2008 (3) TMI 12 - SC - Central Excise

Court Upholds Exemption Rule for Weights & Measures; Appeals Decided on Hair Dye, Lip Smoother, Shampoo

The court upheld the respondent's entitlement to exemption under Rule 34(b) of the Standards of Weights and Measures Rules, assessing them under Section 4 ... Interpretation of Rule 34 of the Standards of Weights and Measures (Packaged Commodity) Rules, 1977 - multi-piece package - sale by weight or measure - retail sale price and Section 4A of the Central Excise Act, 1944 - interaction of Rule 12, Schedule V and Rule 17 of the Packaged Commodity Rules - binding force of administrative circular and Law Ministry opinionMulti-piece package - sale by weight or measure - Rule 34 exemption - Rule 12 and Schedule V - Rule 17 compliance - Exemption under Rule 34(b) applies where a packaged commodity is sold by weight or measure and the net weight is within the exempted limit even if the package is a multi-piece package. - HELD THAT: - The Court held that the commodity before it was a 'multi-piece package' within the meaning of Rule 2(j) and that the manufacturer had manifested an intention to sell by weight because Rule 12(2) and Schedule V expressly permit declaration and sale by weight for the item involved. Rule 17's requirements for additional declarations on multi-piece packages had been complied with. Rule 34(b) exempts packages if the commodity is sold by weight or measure and the net weight is within the prescribed limit; the language 'any package containing a commodity' is wide and covers multi-piece packages when sold by weight or measure. The administrative Circular and Law Ministry opinion which asserted that Rule 34(b) does not apply to multi-piece packages was held to be based on an incorrect premise and to have not taken Rule 12 into account; it therefore could not supplant the plain language of the Rules. The Tribunal and Commissioner (Appeals) were correct in holding that where the Rules (Rule 12 and Schedule V) permit sale by weight and declarations are made accordingly, Section 4 (valuation by normal price) applies and Section 4A does not. [Paras 17, 18, 20, 21, 23]Respondent entitled to exemption under Rule 34(b) and to assessment under Section 4 rather than under Section 4A; impugned orders upholding that view need no interference.Multi-piece package - retail sale - intention of sale and applicability of Rule 34 - Large cartons containing many small sachets may not qualify as multi-piece packages for retail sale purposes where the quantity is not intended for purchase by the ultimate consumer as a package; in such cases the individual sachet/unit must be treated as the retail sale unit. - HELD THAT: - The Court observed that when a package (for example cartons containing 72 units or 500 sachets) is of a size and quantity that is not ordinarily purchased by an ultimate consumer as a single retail package, it cannot be treated as a multi-piece package for retail sale. In such circumstances the goods are to be treated as sold in individual units and Rule 34 exemption will not apply to the larger carton; the appeals concerning such large-pack situations were allowed. [Paras 25, 26, 27]Appeals concerning large cartons (not intended for retail sale as a single package) allowed; such packs are not to be treated as multi-piece retail packages for the purpose of Rule 34.Final Conclusion: The appeals challenging the Tribunal's allowance of exemption under Rule 34 for the product sold in small multi-piece retail packages were dismissed; administrative Circular and Law Ministry opinion could not override the Rules. Separate appeals concerning large cartons not intended for retail sale were allowed. Issues Involved:1. Interpretation of Rule 34 of the Standards of Weights and Measures (Packaged Commodity) Rules, 1977.2. Applicability of Section 4 and Section 4A of the Central Excise Act, 1944.3. Whether the commodity is sold by weight or measure and the implications for excise duty.4. Validity of show cause notices issued under Section 11A of the Central Excise Act, 1944.5. Relevance of the Circular Letter dated 2nd November, 1999 issued by the Central Board of Excise & Customs.6. Applicability of the exemption clause under Rule 34(b) to multi-piece packages.7. Analysis of conflicting judgments and their implications.Detailed Analysis:1. Interpretation of Rule 34 of the Standards of Weights and Measures (Packaged Commodity) Rules, 1977:The primary issue is the interpretation of Rule 34, which provides an exemption for packages containing commodities if the net weight is 10 grams or less. The court examined whether this rule applies to multi-piece packages where each individual piece meets the weight requirement but the combined weight exceeds it. The court concluded that Rule 34(b) applies to any package containing a commodity sold by weight or measure, provided the net weight is 10 grams or less.2. Applicability of Section 4 and Section 4A of the Central Excise Act, 1944:Section 4 deals with the valuation of excisable goods based on the normal price, while Section 4A pertains to valuation with reference to the retail sale price. The court determined that Section 4A would not apply if Rule 34(b) of the Standards of Weights and Measures Rules exempts the package from declaring the retail sale price. Consequently, the valuation should be carried out under Section 4.3. Whether the Commodity is Sold by Weight or Measure and the Implications for Excise Duty:The court noted that the commodity in question is sold in a multi-piece package, with each sachet containing less than 3 grams. The packaging disclosed both the individual and total weight, indicating an intention to sell by weight. This complies with Rule 12(2) and Schedule V, which allows for the sale of cosmetics by weight or measure.4. Validity of Show Cause Notices Issued Under Section 11A of the Central Excise Act, 1944:The respondent was served with multiple show cause notices demanding differential central excise duty, penalties, and interest. The court found that these notices were issued beyond the statutory period of six months, rendering them barred by limitation.5. Relevance of the Circular Letter Dated 2nd November, 1999 Issued by the Central Board of Excise & Customs:The Circular Letter clarified that multi-piece packages containing individual pieces of less than 10 grams or 10 ml are not exempt under Rule 34(b) if the total quantity exceeds these limits. However, the court found that this opinion was not based on legal principles and did not consider the implications of Rule 12 and the definition of 'multi-piece package' under Rule 2(j).6. Applicability of the Exemption Clause Under Rule 34(b) to Multi-Piece Packages:The court held that Rule 34(b) applies to multi-piece packages if the net weight of each individual piece is 10 grams or less, provided the product is sold by weight or measure. This interpretation aligns with the plain language of the rule and the illustration provided in Rule 2(j).7. Analysis of Conflicting Judgments and Their Implications:The court reviewed conflicting judgments, including the Madras High Court's decision in Varnica Herbs and the Tribunal's decision in Urison Cosmetics Ltd. The court found the Madras High Court's reasoning unpersuasive and agreed with the Tribunal's interpretation that Rule 34(b) applies to multi-piece packages. The court also referenced its own decision in Jayanti Food Processing (P) Ltd., which emphasized the importance of statutory requirements for retail sale price declarations.Conclusion:The court upheld the appellate authority and the Tribunal's decisions, confirming that the respondent is entitled to the exemption under Rule 34(b) and should be assessed under Section 4 of the Central Excise Act, 1944. The show cause notices were deemed invalid due to being time-barred. The court dismissed the appeals related to the hair dye product but allowed the appeals concerning lip smoother and shampoo, emphasizing that these products are not typically sold in large multi-piece packages for retail sale.