Customs, Excise and Gold Tribunal - Tamil Nadu
Modern High Tech India vs Cce on 3 September, 2007
Equivalent citations: 2007(123)ECC34, 2007(149)ECR34(TRI.-CHENNAI), 2008(221)ELT428(TRI-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. The appellants are engaged in the manufacture of Shampoo (SH 3305.99) and Face Cream (SH 3304.00). In the impugned order, ld. Commissioner of Central Excise confirmed against them a total differential duty demand of about Rs. 2.26 crores in adjudication of three show-cause notices covering the period February 2003 to December 2004 and imposed on them penalty of Rs. 25 lakhs. The above demand is on goods broadly categorized as follows :
(i) Goods (Shampoo/Cream) supplied in bulk to M/s. Emami Ltd. (hereinafter referred to as 'EMAMI') with MRP printed and crossed and with the inscription 'free, not for sale'.
(ii) Goods (Shampoo) packed in pouches/sachets with net content of less than 10 ml. and supplied to 'EMAMI' The assessee valued all the above goods under Section 4 of the Central Excise Act and paid duty accordingly. The department was of the view that all the goods were liable to be assessed under Section 4A of the Act on the basis of MRP read with Notification No. 13/2002-CK (NT). Hence the above demand of differential duty.
2) After examining the records and hearing both sides, we note that, in respect of the goods cleared by the assessee to 'EMAMI' in the first category, the department called for clarifications from the Controller of Legal Metrology in terms of the Board's Circular No. 625/16/2002-CX dated 28.2.2002 wherein it had been instructed that, in case of doubt as to whether, in respect of a particular commodity, the assessee was exempted from declaring retail price or not under the Standards of Weights and Measures Act and the Rules made thereunder, clarification could be obtained from the concerned Department (generally, Metrology Department) of the State Government.
The Controller of Legal Metrology clarified as follows :
I am to further clarify that there is no specific provision either in the Standard of Weight and Measures Act, 1976 or in the Standard of Weights and Measures (PC) Rules, 1977 prohibiting free supply of goods along with other consumer items. Therefore there seems to be no legal bar in making declaration as "Free not for sale" in respect of the goods supplied free of cost. Since the shampoo and Fairness cream in questions are not intended for retail sale but to be distributed free of cost to the ultimate consumer along with other goods there is no need to indicate MRP on the tube and package containing such Shampoo and fairness cream under the provision of the Standards of Weights and Measures Act 1976 and the Standards of Weights and Measures (PC) Rules, 1977 made, thereunder. Similarly, there seems to be no legal bar in scoring off the MRP with an intent to supply such items free of cost along with the other consumer items.
The above clarification in favour of the assessee, however, did not weigh with the adjudicating authority, which chose to go by the Tribunal's decision in Nestle India Ltd. v. CCE Goa, , wherein 'kitkat' crisp wafer finger covered with milk chocolate cleared by the company to M/s. Pepsico India Holdings Ltd. for free supply along with 'pepsi' to ultimate consumers was held to be assessable to duty in terms of Section 4A of the Central Excise Act and not on the basis of the contract price between the seller and the buyer. As rightly submitted by ld. Sr. Advocate, the Tribunal's decision in Nestle India case has been set aside by the Supreme Court as per judgment dated 22.8.2007 in Civil Appeal No. 1738 of 2004. We have perused the judgment of the apex court. Paragraph 20 of the judgment gives an outline of the dispute between M/s. Nestle India Ltd. and the department and the same reads as under :
This takes us to the next appeal which is filed by Nestle India Ltd. 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 the 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.
The apex court ruled out the applicability of Section 4A for the reason stated in paragraph-29 of its judgment, which reads as under :
It was then suggested that the free gift by Pepsi to its customers would amount to distribution and would, therefore, be amounting to "retail sale" and the package of KITKAT would be "retail package". However, what is material is the definition of "retail sale price". The requirement of Rule 6(1)(f) is specific. It requires the retail sale price of the package be printed or displayed on the package. If there is no sale involved of the package, there would be no question of Rule 6(1)(f) being attracted. There is a clear indication in the definition of "retail sale price" as provided in Rule 2(r) which clearly explains that the MRP means the maximum price at which the commodity in packaged form "may be sold" to the ultimate consumer. Thus, the definition of "sale" in Section 2(v) of the SWM Act becomes relevant. Therefore, unless there is an element of sale, as contemplated in Section 2(v), Rule 6(1)(f) will not be attracted and thus such package would not be governed under the provisions of SWM (PC) Rules which would clearly take such package out of the restricted arena of Section 4A(1) of the Act and would put it in the broader arena of Section 4 of the Act.
Their lordships also accepted the argument of the assessee's counsel that both the conditions for applicability of Rule 34(a) of the Standards of Weights and Measures (Packaged Commodity) Rules stood satisfied in the case and consequently 'kitkat' would not be governed by the said Rules. In the result, the Tribunal's order was set aside and the appeal of M/s. Nestle India Ltd. was allowed. With this decision of the apex court, reliance placed by the Commissioner on the Tribunal's decision in Nestle India case cannot be countenanced. It appears from the impugned order that the Commissioner did not apply his mind to the opinion of the Controller of Legal Metrology. The Board's circular dated 28.2.2002 ibid instructed that, in case of any doubt as to whether, in respect of a commodity, the assessee was exempted from declaring the retail price or not, clarification of the Metrology Department of the State Government could be obtained. In the present case, a doubt arose in the mind of the Central Excise authorities and hence the matter was referred to the Controller of Legal Metrology. The clarification offered by the said authority is to the effect that there is no legal bar in scoring off the MRP (already printed on a product) with an intent to supply the goods free of cost along with other consumer goods. This opinion of the Controller of Legal Metrology, who is the authority empowered to carry into effect the provisions of the Standards of Weights and Measures Act 1976 and the Rules made thereunder, cannot, in our opinion, be ignored.
