required by Article 299 and that Article does not militate against the
applicability of the doctrine of promissory estoppel against the Government.
The resultant position summarised by this
Court in Motilal Sugar Mills case (supra) in the following words:
The law may therefore now he taken to be
settled as a result of this decision that where the Government makes a promise
knowing or intending that it would be acted on by the promises and, in fact,
the promisee, acting in reliance on it, alters his position the Government
would be held bound by the promise and the promise would be enforceable against
the Government at the instance of the promises, notwithstanding that there is
no consideration for The promise and the promise is not recorded in the form of
a formal contract as required by Article 299 of the Constitution. It is
elementary that in Republic governed by the rule of law, on one, howsoever high
or low, is above the law. Everyone is subject to the law as fully and
completely as any other and the Government is no exception. It is indeed the
pride of constitutional democracy and rule of law that the government stands on
the same footing as a private individual so far as the obligation of the law is
concerned: the former is equally bound as the latter. It is indeed difficult to
see on what principle can a government, committed to the rule of law, claim
immunity from the doctrine of promissory estoppel. Can the government say that
it is under no obligation to act in a manner i.e. fair ant just or that it is
not bound by the considerations of honesty and good faith ? Why should the
government not be held to a high standard of rectangular rectitude while
dealing 144 with its citizens ? There was a time when the doctrine of executive
necessity was regarded as sufficient justification for the government to
repudiate even its contractual obligations, but let it be said to the eternal
glory of this court, this doctrine was emphatically negatived in the Indo-Afgan
agencies case and the supremacy of the rule of law was established. It was laid
down by this court that the government cannot claim to be immune from the
applicability of the rule of promissory estoppel and repudiate a promise made
by It on the ground that such promise may fetter its future executive action.
The doctrine of promissory estoppel as
explained above was also held to be applicable against public authorities as
pointed out in Motilal Sugar Mills case. This court in Motilal Sugar Mills case
quoted with approval the observations of Shah, J. in Century Spinning and
Manufacturing Company limited v. Ulhasnagar Municipal Council [1970] 3 S.C.R.
854, where the learned Judge said:
Public bodies are as much bound as private
individuals to carry out representations of facts and premises made by them,
relying on which other persons have altered their position to their prejudice.
If our nascent democracy is to thrive
different standards of conduct for the people and the public bodies cannot
ordinarily be permitted. A public body is, in our judgment, not exempt from
liability to carry out , its obligation arising out of representations made by
it relying upon which a citizen has altered his position to his
prejudice." The Court refused to make a distinction between a private
individual and a public body so far as the doctrine of promissory estoppel is
concerned.
There can therefore be no doubt that the
doctrine of promissory estoppel is applicable against the Government in the
exercise of its governmental, public or executive functions and the doctrine of
executive necessity or freedom of future executive action cannot be invoked to
defeat the applicability of the doctrine of promissory estoppel. We must
concede that the subsequent decision of this Court in Jeet Ran v. State of
Haryana [1980] 3 S.C.R. 689, takes a slightly different view and holds 145 that
the doctrine of promissory estoppel is not available against the exercise of
executive functions of the State and the State cannot be prevented from
exercising its functions under the law. This decision also expresses its
disagreement with the observation made in Motilal Sugar Mills case that the
doctrine of promissory estoppel cannot be defeated by invoking the defence of
executive necessity, suggesting by necessary implication that the doctrine of
executive necessity is available to the Government to escape its obligation
under the doctrine of promissory estoppel. We find it difficult to understand
how a Bench of two Judges in Jeet Ram's case could possibly overturn or
disagree with what was said by another Bench of two Judges in Motilal Sugar
Mills Case. If the Bench of two Judges in Jeet Ram's case found themselves
unable to agree with the law laid down in Motilal Sugar Mills case, they could
have referred Jeet Ram's case to a larger Bench, but we do not think it was
right on their part to express their disagreement with the enunciation of the
law by a coordinate Bench of the same Court in Motilal sugar Mills case. We
have carefully considered both the decision in Motilal Sugar Mills and Jeet
Ram's case and we are clearly of the view that what has been laid down in
Motilal sugar Mills case represents the correct law in regard to the doctrine of
promissory estoppel and we express our disagreement with the observations in
Jeet Ram's case to the extent that they conflict with the statement of the law
in Motilal Sugar Mills case and introduce reservations cutting down the full
width and amplitude of the prepositions of law laid down in that case.
