“Whether the Central Excise duty is payable on the assessable value determined under Section 4 of the Central Excise Act as claimed by Respondents or with reference to M.R.P. under Section 4A of the Central Excise Act as claimed by the Revenue? – the commodity in question “multi-piece packages”.
After losing Jayanti Food Processing case, Revenue now loses Kraftech Products case, Aero Pharma Case & Alfa Packaging Case and that too with costs in Apex Court
NEW DELHI, MAR 19, 2008 : LAST year, it was in the Jayanti Food Processing case & others [2007-TIOL-150-SC-CX] that the Apex Court held that the assessees claim of assessment under Section 4 of CEA’44 in case of Ice Cream sold in bulk or for that matter Kitkat supplied under contract to Pepsico for being supplied free with 1.5 litre of Pepsi as sales promotion was perfectly legal. As for the bunch of appeals filed by Revenue seeking assessment under Section 4 of the CEA’44 as against the assessment adopted by the assessees under Section 4A of the CEA’44, the Apex Court in polite terms & without imposing any costs told the Revenue that there was no merit in their desperate arguments & hence dismissed them.
So, what does this year hold for the Revenue on Section 4A valuation front – nothing but the same old story!
When it takes three years to notify the Determination Rules under section 4A even after we first highlighted the Gujarat Gold Coin case [2005-TIOL-853-CESTAT-MUM], one can, but naturally see the sincere “determination” of the Board in plugging the loopholes in the law.
Coming to the present case, the issue was – “Whether the Central Excise duty is payable on the assessable value determined under Section 4 of the Central Excise Act as claimed by Respondents or with reference to M.R.P. under Section 4A of the Central Excise Act as claimed by the Revenue? – the commodity in question “multi-piece packages”.
Take a look at the snapshots of the decisions of the Tribunal that were not palatable to the Revenue & hence taken to the Apex Court.
• 'Godrej Permanent Powder Hair Dye' and 'Godrej Kali Mehendi' packed in small packages containing three units each but combined weight less than 10 gm are entitled to assessment under Section 4 instead of 4A –, CCE, Daman vs. Kraftech Products Inc. 2004-TIOL-439-CESTAT-MUM
• Products cleared in multi-piece packs are liable to be assessed on the basis of assessable value determined under Section 4 and not under Section 4A -, CCE, Daman vs. Kraftech Inc. 2004-TIOL-1041-CESTAT-DEL
• Multi-piece package of Lipstick, mascara & eyeliner are assessable u/s 4 & not under Section 4A of the CEA’44 – Larger Bench decision in Urisan Cosmetics followed. Aero Pharma Pvt. LTd. vs. CCE, 2006-TIOL-1186-CESTAT-MUM
• Larger Bench holds HC decision in Varnica Herbs [2003-TIOL-46-HC-MAD-CX] as rendered per incuriam; Sec 4A cannot have any application to multi-packs - CCE, Mumbai vs. Urison Cosmetics 2006-TIOL-354-CESTAT-MUM-LB
• Shampoo Sachets of less than 10 ml to be assessed under Section 4 of the CEA'44 - appellant has a good prima case inasmuch as the issue stands directly covered by the Bombay High Court decision in the appellant's own case - Stay petition allowed unconditionally. M/s Alfa Packaging vs. CCE, Vapi 2005-TIOL-1213-CESTAT-MUM
• Shampoo Sachets of 3 to 9 ml to be assessed under Section 4 of the CEA’44 – LB decision in Urison Cosmetics, 2006-TIOL-354-CESTAT-MUM-LB followed – Alfa Packaging vs. CCE, Vapi 2006-TIOL-1136-CESTAT-MUM
So, the question before the Supreme Court in Kraftech case is interpretation of Rule 34 of the Standards of Weights & Measures (Packaged Commodities) Rules, 1977 in the context of “multi-piece packages”.
The Revenue based their arguments on the Law Ministry opinion as communicated in its Circular dated 2nd November 1999 & which goes thus –
“2…. In particular sub-rule (b) to Rule 34 provides that the MRP provisions do not apply to a package containing a commodity if the net weight or measure of a commodity is 10 grams or 10 ml or less, if sold by weight or measure. Some manufacturers have claimed that the multi-piece package containing individual pieces of less than 10 grams or 10 ml or less, even though the net quantity of such multi-piece package exceeds 10 grams or 10 ml would be covered by the above exemption. Hence they would not required to be assessed to excise duty on the MRP prices under Section 4A of Central Excise Act, 1944.
3. … The Law Ministry has given the opinion that the exemption under rule 34(b) is applicable to a package containing a commodity and this exemption does not appear to be applicable to multi piece packages.
4. Based on the above opinion of the Law Ministry, it is clarified that the declaration of retail sale price of multi- piece packages and individual pieces contained in such multi-piece package (if such individual pieces are capable of being sold separately) is statutorily required under rule 17 (1) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977.
5. In view of the above statutory requirements for declaration of retail sale price under the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 for multi-piece packages, it is clarified that in respect of multi-piece packages of a commodity intended for retail sale and which are notified under section 4A, they shall be assessed to excise duty under the provisions of section 4A of Central Excise Act, 1944."