3. Learned Jt. CDR has sought to distinguish the case of Nestle India Ltd (supra) from the present case, by submitting that M/s. Nestle India Ltd. had not made any markings on the goods supplied to the buyer for free distribution along with 'pepsi' bottles and that, it was the buyer who made such markings on the free supply goods. We are not impressed with the distinction sought to be drawn between the two cases. The case of the assessee is that, in marking MRP on the goods and then crossing it, they only intended to convey to the buyer the worth of the goods under free supply. The Controller of Legal Metrology has not found anything wrong in marking MRP and then scratching it off on a product for the purpose of supplying it free of cost along with other consumer goods. That authority has categorically stated that there is no need to indicate MRP on the package containing shampoo/cream under the provisions of the Standards of Weights and Measures Act and the rules made thereunder as the item is not intended for 'retail sale' but to be distributed 'free of cost' to the ultimate consumer along with other goods.
4. The case of M/s. Nestle India Ltd. is no different inasmuch as, in that case also, 'kitkat' supplied by the party to their buyer for free distribution along with other consumer goods to the ultimate consumers was held to be not intended for retail sale and hence not covered under the provisions of the Standards of Weights and Measures Act and the rules thereunder vide the apex court's judgment.
5. In the result, the goods of the first category, supplied in bulk to 'EMAMI' with MRP printed and crossed and with the inscription 'free, not for sale', are liable to be assessed only under Section 4 of the Central Excise Act and not under Section 4A of the Act in view of the apex court's judgment rendered in the case of M/s. Nestle India Ltd. (supra) as well as in view of the clarification given by the Controller of Legal Metrology.
6. Insofar as the goods of the second category [shampoo packed in pouches/sachets with net content of less than 10 ml. and supplied to 'EMAMI] are concerned, we note that the adjudicating authority has relied on the judgment of the Madras High Court in the case of Varnica Herbs v. CBE and C . Learned Jt. CDR has also referred to the said decision of the High Court. Learned Counsel for the appellants, on the other hand, has relied on the Tribunal's Larger Bench decision in CCE v. Urison Cosmetics Ltd. . We have also been told that the judgment of the learned Single Judge in the case of Varnica Herbs (supra) is presently under challenge in a writ appeal and that there is no stay of operation of the said judgment. Learned Counsel has submitted that the decision in Urison Cosmetics (supra) was rendered per incuriam without noticing the relevant legal provisions. Cosmetics are covered by Sl. No. 25 of the table in the Vth Schedule to the Standards of Weights and Measures (Packaged Commodity) Rules and such goods are required to be sold by weight or volume and declaration in respect of such goods is also required to be made in terms of weight or volume. Admittedly, the 'shampoo' in question is a cosmetic item covered by Sl. No. 25 of the Table in the Vth Schedule ibid. Learned Counsel has submitted that Rule 34 of the aforesaid rules is applicable to cosmetics which are intended to be sold either by weight or by measure (volume). It was without noticing the Vth Schedule and the connected Rule 12 that the Hon'ble High Court held that the goods in question was not intended to be sold either by weight or by measure and consequently rejected the claim of the writ-petitioner that Rule 34 was applicable to their goods. We have found a valid point in these submissions of learned Counsel. As rightly observed by the Larger Bench in Urison Cosmetics (supra), the decision in Varnica Herbs case was rendered per incuriam without noticing the provisions of the Vth Schedule to the Standards of Weights and Measures (Packaged Commodity) Rules. The decision of the Larger Bench is also in support of the present appellant's case. Learned Jt. CDR has made an endeavour to support the department's allegation that the pouches/sachets were sold to the ultimate consumers in terms of numbers and not by weight or measure and hence Rule 34 would not be applicable to them. We have found no sense in this argument inasmuch as any quantity -- whether it be weight, volume (measure) or number -- denotes the quantity of the bare commodity, without its container. One can count the number of pouches/sachets of shampoo but cannot "count" the shampoo contained in such pouches/sachets in numerical terms. Show-cause notice also had proceeded on the premise that the pouches/sachets containing shampoo were sold to ultimate consumers in terms of numbers and not by weight or measure. As a matter of fact, the appellants had sold shampoo of the second category by measure (volume). Admittedly, the volume of shampoo contained in each pouch/sachet was less than 10 ml and, ipso facto, the goods stood excluded from the applicability of the Standards of Weights and Measures (Packaged Commodity) Rules.
7. Learned Counsel has cited a plethora of decisions whereby multipiece packages of cosmetics were held to be outside the purview of the aforesaid rules and consequently to be assessable under Section 4 of the Central Excise Act. The following are some of the decisions cited:
(i) Commissioner of Central Excise, Mumbai - VI v. Charishma Cosmetics Pvt. Ltd. 2006 (201) ELT 561 (Tri. Mum.)
(ii) Bharat Cosmetics v. Commissioner of Central Excise, Thane 2007 (211) ELT 499 (Tri. Mum.)
(iii) Mul Dentpro Pvt. Ltd. v. Commissioner of Central Excise, Daman
8. In the result, the goods of the second category are also liable to be assessed under Section 4 of the Central Excise Act and not under Section 4A of the Act.
9. The assessee has paid the correct amount of duty in terms of Section 4 of the Central Excise Act. The demand of differential duty is set aside along with the penalty. The appeal stands allowed.
(Operative part of the order was pronounced in open court on 3.9.2007)