2007 (8) TMI 3 - SC - Central Excise

Valuation disputes governed by Sections 4 and 4A and SWM (Packaged Commodities) Rules; Rule 34 exempts certain packaged goods

SC held that valuation disputes must be decided by applying Sections 4 and 4A of the Central Excise Act in light of the SWM (Packaged Commodities) Rules. ... Valuation under Section 4A with reference to retail sale price - Requirement of retail sale price declaration under the Standards of Weights & Measures (Packaged Commodities) Rules - Retail package versus wholesale package - Exemption under Rule 34 of SWM (PC) Rules for packages 'specially packed for exclusive use' or 'for servicing any industry' - MRP as deemed value subject to notified abatementValuation under Section 4A with reference to retail sale price - Requirement of retail sale price declaration under the Standards of Weights & Measures (Packaged Commodities) Rules - MRP as deemed value subject to notified abatement - Interpretation and scope of Section 4A(1)-(2) of the Central Excise Act in relation to the SWM (Packaged Commodities) Rules - HELD THAT: - Section 4A applies only where (i) the goods are excisable, (ii) they are sold in a package, (iii) the SWM Act or the Packaged Commodities Rules (or other law) require declaration of the retail sale price on the package, and (iv) the Central Government has specified the goods by notification; where these conditions are satisfied, value is deemed to be the declared retail sale price less any notified abatement. The nature of sale (bulk/wholesale/retail) is not determinative; the trigger is the statutory requirement to declare MRP on the package under the SWM (PC) Rules. Exemptions in the SWM (PC) Rules (notably Rule 34) exclude packages from the operation of Section 4A where the Rules do not apply. The Court emphasised that voluntary printing of MRP is not sufficient if no statutory requirement to do so exists under the SWM (PC) Rules. [Paras 2, 4, 5, 6, 12]Section 4A's applicability is contingent on the SWM (PC) Rules' requirement to declare retail sale price on the package; otherwise valuation remains under Section 4.Retail package versus wholesale package - Exemption under Rule 34 of SWM (PC) Rules for packages 'specially packed for exclusive use' or 'for servicing any industry' - Whether the 4 litre ice cream pack sold to hotels by Jayanti Food Processing (P) Ltd. is governed by Section 4A or Section 4 - HELD THAT: - The 4 litre pack was not a 'retail package' as defined in the SWM (PC) Rules because it was sold to an intermediary (hotel) and not as a package directly to individual consumers; rather it falls within the concept of a wholesale package. Further, the package bore a clear marking indicating it was specially packed for exclusive use of the catering/hotel industry and therefore fell within Rule 34 exemption as a package 'for the purpose of servicing any industry.' A liberal construction of 'servicing any industry' includes supplying packaged goods to hotels for their consumption/sale to patrons. Given Rule 34 exemption, the SWM (PC) Rules did not require MRP on that package and Section 4A therefore did not apply; valuation must be under Section 4. [Paras 9, 13, 15, 16, 17]Allowed the appeal: the ice cream 4 litre pack is not governed by Section 4A; assessment is to be under Section 4.Requirement of retail sale price declaration under the Standards of Weights & Measures (Packaged Commodities) Rules - Retail sale price (MRP) as deemed value notwithstanding nature of sale - Exemption under Rule 34 of SWM (PC) Rules for packages 'servicing any industry' - Whether KITKAT chocolates supplied to PepsiCo (for free distribution with a beverage) are assessable under Section 4A or Section 4 - HELD THAT: - The inquiry turns on whether the SWM (PC) Rules required printing of MRP on the chocolate package in the particular supply. Where the package is statutorily required to bear MRP, Section 4A may apply; however, where chocolates are supplied to another company for free distribution and the chocolate packages themselves do not carry MRP (even if advertising on the accompanying product mentions value), Rule 6(1)(f) is not attracted because there is no 'sale' of the packaged chocolate to the ultimate consumer as contemplated in the SWM Act and Rules. Additionally, a package specially packed for and labelled to a purchaser for promotional