Of course we must make it clear and that is
also laid down in Motilal Sugar Mills case (supra), that there can be no
promissory estoppel against the legislature in the exercise of its legislative
functions nor can the Government or public authority be debarred by promissory
estoppel from enforcing a statutory prohibition. It is equally true that
promissory estoppel cannot be used to compel the Government or a public
authority to carry out a representation or promise which is contrary to law or
which was outside the authority or power of the officer of the Government or of
the public authority to make. We may also point out that the doctrine of
promissory estoppel being an equitable doctrine it must yield when the equity
so requires, if it can be shown by the Government or public authority that
having regard to the facts as they have transpired, it would be inequitable to
hold the Government or public authority to the promise or representation made
by it, the Court would not raise an equity in favour of the person to whom 146
the promise or representation is made and enforce the promise or representation
against the Government or public authority. The doctrine of promissory estoppel
would be displaced in such a case, because on the facts, equity would not
require that the Government or public authority should be held bound by the
promise or representation made by it.
This aspect has been dealt with fully in
Motilal Sugar Mills case (supra) and we find ourselves wholly in agreement with
what has been said in that decision on this point.
We may now turn to examine the facts in the
light of the law discussed by us. Here a representation was undoubtedly made by
the Central Board of Excise and Customs and approved and accepted by the
Central Government, that the cost of corrugated fibre boards containers would
not be includible in the value of the cigarettes for the purpose of assessment
to excise duty. The respondents acted upon this representation and continued the
use of corrugated fibre board containers for packing the cartons / outers of
cigarettes and did not recover from the wholesale dealers the amount of excise
duty attributable to the cost of such corrugated fibre board containers during
the period 24th May 1976 to 2nd November, 1982. It would be most inequitable to
allow the Excise Authorities to assess excise duty on the basis that the value
of the cigarettes manufactured by the respondents should include the cost of
corrugated fibre board containers, when it was clearly represented by the
Central Board of Excise and Customs in response to the submission made by the
Cigarette Manufacturers' Association - and this representation was approved and
accepted by the Central Government that the cost of corrugated fibre board
containers would not be includible in the value of the cigarettes for the
purpose of assessment of excise duty. Of course, this representation could
operate to create promissory estoppel only if it was within the competence of
the Central Board of Excise and Customs and the Central Government to make good
such representation and the exclusion of the cost of corrugated fibre board
containers from the value of the cigarettes was not contrary to law. We think
that the Central Government had power under Rule 8 sub-rule (1) of the Rules to
issue a notification excluding fibre board containers from the value of the
cigarettes and thereby exempting the cigarettes from that part of the excise
duty which would be attributable to the cost of corrugated fibre board
containers. So also the Central Board of Excise and Customs had power under
Rule 8 sub-rule (2) to make a special order in the case of each of the
respondents granting the game exemption, because it could 147 legitimately be
said that, having regard to the representation made by the Cigarette
Manufacturers' Association, there were circumstances of an exceptional nature
which required the exercise of the power under sub- rule (2) of Rule 8. The
Central Government and the Central Board of Excise and Customs were therefore
clearly bound by promissory estoppel to exclude the cost of corrugated fibre
board containers from the value of the B goods for the purpose of assessment of
excise duty for the period 24th May 1976 to 2nd November 1982.
The respondents would therefore be entitled
to exclusion of the cost of corrugated fibre board containers from the value of
the cigarettes only during the period 24th May 1976 to 2nd November 1982. Save
and except in respect of this period, the cost of the corrugated fibre board
containers would be liable to be included in the value of the cigarettes for
the purpose of assessment of excise duty.
I would therefore pass an order in these
appeals in terms of the format order which has been evolved by consent of
parties in the, Bombay Tyre International case (supra) and I would direct that
the Assessing Authorities shall assess the excise duty under the format order
in the light of the observations contained in this Judgment. There will be no
order as to costs.
PATHAK, J. I have perused the judgment
proposed by the learned Chief Justice in these appeals and while I find myself
in agreement with his views on the question of promissory estoppel, I am
unable, with regret, to subscribe to the view expressed by him on the question
of secondary packing. I propose, therefore, to set down my own view in the
matter.
In Union of India v. Bombay Tyre
International Ltd.
[1984] 1 S.C.C. 467, while construing sub-cl.
