PETITIONER:
UNION OF INDIA & ORS.
Vs.
RESPONDENT:
GODFREY PHILIPS INDIA LTD. ETC. ETC.
DATE OF JUDGMENT30/09/1985
BENCH:
BHAGWATI, P.N. (CJ)
BENCH:
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 w ed
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.
JUDGMENT:
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
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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
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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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