distribution falls within Rule 34 exemption as 'specially packed for... servicing any industry.' The Board circular (28 2 2002) clarifying that some notified goods may be partly assessed under Section 4 and partly under Section 4A was held applicable; reliance placed on an earlier Tribunal ruling not challenged by Revenue strengthened that position. [Paras 22, 26, 27, 28, 29]Allowed the appeal: KITKAT chocolates supplied to PepsiCo in the promotion are not assessable under Section 4A; valuation to be under Section 4.Retail package versus wholesale package - Requirement of retail sale price declaration under the Standards of Weights & Measures (Packaged Commodities) Rules - MRP as deemed value subject to notified abatement - Whether telephone instruments sold in bulk to DoT/MTNL/BSNL are assessable under Section 4A or Section 4 - HELD THAT: - Although the instruments were sold in bulk to institutional purchasers, the packages in which the telephones were sold bore the MRP required by the SWM (PC) Rules. The fact of bulk sale to DoT/MTNL/BSNL does not exclude application of the Rules: the telephones were ultimately intended for use by individual consumers and the packages were 'retail packages' within the meaning of the Rules. Therefore, where packages are statutorily required to carry MRP and the MRP is declared, Section 4A applies and valuation is with reference to the declared retail sale price (subject to notified abatements). The Court left open factual verification by Revenue as to whether MRP was actually printed or duty was in fact paid on contract price. [Paras 31, 32, 33]Dismissed Revenue's appeals: assessment under Section 4A is correct where MRP is declared on the package.MRP as deemed value subject to notified abatement - Application of Section 4A where packages bear MRP - Whether the same principle applies to Refrigerators and Electric Filament Lamps sold under contract to bottlers/contracting parties - HELD THAT: - The Court held that Refrigerators and Electric Filament Lamps, sold in packages bearing MRP and being specified goods, are governed by the same analysis applied to telephones: when the package is required by the SWM (PC) Rules to bear MRP and the MRP is declared, Section 4A governs valuation. The Court accepted the Tribunal's reliance on the telephone decisions and dismissed the Revenue's appeals, while preserving Revenue's right to verify factual compliance regarding MRP printing and actual basis of duty paid. [Paras 35, 36]Dismissed Revenue's appeals: valuation under Section 4A where packages bear declared MRP; factual verification by Revenue left open.Retail package versus wholesale package - Requirement of retail sale price declaration under the Standards of Weights & Measures (Packaged Commodities) Rules - Whether a 12 bottle pack of 200 ml mineral water (with MRP on outer wrapper and labels on bottles indicating 'specially packed for' an airline) is assessable under Section 4A or Section 4 - HELD THAT: - The wrapper containing 12 bottles, bearing a declared MRP, was intended for direct distribution to end consumers (passengers) by the contracting airline; the bottles were delivered to ultimate consumers and the package thus qualified as a 'retail package' under Rule 2(p). The package did not fall within the definition of 'wholesale package' as it was not intended for sale to an intermediary for subsequent resale in smaller quantities. Where the outer package bears MRP and the SWM (PC) Rules apply, Section 4A governs valuation. The Court distinguished Jayanti Foods (4 litre ice cream) on facts (that pack was for servicing hotels and exempted under Rule 34). [Paras 37, 38]Dismissed Revenue's appeals: valuation under Section 4A is correct for the 12 bottle mineral water package bearing MRP.Requirement of retail sale price declaration under the Standards of Weights & Measures (Packaged Commodities) Rules - Verification left to Revenue regarding factual compliance (printing of MRP and whether duty was actually paid on MRP or on contract price) - HELD THAT: - In several matters (notably telephones, refrigerators and others) the Court accepted the legal principle that Section 4A applies where the package is required to and does bear MRP, but observed that Revenue may verify on the facts whether MRP was in fact printed on packages for particular assessees and whether duty was paid on MRP or on contract