1. Petitioner No. 1 Godrej Soaps Limited - is a company registered under the Companies Act and inter alia manufactures various types of soaps.
By an agreement dated February 26, 1981 entered into with Reckitt & Colman of India Limited, respondent No. 3, the petitioners agreed to
manufacture and sale soaps to Reckitt & Colman. The sales were to be effected on principal to principal basis and the manufacture was according
to the specifications set out in the schedule to the agreement and production instructions given by the Reckitt & Colman. The purchaser was to
supply soap dyes, while the material like soap paste formulations, chemicals etc. was to be procured by the petitioners. The soap to be
manufactured by the petitioners had the brand name ""DETTOL"". Delivery of the soaps manufactured by the petitioners was on cash basis. It is not
in dispute that the petitioner Company and Reckitt & Colman are two different and independent entities and have no interest in the business of
each other and the two companies have no financial interest in each other. The agreement between the parties prescribe that Reckitt & Colman
could reject the goods if they are not according to the standard fixed and in case of any destruction or damage to the soap the costs was to be
borne by the petitioners.
2. The petitioner Company filed price list in Performa-II in respect of manufacture of soaps ''Dettol'' and showed the assessable value in
accordance with the price at which the products were sold by the petitioners to Reckitt & Colman. On June 6, 1981 a show-cause notice was
issued by the Assistant Collector of Central Excise to the petitioners calling upon to explain why the assessable value of Dettol Bath Soap should
not be determined on the basis of the wholesale price to any independent buyer in the course of wholesale trade. The notice further calls upon the
petitioners to explain why the assessable value should not be inclusive of the costs of packing as the goods are sold by Reckitt & Colman in
packed condition. By this show-cause notice the Assistant Collector was desirous of fixing the assessable value by taking into consideration the
price of the soaps sold by Reckitt & Colman to its buyers ignoring the price charged by the petitioners for manufacture of soap.
The petitioners filed reply pointing out that the assessable value was fixed in accordance with the price settled by the agreement and deduction
claimed is on account of the subsequent or secondary packing, that is corrugated packing and not initial or primary packing. The Assistant
Collector by order dated May 4, 1982 came to the conclusion that the price at which the goods are contracted to be supplied by the petitioners to
M/s. Reckitt & Colman does not represent wholesale cash price at which these goods can be available to independent buyer. It was further held
that the transaction does not satisfy the conditions of normal price u/s 4. The Assistant Collector further held that the packing described as out
folding corrugated boxes has to be considered as initial packing and costs of such packing should form part of the assessable value. The order of
the Assistant Collector is under challenge.
3. Shri Parikh, learned counsel appearing on behalf of the petitioners, submitted that the conclusion reached by the Assistant Collector that the
price at which the goods are supplied by the petitioners to Reckitt & Colman does not represent wholesale cash price is entirely erroneous. The
learned counsel urged that the bare perusal of the agreement between the parties would clearly establish that the agreement is arrived at arms
length and the transaction between the parties is on principal to principal basis. Shri Parikh submits, and in my judgment with considerable merit,
that the decision of the Assistant Collector on this issue cannot stand in view of the dictum laid down by the Supreme Court in the decision
reported in 1985 (22) E.L.T. 303 (Union of India & Ors. v. Cibatul Ltd. The facts of the case before the Supreme Court and in the present case
are almost identical. As pointed out by the Supreme Court in paragraph 6, the question relevant for determination is whether the goods are
manufactured by the seller or manufactured for sale on behalf of the buyer. Taking into consideration the circumstances (i) that the agreement
requires the seller to affix the trade mark of the buyer on the manufactured goods; (ii) the trade mark of the buyer is to be affixed only on those
goods which are found to confirm the specifications or standards stipulated by the buyer; and (iii) that the seller owns the plant and machinery, the
raw materials and the labour are telltale circumstances to establish that the goods are manufactured by the seller and are not manufactured on
behalf of the buyer. It is, therefore, obvious that the price at which the goods are supplied by the petitioners to Reckitt & Colman does represent
the wholesale cash price and is the normal price u/s 4 of the Central Excises & Salt Act, and must be accepted as assessable value for the purpose
of levy of excise duty.
4. Shri Parikh also submitted that the Assistant Collector was clearly in error in not permitting the deduction of cost of outer folding corrugated
boxes from the assessable value. The learned counsel, in support of the submission relied upon the decision of the Supreme Court reported in
Union of India (UOI) and Others Vs. Godfrey Philips India Ltd., The Supreme Court while considering the case of manufacture of cigarettes held
that when number of cartons containing cigarettes are put in corrugated fibre board containers for delivery, then the cost of corrugated fibre board
containers cannot be included in the value of cigarettes for the purpose of assessment of excise duty. The Supreme Court pointed out that the
corrugated fibre board containers are not necessary for selling the cigarettes, and therefore, the cost of such board containers cannot be included in
the assessable value. Identical principle would apply in respect of outer folding corrugated boxes used by the petitioners while giving delivery of
Dettol bath soap to Reckitt & Colman Company. The petitioners were perfectly justified to claim deduction of the costs of this outer folding
corrugated boxes from the assessable value and the Assistant Collector clearly erred in refusing that claim. In my judgment, the Assistant Collector
ought to have approved the price list as filed by the petitioners on March 19, 1981, a copy of which is annexed as Exhibit ''B'' to the petition.
5. Accordingly, petition succeeds and the rule is made absolute in terms of prayer (c). The bank guarantee furnished by the petitioners in pursuance
of the interim order to stand discharged.
In the circumstances of the case, there will be no order as to costs.