2008 (2) TMI 645 - HC - Central Excise

MRP based valuation under central excise - Section 4A - industrial supply or not - use for shopping malls, large residential complexes, commercial buildings etc. - Pre-packed commodity - petitioners submitted that the switchgear products manufactured by the petitioners are not a commodity in the packaged form within the meaning of Act and the Rules. Packaging is done only for the sake of convenience and for safe transportation and protection during storage and handling. The nature of the switchgear products manufactured by the petitioners is that they are not required to be packed before they can be sold and goods are not pre-packed commodity as they do not have pre-determined value at the time when they are placed in the package - in the case of Whirlpool India Ltd. (2007 -TMI - 2207 - Supreme Court of India), held that a refrigerator which is a single unit which is packed in polythene cover, thermocol etc. and placed in hard board cartons is a pre-packed commodity under the old rule considering the language of the rule as substituted, there can be no escape from holding that the goods seized from the stockists of the petitioners are a pre-packed commodity. contention of the petitioners rejected Industrial or institutional consumer - If the packaged commodity purchased cannot be directly installed by the Co-operative Housing Society on the ground that such user is prohibited by the Electricity Rules, that however, would only mean that a person qualified under the rules can install the same for the consumer who may have purchased the package - no prohibition on such society purchasing the product and installing it through a licensed person. They are the ultimate consumers - All such consumers whether they be institutional or industrial will also be covered by Chapter II. Even the ordinary dictionary meaning makes such a purchaser a consumer - construing Rule 3, who are excluded are only the institutional or industrial consumers as explained in Rule 2A and that the industrial or institutional consumers in terms of the proviso to Rule 2(p) for the purpose of Chapter II are the same

Issues Involved:
1. Valuation of goods for the purpose of Excise duty under Section 4 or Section 4A of the Central Excise Act, 1944.
2. Applicability of the Standards of Weights and Measures Act, 1976 and the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 to the seized goods.
3. Definition and applicability of "pre-packed commodity."
4. Determination of whether the goods are sold by weight, measure, or number.
5. Applicability of rules to retail packages and retail sales.
6. Interpretation of "industrial or institutional consumer" under the rules.

Detailed Analysis:

1. Valuation of Goods for the Purpose of Excise Duty:
The primary issue was whether the excise duty should be charged under Section 4 or Section 4A of the Central Excise Act, 1944. The court referred to Circular No. 625/16/2002-CX., which clarified that Section 4A applies only if the manufacturer is legally obliged to print the MRP on the packages under the Standards of Weights and Measures Act, 1976 or any other law for the time being in force.

2. Applicability of Standards of Weights and Measures Act and Rules:
The respondent No. 6 determined that the seized goods were intended for retail sale and thus had to comply with the Standards of Weights and Measures (Packaged Commodities) Rules, 1977. The petitioners argued that the packaging was for protection during transit and storage, not for retail sale, and thus should not fall within the definition of "pre-packed commodity." This contention was rejected by the respondent.

3. Definition and Applicability of "Pre-packed Commodity":
The court examined the definition of "pre-packed commodity" before and after its amendment on 14-1-2007. The court referred to previous judgments, including Titan Industries Ltd. v. U.O.I., which held that a commodity must have a predetermined value to be considered pre-packed. The Supreme Court in Whirlpool India Ltd. v. Union of India confirmed that a refrigerator packed in a polythene cover and placed in hardboard cartons is a pre-packed commodity. Thus, the court held that the seized goods were pre-packed commodities.

4. Determination of Whether Goods are Sold by Weight, Measure, or Number:
The court noted that the package description mentioned "one unit," indicating that the goods were sold by number. The Supreme Court's judgment in Whirlpool implicitly rejected the contention that a single unit could not be sold by weight, measure, or number. The court held that even one item in a package falls within the definition of pre-packed commodity.

5. Applicability of Rules to Retail Packages and Retail Sales:
The court examined whether the rules applied to retail packages and retail sales. The petitioners argued that their goods were not intended for retail sale to the ultimate consumer but were specialized goods used in industrial applications. The court referred to Rule 2A and Rule 3, which exclude packages meant for industrial or institutional consumers who buy directly from manufacturers or packers. The court held that the rules apply to all other retail sales of pre-packed commodities.

6. Interpretation of "Industrial or Institutional Consumer":
The court analyzed the definitions of "retail dealer," "retail package," "retail sale," and "retail sale price" under the rules. The court held that the explanation of "industrial or institutional consumer" in Rule 2A must be read into the proviso to Rule 2(p) for the purpose of Chapter II. The court concluded that the rules apply to all retail sales of pre-packed commodities, except those sold directly to institutional or industrial consumers as explained in Rule 2A.

Conclusion:
The court found no infirmity in the order dated 6th July 2007 and held that the seized goods were pre-packed commodities subject to the provisions of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977. The petitioners' arguments were rejected, and the rule was discharged with no orders as to costs.

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