price. If Revenue finds MRP not printed or duty paid on contract price, it may proceed in accordance with law after giving assessees opportunity to be heard. [Paras 33, 35]Left factual verification to Revenue: allowed Revenue to enquire and proceed if MRP was not printed or duty was not paid on the MRP, subject to due opportunity to assessees.Final Conclusion: The Court held that Section 4A applies only where the SWM (Packaged Commodities) Rules require declaration of retail sale price on the package and the goods are specified by notification; applying these principles, the Court allowed the appeals of Jayanti Food Processing and Nestle (KITKAT) (finding Section 4 applicable on the facts of those supplies), and dismissed the Revenue's appeals in the remaining matters (telephones, refrigerators, electric filament lamps and the mineral water packaging) concluding valuation under Section 4A where packages bore the statutorily required MRP, while permitting Revenue to verify factual compliance regarding printing of MRP and actual basis of duty paid. Issues Involved:1. Interpretation of Section 4 and 4A of the Central Excise Act, 1944.2. Applicability of the Standards of Weights & Measures Act, 1976, and the Standards of Weights & Measures (Packaged Commodities) Rules, 1977.3. Determination of whether goods should be assessed under Section 4 or Section 4A of the Central Excise Act.Detailed Analysis:1. Interpretation of Section 4 and 4A of the Central Excise Act, 1944:Section 4A was introduced to simplify the valuation of excisable goods by linking it to the retail sale price (RSP) mandated under the SWM Act and Rules. The section applies if:1. The goods are excisable.2. They are sold in packages.3. There is a statutory requirement to declare the RSP on the package.4. The Central Government has specified such goods by notification.5. The valuation is based on the RSP less any abatement allowed by the government.2. Applicability of the Standards of Weights & Measures Act, 1976, and the Standards of Weights & Measures (Packaged Commodities) Rules, 1977:- The SWM Act and Rules require certain declarations on packages, including the RSP.- Rule 6(1)(f) of the SWM (PC) Rules mandates the declaration of the RSP on retail packages.- Rule 34 provides exemptions for packages intended for industrial use or servicing any industry.3. Determination of whether goods should be assessed under Section 4 or Section 4A of the Central Excise Act:- Jayanti Food Processing (P) Ltd. (CA 2819/2002): The ice-cream sold in bulk to hotels was not meant for retail sale. The packs displayed 'not for retail sale,' and thus, the assessment should be under Section 4, not Section 4A. The Tribunal's order was overturned.- Nestle India Ltd. (CA 1738/2004): KITKAT chocolates sold to Pepsico for free distribution with Pepsi bottles were not for retail sale. The Tribunal's decision to assess under Section 4A was overturned, and the assessment was directed to be under Section 4.- Telephone Instruments (CA 2150-51/2004, CA 1144/2004, CA 1385/2005, CA 3847/2005, CA 6425/2005): The sale of telephones to DoT, MTNL, and BSNL involved packages with MRP declared. The Tribunal correctly held that the assessment should be under Section 4A.- Refrigerators (CA 2877/2005, CA 6168/2005, CA 5840/2006): Refrigerators sold to bottling companies with MRP declared on packages should be assessed under Section 4A. The Tribunal's decision was upheld.- Electric Filament Lamps (CA 498/2006): Similar to telephones, the lamps were sold with MRP declared on packages, and thus, the assessment should be under Section 4A. The Tribunal's decision was upheld.- Mineral Water Bottles (CA 6559-6560/2005): The package containing multiple bottles with MRP declared should be assessed under Section 4A. The Tribunal's decision was upheld.Conclusion:- Allowed Appeals: CA 2819/2002 and CA 1738/2004 were allowed, directing assessment under Section 4.- Dismissed Appeals: CA 2050-51/2004, CA 1144/2004, CA 4754/2004, CA 1385/2005, CA 3847/2005, CA 6425/2005, CA 2877/2005, CA 6168/2005, CA 5840/2006, CA 498/2006, and CA 6559-6560/2005 were dismissed, upholding assessment under Section 4A.In all cases, the assessment depends on whether the goods are sold in packages with an MRP declaration as required by the SWM Act and Rules. If such requirements are met, Section 4A applies; otherwise, Section 4 applies.