(i) of cl.(d) of sub-s. (4) of 8. 4 of the Central Excises and & lt Act,
1944, which provides for including the cost of packing in the determination of
value for the purpose of excise duty, we observed that the cost of primary
packing as well as of secondary packing in the sense explained in that case
would be included within the meaning of the expression value . In the present
case the cigarettes are manufactured and packed in cardboard packets, each
containing 10 to 20 cigarettes.
Those packets constitute primary packing.
Those packets are thereafter packed in cartons or "outers" for
delivery to the buyer. Finally, the cartons or outers are themselves packed in
corrugated fibre board containers, evidently to ensure the cartons against
injury or damage during transport. The 148 question is whether the corrugated
fibre board containers can be regarded as secondary packing, the cost of which
can permissibly be included in the determination of value n for the purpose of
excise duty.
Now it is apparent that under 8. 3 of the Act
the levy of excise duty is made on manufactured cigarettes, which after all are
the excisable goods. And 8. 4 provides how the value of manufactured cigarettes
shall be determined. The expression values has been extended to include the
cost of packing. The packing itself is not the subject of the levy of excise
duty. The manufactured cigarettes are the subject of the levy, because excise
duty is here charged on the manufactured commodity, that is to say, cigarettes.
For the purpose of computing the measure of the levy, however, the statute has
given an extended meaning to the expression value in clause (d) of sub-s.4 of
8. 4 of the Act. Plainly, the extension must be strictly construed, for what is
being included in the value now is something beyond the value of the
Manufactured commodity itself. In Union of India v.
Bombay Tyre International Ltd. (supra), we
observed :- It 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 value of the article for the purpose
of the excise levy." Is the packing in corrugated fibre board containers
necessary for putting the cigarettes in the condition in which they are generally
sold in the wholesale market at the factory gate? In my opinion, it is not. The
corrugate fibre board containers are employed only for the purpose of avoiding
damage or injury during transit. It is prefectly conceivable that the wholesale
dealer who takes delivery may have his depot a very short distance only from
the factory gate or may have such transport arrangements available that damage
or injury to the cigarettes can be avoided. The corrugated fibre board
containers are not necessary for selling the cigarettes in the wholesale market
at the factory gate.
I think the position expressed by the Central
Board of Excise and Custom in its letter dated May 24, 1976 was prefectly right
when it declared that the Collector of the Central Excise has been instructed
that the cost of corrugated fibre board containers in question does not form
part of the value of cigarettes for the purpose of excise duty.
149 The assessing authorities will now
proceed to make an assessment in accordance with the opinion expressed in this
judgment .
AMAREDRA NATH SEN, J. I have read the
judgment proposed to be delivered by the Learned Chief Justice in this appeal.
After giving my anxious and careful
consideration, I find with regret that I cannot persuade myself to agree with
the view expressed by the Learned Chief Justice on the question of secondary
packing. On the other question, namely the question of promissory estoppel, I
am in entire agreement with his views.
The Learned Chief Justice in his judgment has
set out all the material facts and circumstances. He has noted the respective
contentions put forward on behalf of the parties.
He has also adverted to the earlier decision
of this Court in Union of India v. Bombay Tyre International Ltd; [1984] 1
S.C.C. 467. It does not, therefore, become necessary for me to refer to the
facts and circumstances of this case or to any of these aspect in my judgment.
The cigarettes after manufacture are usually
placed in paper/card board packets, each packet containing 10 or 20 cigarettes.
These packets before delivery to the wholesale buyer are packed together in
paper/card board/cartons/outers, each of such cartons containing a number of
packets of cigarettes with 10 or 20 cigarettes in each packet. I agree with the
Learned Chief Justice that the cost of packing cigarettes in packets of 10 or
20 cigarettes each and thereafter in cartons/outers for delivery to the buyer
in the course of whole-sale trade at the factory gate must necessarily be
included in the value for the purpose of levy of excise duty. I however, find
it difficult to agree with the view expressed by the learned Chief Justice that
when a number of these cartons are put in corrugated fibre board containers for
delivery, the cost of the further packing incurred for putting cartons/outers
in the corrugated fibre board containers must also be included in the value for
the purpose of assessment of excise duty.
When tobacco is rolled up in paper following
the appropriate process of manufacturing cigarettes, cigarettes come into existence.
The paper in which cigarettes are rolled is indeed a part of the manufactured
product itself.
