SC settles MRP Valuation Issues under Central Excise

AIT News Network

NEW DELHI.Deciding bunch of appeals on MRP Valuation issue; the Supreme Court vide ruling dated 22^nd August 2007 AIT-2007-300-SC has decided significant issues as under in cases relating to Jayanti Food, ITEL Industries Pvt. Ltd, BPL Telecom Private Limited , Nestle India Limited,  Himachal Exicom Communication Ltd , Electrolux Kelvinator Ltd., Uniword Telecom Ltd., Commissioner of Central Excise, Nagpur, Electrolux India Ltd., Explicit Trading & Marketing (P) Ltd., Ramani Power Cables Pvt. Ltd., BPL Telecom Ltd. and Electrolux Kelvinator Ltd.

SC has ruled as under:

• The following would be factors to include the goods in Section 4A(1) & (2) of the Act:

i)    The goods should be excisable goods;

ii)   They should be such as are sold in the package;

iii)  There should be requirement in the SWM Act or the Rules made thereunder or any other law to declare the price of such goods relating to their retail price on the package. 

iv) The Central Government must have specified such goods by notification in the Official Gazette;

v)   The valuation of such goods would be as per the declared retail sale price on the packages less the amount of abatement.

                If all these factors are applicable to any goods, then alone the valuation of the goods and the assessment of duty would be under Section 4A of the Act.

