2016 (7) TMI 768 - AT - Central Excise

MRP based duty - undervaluation - clearance from unit-I to unit-II - branded chewing tobacco - pouches, weighing 5 gms each - whether the multi-piece packs from the factory are intended for retail sale as claimed by the appellant and whether such goods intended for retail sale are required to be printed with Maximum Retail Price under the Standards of Weights & Measures (Packaged Commodities) Rules, 1977. Held that - Tax arbitrage is a reality that cannot be wished away or suppressed by executive action. It is a legitimate strategy that is bound to be adopted, if, as in the present instance, a minor tweaking of marketing practice will gain that financial advantage. It is the favourable valuation outcome that weighs with the assessee in complying with the prescription of the Standards of Weights and Measures (Packaged Commodity) Rules, 1977 and which cannot be resisted if otherwise compliant. Enforcement is the responsibility of officials of both Legal Metrology and the Central Excise at the retail sale point. As long as consumer interest is served, higher revenue from the alternative valuation cannot be a determinant of proper valuation. It is thus, unambiguously clear that the manner of retail packing - whether as a pouch of less than 10 gm/ 10 ml or as multi-piece packet is a marketing decision of the manufacturer. Being an ascertainable fact, the Tribunal has constantly held that affixing the retail selling price on the multi-piece packet is a clear indication of intent for retail sale. As long as such multi-piece packs are cleared from the factory with retail selling price, its compliance with Standards of Weights and Measures (Packaged Commodity) Rules, 1977 is not arguable. The lower authorities erred in brushing aside the clarification given by an official of Legal Metrology department without confirming the veracity of its contents at appropriate levels in that department. Matter remand back to the original authority to ascertain from the relevant invoices if the goods have, indeed, been cleared as multi-piece packs with retail selling price affixed on them and to limit demand of differential duty only to the extent that the clearances not made in multi-piece packs or in multi-piece packs that do not bear the retail selling price. - Decided partly in favor of assessee.

Summary

Issues:
1. Valuation of chewing tobacco for duty assessment under Central Excise Act, 1944.
2. Compliance with Standards of Weights & Measures (Packaged Commodities) Rules, 1977 for printing Maximum Retail Price.
3. Interpretation of intention for retail sale based on packaging.
4. Applicability of judicial precedents in determining duty assessment under section 4A.

Issue 1: Valuation of Chewing Tobacco
The appellant, a tobacco company, challenged differential duty assessment by the adjudicating authority under section 4 of the Central Excise Act, 1944, instead of section 4A. The dispute centered around the requirement of printing Maximum Retail Price on packaging for valuation under section 4A. The appellant argued compliance with notifications classifying chewing tobacco under section 4A(2) and the necessity of Maximum Retail Price on multi-packaging. The Tribunal noted that goods were chewing tobacco packed in pouches exempt from printing rules, but polyethylene multi-packs bore the Maximum Retail Price. The issue was whether multi-packs were intended for retail sale, impacting duty assessment.

Issue 2: Compliance with Packaging Rules
The Tribunal highlighted the necessity of Maximum Retail Price printing under the Standards of Weights & Measures (Packaged Commodities) Rules, 1977 for section 4A valuation. It emphasized that the Central Excise Act could not mandate pricing on factory-cleared packages, as the mandate derived from the Packaging Rules. The Rules aimed to protect consumer interests by ensuring information on packaged goods, enforceable only at the retail sale point. The Tribunal stressed that assessment under section 4A was contingent on packaging compliance with mandated declarations.

Issue 3: Interpretation of Retail Sale Intent
The Tribunal deliberated on the intention for retail sale based on packaging, emphasizing that the producer's intent was crucial, evidenced by the packaging details. It clarified that the enforcement of retail sale requirements was only at the point of retail sale, not before. The Tribunal noted that the decision to sell individual pouches from multi-packs was a commercial choice at the retail point, not affecting clearance assessment. It underscored that the printing of Maximum Retail Price on multi-packs demonstrated the producer's intent for retail marketing.

Issue 4: Applicability of Precedents
Both parties cited judicial decisions supporting their contentions, with the Tribunal observing consistency in rejecting Revenue's challenge to self-assessment under section 4 or 4A. The Tribunal referenced various judgments affirming that the manufacturer's intent for retail sale determined duty assessment under section 4A. It emphasized that tax arbitrage was a legitimate strategy, and compliance with Packaging Rules for favorable valuation was acceptable. The Tribunal directed verification of multi-pack retail sale intent for accurate duty assessment.

In conclusion, the Tribunal set aside the impugned order, remanding the case for verification of multi-pack retail sale compliance to determine duty liability accurately. The judgment underscored the significance of the producer's intent, compliance with Packaging Rules, and judicial precedents in duty assessment under the Central Excise Act, 1944.