Third Innings: Section 4A v/s Section 4 - MRP Based Valuation

[Pradeep Jain]

CA. Pradeep Jain

Siddharth Rutiya

Section 4A of Central Excise Act, 1944 empowers Central Government to specify goods on which duty will be payable based on 'retail sale price'. The basic requirements for levy under MRP based Valuation is that the goods should be covered under provisions of Standards of Weights and Measures Act and Central Government has issued a notification specifying commodities for which the provision is applicable and the abatements permissible, if any.

Hence a complete reading of the bare act and clarifications issued by CBEC makes it clear that valuation under section 4A is applicable only when product is statutorily covered both under Weights and Measures Act and notification issued under CEA. Mere voluntarily affixing of MRP on the product will not attract Valuation under Section 4A.

This draws our attention to cater as to what are the provisions of Standard Weights and Measures Act and as to which products are exempted under this act. Rule 34 of The Standards of Weights and Measures (Packaged Commodities) Rules, 1977 provides for a list of exemptions of certain packages that are not covered under the ambit of this levy i.e. on which printing of MRP is statutorily not required. Sub rule (b) of said rule provides that packaged commodities which are of net weight or measure of 10 grams or 10 milliliters or less, if sold by weight or measure shall be exempt.

This further tempts our interest to the fact as to what does a wholesale pack means? Rule 2(x) of the said rules provide for the definition of Wholesale package. The rule reads as under:-

"(x)'wholesale package' means a package containing-

(i) a number of retail packages, where such first mentioned package is intended for sale, distribution or delivery to an intermediary and is not intended for sale direct to a single consumer; or

(ii) a commodity sold to an intermediary in bulk to enable such intermediary to sell, distribute or deliver such commodity to the consumer in smaller quantities; or

(iii) packages containing ten or more than ten retail packages provided that the retail packages are labeled as required under the rules'."

This provision has lead to arise various complex issues and a long series of decisive rallies have been played on the row. We are discussing such decisions one by one as under: -

First Innings (Year 2006): An inning with series of Tribunal decisions where Section 4 made a continuous lead of favorable decisions.

At the first instance this issue came before Mumbai CESTAT in 2006 in the case of Swan Sweets Ltd. Vs Commissioner [2006 -TMI - 201522 - CESTAT, MUMBAI]. In this case the Mumbai CESTAT held that Individual pieces of Confectionary cleared in whole packs of jars, boxes or pouches are not multi piece packages and are correctly assessable u/s 4 of Central Excise Act, 1944.

Later in the same year Larger Bench of CESTAT Mumbai in the case of CCE, Mumbai Vs. M/s Urison Cosmetics Ltd. [2006 -TMI - 201521 - CESTAT, MUMBAI] reaffirmed the above decision contending that Section 4A cannot have any application to multi-packs.

In the same year CESTAT Kolkata further elaborated and strengthened the above decisions. CESTAT Kolkata in the case of Loknath Prasad Gupta vs. CCE, Kolkata-III 2006 -TMI - 948 - (CESTAT, KOLKATA) held that non marking of MRP on Wholesale packages under Standard Weights and Measures (Packaged Commodity) Rules, 1977 which are not intended for retail sale is not a violation of such rules.

Second Innings (Year 2008): The Next innings in the Lord's (Apex Court) where Section 4 again defeated Section.

In the starting of the year CESTAT Madras supported the above decisions in the case of The Central Arecanut and COCOA Marketing & Processing Co-op Ltd. 2008 -TMI - 4475 - (CSTAT CHENNAI). In the given case the Tribunal held that Éclair Brand chocolates manufactured on job work and cleared in packs containing 100 pieces each weighing 5.5 gms per piece do not attract assessment under Section 4A of the act and the duty is payable under section 4 only.

Later In the end of financial year 2007-2008 the Apex court of the land came out with its decision on the out blowing controversy between valuation under Section 4 and Section 4A. In the case of CCE, Vapi Vs M/s Kraftech Products Inc 2008 -TMI - 3484 - (Supreme court) held that exemption under Rule 34(b) of the said rules will be available in respect of a multi-piece retail package if the total weight of all the pieces in the multi-piece package does not exceed the prescribed limit. Thus, the Apex court came out with a favorable view for the assessees. 