The Apex Court after examining the provisions of Rule 2 [definition of multi-piece package], Rule 6[declarations to be made on every package], Rule 12 [Manner in which declaration of quantity shall be expressed], Rule 17[additional declarations to be made on multi-piece packages] & Rule 34 [Exemption in respect of certain packages] of the Packaged Commodities Rules, 1977 observed –
“14. The commodity is in powder form. It is sold in a multi piece package. Admittedly the product is packed in small packets each containing three sachets. Each sachet discloses the weight of its contents. The packet containing the three sachets also disclose the total weight and the number of sachets. The weight of the product in each sachet is admittedly below 3 gms.
15. It is beyond any doubt or dispute that the commodity in question is being sold in 'multi piece package'. Identical quantity of commodity is packed in each sachet. Yet again admittedly three sachets are packed in one packet. The weight of three sachets is 9 gms, that is, less than the prescribed weight of 10 gms.
16. Rule 12, as noticed hereinbefore, provides for the manner in which declaration of quantity shall be expressed. Sub-rule (2) of Rule 12 would not apply to the commodities mentioned in Schedule V. Item No.25 of Schedule V provides for a declaration to be expressed in terms of weight or measure. The packet describes the commodity in question. It discloses also the weight. It not only discloses the weight contained in each sachet but also discloses the weight contained in the packet of three sachets. In view of Schedule V appended to the Rules, therefore, the intention of the manufacturer to sell the commodity by weight is explicit.
17. Rule 17 provides for additional declarations to be made on multi-piece packages. It envisages declaration of the quantity and the sale price thereof on each of the packets when the quantity is sold in the multi-piece package. Requirements of Rule 17 have been complied with. Section 4A of the Act would apply only when it is statutorily required to apply the provisions of the Rules.
18. Rule 34 contains an exemption clause. The exemption clause would apply if the commodity is sold by weight or measure, subject of course to the condition that the net weight of the commodity is 10 gms. or less. This legal requirement in this case also stands complied with. Once it is held that the Rules have no application in respect of the commodity as marketed and sold by the respondent, Section 4A of the Act will have no application. The appellate authority as also the Tribunal, in our opinion, therefore, were right in their decisions.”
As for the opinion of the Law Ministry, the Apex Court held –
“20. The opinion of the Law Ministry is not based on any legal principle. Evidently in so doing it did not take into consideration the effect of Rule 12. It proceeded on the premise that Rule 34(b) would be applicable to a package containing a commodity and as such the exemption would not be applicable to "multi piece package". "Multi piece package" in terms of Rule 2(j) is also a package containing a common commodity. To hold it otherwise would be violating the plain language of the statutory Rules.”
The Apex Court too held that the Madras High Court decision in Varnica Herbs did not appeal to the Bench & that it was per incuriam as rightly held by the Larger Bench of the Tribunal in the case of Urison Cosmetics. 2006-TIOL-354-CESTAT-MUM-LB.
As for the following conclusion arrived at by the High Court in paragraph 15 -
"15. A perusal of these provisions makes it clear that articles kept in separate pouches by the petitioner can be termed as multi piece package and such pouches can be sold individually in single piece or together in a mono- carton of six pouches. The contention of the petitioner that exemption under Rule 34 would be applicable is not acceptable. Even though the net weight is less than 10 grams, it is evident that article is not intended to be sold either by weight or by measure as contemplated under Rule 34(b). The contention that clarification issued by the respondent No.1 has the effect of whittling down the exemption granted under Section 34 is not at all acceptable."
,the Apex Court while thoroughly disagreeing with the aforesaid conclusion observed –
“…each package offered to sell to the customer contains three sachets. Net weight of all the three sachets are stated thereon. It is a "multi piece package" which is capable of being offered to sell as such only because a package is a "multi piece package", the same cannot be taken out of the umbrage of exemption clause contained in Rule 34 of the Rules. Why the commodity cannot independently be sold either by weight or measure is beyond our comprehension particularly when Rule 12(2) permits the same. The illustration appended to Rule 2(j) bring out a clearer picture. It states that the combined net weight shall be taken into consideration for the purposes mentioned therein. After combined weight is taken into consideration for the purpose of applicability of the Rules, there is no reason as to why the said purpose shall not be considered to be a relevant factor for applying the exemption provision. Assuming Rule 2(j) was otherwise vague or unambiguous, illustration appended thereto brings out the true meaning and purport thereof.”
Accordingly, all the Civil Appeals were dismissed with costs & Rs.25,000/- was fixed as the Counsel’s fees in each case.
There were other Civil Appeals filed by the Revenue in the case of Aero Pharma & Alfa Packaging wherein the department contended that assessment would be under Section 4A as the commodities were multi-piece packages & were not entitled for exemption under rule 34 of the PCR, 1977 -
• A package containing 72 pieces of lip smoother [each unit containing 4.3 ml] would be a multi-piece package;
• Shampoo sachet containing shampoo below 10 ml & same packed in a carton containing more than 500 pieces is a multi-piece package
The Supreme Court observed –
“When a lip smoother or a shampoo is packed in a carton, keeping in view the quantity contained therein, the same cannot be said to be for retail sale. No person would ordinarily purchase for one's own use 72 lip smoothers or 500 pieces of shampoo. Thus, it is not a case where the goods are being sold in multi-piece package. Each sachet or each lip smoother must be sold as a unit.”
(See 2008-TIOL-54-SC-CX in 'Excise' + 2008-TIOL-54-SC-CX in 'Legal Corner')