The paper in which a cigarette is rolled
forms no part of the packing and is indeed a part of the cigarette itself.
When the cigarettes, after their 150
manufacture, are put in packets, each packet usually containing 10 or 20
cigarettes, the packets in which the cigarettes are packed indeed constitute
the primary packing for the purpose of delivery and there can be no question
that the cost of this packing must necessarily be included in the value for the
purpose of assessment of excise duty. A number of packets, containing
cigarettes either 10 or 20 in number in each packet are then put in larger
cartons according to the requirements of the buyer in the whole-sale trade.
Packing a number of packets of cigarettes in a larger carton for delivery to
the buyer in the whole-sale trade according to his requirement constitutes
secondary packing but the cost of this packing on a true construction of 8.
4(4) (d)(i) of the Act read with explanation
to the clause but also be included in the value for the purpose of levy of
excise duty. Packets of cigarettes in the larger cartons are to be delivered to
the buyer in the whole-sale trade to enable the buyers in the whole-sale trade
to sell to the retail sellers in the same condition or by removing the packets
from the cartons. Packets of cigarettes so packed in cartons can easily be
delivered to the buyers in the course of whole-sale trade at the factory gate
without any further packing. If the buyer who is to take delivery in the course
of the whole-sale trade at the factory gate, carries on business within a
reasonable distance from the factory premises, the whole-sale buyer will very
likely not want to have cartons of cigarettes further packed in corrugated
fibre board containers. Cartons of cigarettes are usually further packed in
corrugated fibre containers for facilitating transport in the course of
delivery to buyers in the whole-sale trade where there is any possibility of
the cartons becoming otherwise damaged in course of transit.
Naturally in such cases, delivery of the
cigarettes in those cartons is effected to the buyer at the factory gate after
further packing these cartons in corrugated fibre board containers. The further
packing of cartons in which the packets of cigarettes have been packed in the
corrugated fibre board containers is not, indeed in the course of delivery to
the buyer in the whole-sale trade at the factory gate but is only for the
purpose of facilitating the 8 month transport of the cartons containing the
packets of cigarettes to the buyer in the whole-sale trade. On a proper
construction of S. 4(4)(d)(i) of the Act read with the explanation, I am of the
opinion that any secondary packing done for the purpose of facilitating
transport and 8 month transit of the goods to be delivered to the buyer in the
whole-sale trade cannot be included in the value for the purpose of assessment
of excise duty. I, therefore, hold that the cost of corrugated fibre board
containers which the cartons 151 containing the packets of cigarettes is
packed, cannot be included in the value for the purpose of assessment of excise
A duty. It is to be borne in mind that the excise duty which is levied on the
goods is ultimately passed on to the consumers of the goods and they have
ultimately to bear the burden. So far as the consumers are concerned they buy
cigarettes loose or in packets or even in cartons. Cartons packed in corrugated
fibre board containers are not purchased by the consumers. So far as the retail
sellers are concerned who may buy from whole-sellers, they usually buy loose
packets of cigarettes or packets of cigarettes packed in cartons. So far as the
buyers in the whole-sale trade are concerned, they buy the cartons of
cigarettes in which the packets of cigarettes are packed in the course of their
whole-sale trade for selling the same to retailers or to their customers. It is
only for the sake of convenience in the matter of smooth delivery of cartons in
which the packets of cigarettes are packed that the cartons may be further
packed in corrugated fibre board containers for facility of transport and
smooth transit of the cartons before delivery of the same to the whole-sale
buyer.
The letter dated 4th May, 1976 addressed by the Under Secretary, Central Board of Excise and Customs to the Cigarette
Manufacturers Association which has been referred to and considered at length
in the judgment of the Learned Chief Justice, clearly supports, in my opinion,
the view I have taken.
For reasons briefly indicated above, I have
to record my dissent with the view expressed by the Learned Chief Justice on
this question of secondary packing.
On the other question, namely, the question
of promissory estoppel I am in entire agreement with the views expressed by the
learned Chief Justice for reasons recorded by him in his judgment and I have
nothing to add.
I accordingly hold that the cost of the
further packing of the cartons in which the packets of cigarettes are packed in
the corrugated fibre board containers cannot be included in the value for the
purpose of assessment of excise duty.
I agree with the Learned Chief Justice that
in the light of the judgment and decision delivered by us, the Assessing
Authorities will now proceed to make the assessment.
N.V .K .
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