Final Innings (Year 2010): An innings full of ups and downs. But later the series won by Section 4. Party Time !!!

In the last year 2010 CESTAT (LB) Bangalore, gave a qualified decision against the assessee in the case of M/s. Roys Industries Ltd. Vs. CCE, Hyderabad 2010 -TMI - 201511 - (CESTAT, BANGALORE). In the said case the larger Bench held that the pet jars, poly bags containing individual pieces of Eclairs weighing less than 5.5 gms each; shall be assessed under Section 4A of Central Excise Act, 1944.

Here in this case M/s Roys Industries Ltd. manufactured Caram Eclairs and Choco Eclairs each weighing 5.5 gms and cleared the same in pet jars/ poly bags marking on it as "Re. 1 per Unit and Wholesale pack." The appellant was of the view that the there was no requirement of affixing MRP following Rule 34 (b) as the retail pack weighs less than 10 gms. The appellants were further of the view that as their product was packed in "Wholesale Package" and was meant for wholesale dealers they were not required to affix the MRP on the said packages. Their further relied on the clarification given by CBEC vide Circular no. 625/16/2002-CX, dated 28/2/2002. Conclusively the appellants contended that they were not required to affix MRP on such clearances and their product shall not be covered under the purview of Section 4A.

However, the revenue was of a contrary view wherein it argued before the authority that the said packages were squarely covered under the provision of Rule 6(1)(f) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 and thus shall be covered under the provisions of Section 4A.

Seeking to the contentions of both the parties the Larger Bench came out of the view in favour of Revenue. They alleged that the poly packs and pert jars are multi piece retail packages and the total weight of the pieces in such packages exceeds the exemption limit specified under Rule 34(b) i.e. taking the exemption limit as a whole for the complete package and thus led to the conclusion that the same will be covered under Section 4A.

However the Larger Bench left a way for the assessees in para 9.2 of the decision pronounced by it. In the said para the larger bench pronounced as under-

"9.2 Further it is submitted that the Dept's appeal on the issue in the case of M/s. Swan Sweets (P) Ltd., M/s. Cadbury India Ltd.; M/s. Makson Confectionary (P) Ltd. and others is pending decision by the Supreme Court."

Hence the awaited decision of the Apex court in the case of CCE, Rajkot Vs. M/s Makson Confectionaries Pvt. Ltd. 2010 -TMI - 77501 - (SUPREME COURT) came out reversing the issue again in the favour of the assessees. In this case the respondent used to manufacture chocolate weighing about 5 Gms each and these chocolates were being cleared in a wholesale pack in a jar weighting about a kg or plastic bag weighing about 500 Gms.

The respondents contended that the individual chocolates were not attracted under the provisions of Section 4A as these weighed less than the specified exemption limit under Rule 34(b) as stated above. Further they were of an overall outlook that the clearances being of wholesale packages also did not attracted the provisions of Section 4A as they are not for Retail sale. However, the argument made by revenue was that the wholesale packets will be charged under Section 4A as they are indeed for retail sale ultimately.

The Apex court dismissed the Revenues appeal and made the decision in favour of assessee clearly mentioning that the said wholesale packs shall not attract assessment under Section 4A. The Supreme Court relied on the judgments made by it in the case of Swan Sweets Ltd. Vs Commissioner [2006 -TMI - 201522 - CESTAT, MUMBAI].

Highlights:-

Thus, from the foregoing, it is clear that there are number of judgments on this issue. But since the Apex Court decision has come in favour of assessee, hence this will be final decision on the matter. Although there was earlier decision of Apex court on this issue but the larger bench decision has take another view saying that other matters are pending in Highest Court of India. The Supreme Court has now decided the matter again in favour of assessee. Hence it will be final decision and larger bench decision will not prevail.

Secondly, if one sees from practical point of view, the goods are dispatched from the factory in wholesale packages only, except few big consumer durables like Televisions, Refrigerators etc. The duty of excise is to be paid on factory gate. Hence, this MRP based assessment will not be applicable on all small commodities. Hence, the board should impose levy on small commodities or it has to amendment Section 4A to enforce such levy.