• where there is a general exemption like Section 34 under the SWM (PC) Rules such goods and/or packages of such goods shall not be covered by Section 4A (1) and (2) of the Act.  However, all such packages which are covered under Chapter II, more particularly under Rule 6(1)(f), Rules 15, 16 and 17, would be governed under Section 4A as such packages are required to declare the retail sale price on the packages.  The packages covered by Rule 29 would be outside the purview of the retail sales as under that Rule retail prices are not required to be mentioned on the package.  However, again those packages which enjoy the exemption under Rule 34 shall also be outside the scope of Section 4A of the Act as the Rules do not apply to the said packages.
• The assessee is engaged in manufacturing of Ice-cream. It used to supply the ice-cream in four litres pack to the Catering Industry or as the case may be hotels, the hotel used to sell the said ice-cream in scoops.  The assessee used to specifically display on the said packs that “the pack was not meant for retail sale”.  The ice- cream contained in the said pack of four litres used to be sold in unpacked form by the hotel to which the said ice-cream used to be supplied. - the Tribunal was not right by holding that the words “servicing any industry“ were not applicable to such “package“.  If that is so, the appeal would have to be allowed and it would have to be held that Section 4A will not apply to the ice-cream sold by the assessee.  
• The appellant M/s. Nestle India Ltd., are engaged in the manufacture of wafers covered with milk chocolate under the brand name “KIT KAT“ falling under Chapter 19 of Central Excise Tariff Act, 1985. This product is a specified product under the provisions of Section 4A and is included in the notification and accordingly the duty was being paid on the said Chocolate in terms of Section 4A based upon the “retail sale price“ after claiming the deductions on account of abatements.  M/s. Nestle India entered into a contract with M/s. Pepsico India Holdings Ltd., where the agreed price of the KITKAT packet was Rs.4.80 and the chocolate so purchased at that price by M/s. Pepsico was meant for free supply of the same along with one bottle of Pepsi of 1.5 litres in pursuance of their Sales Promotion Scheme.  The appellant cleared the disputed goods after payment of duty at Rs.4.80 per chocolate in terms of Section 4 of the Act after filing the due declaration on the premise that since the chocolates were being sold to M/s. Pepsico, this was not a “retail sale“ and on such chocolates supply there was no requirement to display the maximum retail price and as such the chocolates could not be covered under Section 4A and would eventually be assessable under Section 4 of the Act. However, the Department did not accept this and it issued a show cause notice dated 14.8.2001 raising a demand of Rs.48,95,370/- along with the proposal to impose penalty upon the appellant with interest.  This proposal was contested by the assessee on the aforementioned plea that it was not required to print the MRP under the provisions of SWM Act and the Rules made thereunder.  The Commissioner did not accept this and confirmed the demand.  The appellant having failed in its appeal before the Tribunal has now approached this Court by way of this appeal.
• After-all if the contract of the chocolates was for the purpose of advertising of a particular product of the particular industry, it would be covered within the expression “servicing any industry“.  We have already dilated upon the expression “servicing any industry“ in the earlier part of our judgment.  Those observations would similarly apply to the present appeal also.  With the result this appeal has to be allowed by setting aside the order of the Tribunal.
• sale of telephones by the companies like ITEL, BPL Telecom, Himachal Exicom and Uniword Telecom.  In all the cases the Tribunal has found in favour of the assesses holding on the facts that the assessment should be under Section 4A and not under Section 4.  The Revenue pleaded that the assessment should be under Section 4 of the Act (perhaps for attracting more revenue).  In arriving at this conclusion, the Tribunal took note of the factual situation that all the telephone instruments were specified goods under Section 4A of the Act and that all the telephone instruments were packed and every package declared the MRP thereupon.
• We, therefore, dismiss all the appeals of the Department subject to the observations which we have made as regarding the printing of MRP and also as regards the payment of duty on the basis of contract price and not on MRP in the earlier part. 
• valuation of the Refrigerators manufactured by the assesses.  It is a common plea that after the manufacture of these Refrigerators, they are sold to the Bottling Companies like Pepsi, Coca Cola and other soft drink manufacturers under the contract.  It is further admitted position that all the Refrigerators which are sold are packed in a package declaring the MRP on them.  The MRP and the contract price are different.  It was the claim of the assesses that they have paid the duty under Section 4A(1) of the Act on the MRP.  The goods are specified goods under Section 4A(1) of the Act.  However, because of the abatements they have to bear lesser duty which abatements are not available to the contract price.  Therefore, if the duty is assessed on the basis of the contract price under Section 4 of the Act, the duty would be more than the duty paid under Section 4A(1) of the Act.  The Tribunal, in all the three cases, has held in favour of the assesses.  It is also held by the Tribunal that Rule 34(a) of SWM (PC) Rules would not be attracted in these cases.  In short the Tribunal has held that these cases are identical with the cases involving the sale of telephone.  We have already approved the judgment of the Tribunal pertaining to the sale of telephones in the earlier part of this judgment.  We do not see any reason to take a different view in case of the Refrigerators.  However, the appeals filed by the Revenue would have to be dismissed and are accordingly dismissed. 
• manufacture and sale of Electric Filament Lamps.  The Tribunal has allowed the claim of the assessee .The goods here were sold with the MRP declared on the packages as per the SWM (PC) Rules.  We see no reason to take any different view.  We would chose to dismiss the appeal filed by the Department (Para 36)
• Mineral Water bottles- The manufacturer used to pack 12 200ml. bottles in a single package and used to mention the MRP on the said package.  The assessee was paying the duty under Section 4A(1) of the Act.  The factual scenario is that though the MRP was declared on the package of 12 bottles, the bottles did not have any MRP instead it was written: (a) not for re-sale; (b) specially packed for Jet Airways. No retail price was written on 200 ml. Bottle.  There is further no dispute that the assessee had entered into a contract with Jet Airways dated 13.2.2002 and the contracted price of sale for the goods was Rs.2.61.  It was the condition in the contract that each bottle to be supplied shall have a printed label “specially packed for Jet Airways“.  It is sold directly to Jet Airway and the Jet Airways supplied the said bottles to their passengers and thus there is no further sale by the Jet Airways of these bottles.  Therefore, it is obvious that after the first sale bottles go directly to the “ultimate consumers“.  There would be, therefore, no question of application of Rule 2(x)(i).  Rule 2(x)(ii) will also not apply as this does not amount to a commodity sole to an intermediary in bulk so as to enable such intermediary to sell, distribute or deliver, the said commodity to the consumer in smaller quantities.  It is, therefore, obvious that the “package“ containing 12 bottles cannot, therefore, be viewed as a “wholesale package“.  Once that position is clear, there is no question of the applicability of Section 4 of the Act as the “package“ as it is a retail sale of the package to the Jet Airways which supplies the same to the passengers on demand.  Once that position is clear, the “package“ will be covered under Section 6 requiring the declaration of  “retail sale price“ which appears on the package.  
• Twelve bottles were packed in a wrapper and the wrapper contained the MRP price though the bottles themselves did not have the price.  Therefore, we accept the view taken by the Commissioner (Appeals) and the Tribunal that the MRP was correctly mentioned and as such the assessment should have been under Section 4A of the Act and not for the reasons given by the Tribunal that we uphold the ultimate verdict of the Tribunal that the valuation should be under Section 4A of the Act.  We accordingly dismiss the appeals filed by the Department but without any order as to costs.

(Click here for full text of ruling AIT-2007-300-SC)

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