Custom, Excise & Service Tax Tribunal
M/S. Nestle India Ltd vs Commissioner Of Central Excise, Goa on 3 November, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. Appeal No. E/1633/06 (Arising out of Order-in-Appeal No. GOA/CEX/SNS/43/2006 dt. 27.2.2006 passed by the Commissioner (Appeals) Central Excise & Customs, Goa. ) For approval and signature: Honble Mr. Ramesh Nair, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) ============================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
======================================================= M/s. Nestle India Ltd.
:
Appellant VS Commissioner of Central Excise, Goa :
Respondent Appearance Ms. Anjali Hirawat, Advocate for Appellant Shri H.M. Dixit, Asstt. Commr. (A.R) for respondent CORAM:
Honble Mr. Ramesh Nair, Member (Judicial)
Honble Mr. C.J. Mathew, Member (Technical)
Date of hearing : 03/11/2016
Date of pronouncement : 15/12/2016
ORDER NO.
Per : Ramesh Nair
The appellant are engaged in the manufacture of Maggie Noodles which are cleared on payment of duty on the value as per Section 4A of the Central Excise Act. Apart from the clearance of goods for retail sale they also sell the Maggie Noodles to M/s. Agro Tech Foods Ltd. under an agreement. As per the agreement the Maggie Noodles supplied on the contract price are to be distributed by the buyer under Sales Promotion Scheme. Accordingly they have to provide the pack of Maggie Noodles along with Sundrop Oil freely. The each pack of the product bear the word Free Not For Sale and conspicuously printed no MRP on such pack. The appellants due to the above reason valued their goods under Section 4 as the goods are not for retail sale. Show cause notice issued by the department wherein it was contended that the excise duty has to be paid on the value arrived at as per Section 4A and not Section 4. The demand was confirmed by the adjudicating authority and the same was upheld by the Commissioner (Appeals). Therefore the appellant are before us.
2. At this stage, Ms. Anjali Hirawat, Ld. Counsel for the appellant submits that in the appellants own case, on identical issue, the Honble Supreme Court in the case of Jayanti Food Processing (P) Ltd. Vs. Commissioner of C. Ex., Rajasthan 2007 (215) E.L.T. 327 (S.C.), it was held that the sale of goods to the buyer who used the goods not for retail sale but for free distribution under Sales Promotion Scheme, the value of the goods shall be governed under Section 4 and not Section 4A of the Central Excise Act. In the said Supreme Court judgment the only difference was the product in the said judgment was KITKAT Chocolates which was sold to Pepsico for free supply by Pepsico to the customer along with the soft drink. In the present case, the product is Maggie Noodles but the nature of sale and further distribution freely under Sales Promotion Scheme by the buyer are identical. Therefore the Honble Supreme Court judgment directly applies in the present case.
3. Shri H.M. Dixit, Ld. Assistant Commissioner (A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order.
4. We have carefully considered the submissions made by both the sides, we find that the identical issue has been decided by the Honble Supreme Court in the appellants own case though for different product but fact is that the nature of supplies and further free distribution by the buyer are same. The relevant part of the judgment is reproduced below:Civil Appeal No. 1738 of 2004
20.?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 KITKAT 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.
21.?The Tribunal came to the conclusion that the duty was rightly demanded in terms of Section 4A of the Act.
22.?At the outset the learned Counsel Shri Lakshmi Kumaranan accepted the position that when such chocolates are sold in the market, they would undoubtedly be required to print the MRP on each chocolate as the SWM (PC) Rules and more particular Rule 6(1)(f) would be applicable to them. Learned Counsel, however, says that his contention is restricted only to the supply made by the assessee to Pepsico. He points out that the said chocolates were not being sold by the manufacturer in retail but were supplied to another company under a contract and the purchaser company was not to sell the said chocolates as the chocolates but to offer as a free gift along with its product, namely, a 1.5 litres bottle of Pepsi. Learned Counsel also criticized the order of the Tribunal. Learned Counsel also relied on the aforementioned Board Circular dated 28-2-2002.
23.?The Tribunal formulated a question as to whether the package of KITKAT sold by the appellant to M/s. Pepsico India Holdings Ltd., under a contract of Rs. 4.80 per KITKAT are required to be assessed at that price in terms of Section 4 of the Act or the assessable value of the same is required to be arrived at in terms of Section 4A of the Act. The Tribunal while accepting the case of the Revenue simply went on to hold that once the goods are specified items under Section 4A(1) of the Act and are excisable goods, the chargeable duty would be required to be assessed on the MRP. The Tribunal also recorded that the only exception where a manufacturer can deviate from the general rule of printing MRP on the package would be Rule 34 of SWM (PC) Rules. It further held that the said Rule did not apply to the case of the assessee. The Tribunal also relied upon the first Explanation to Section 4A of the Act and came to the conclusion that even if a portion of goods is sold at a lower rate than the MRP affixed thereon, the assessable value in respect of such percentage of goods will not be lowered on that ground. The Tribunal also referred to the advertisements issued by Pepsico wherein it was displayed that KITKAT worth Rs. 12 will be given free with one 1.5 litres bottle of Pepsi. The Tribunal also held that the circular dated 28-2-2002 did not apply to the case of the assessee. Holding thus, the Tribunal dismissed the appeal.
24.?Shri Lakshmi Kumaran firstly pointed out that the KITKAT chocolate sold to Pepsico was for free distribution along with 1.5 litre bottle of Pepsi and, therefore, there is no MRP affixed on the chocolate which accompanied the bottle. He further submits, relying on Section 2(v) of the SWM Act that there is no sale of the chocolate to the consumers as it is offered free as a gift by Pepsi, which purchased the same from the assessee on contract basis.
25.?As against this the learned Counsel Shri Subba Rao supported the order of the Tribunal and pointed out that this could be viewed as a retail sale. He adopted the reasoning given by the Tribunal on the definition of retail sale holding that the transaction in the present case amounting to retail sale since the chocolates were meant for distribution for consumption by an individual or group of individuals by retails sale and therefore, covered in SWM (PC) Rules.
26.?At the outset Shri Lakshmi Kumaran invited our attention to the notification dated 28-2-2002 bearing No. 625/16/2002-CX. He pointed out that by that notification clarification was issued regarding various queries raised expressing the doubts about the assessability of the commodities under Section 4A or Section 4 of the Act. A reference is made to Para 1, Entry 4 of which is as under :
Items supplied free with another consumer items as marketing strategy. Example, one Lux soap free with on box of surf. Para 6 of the notification is as under :
It is, therefore, clarified that, in respect of all goods (whether notified u/s. 4A or not) which are not statutorily required to print/declare the retail sale price on the packages under the provisions of the Standards of Weight & Measures Act, 1976, or the Rules made thereunder or any other law for the time being in force, valuation will be done u/s. 4 of the CE Act, 1944 (or under Section 3(2) of the Central Excise Act, 1944, if tariff values have been fixed for the commodity). Thus, there could be instances where the same notified commodity would be partly assessed on the basis of MRP u/s. 4A and partly on the basis of normal price (prior to 1-7-2000) or transaction value (from 1-7-2000), u/s 4 of the CE Act, 1944. Learned Counsel very heavily relied on the last sentence of Para 6 of the notification and pointed out that the KITKAT chocolate though a notified commodity, need not, in all cases be assessed under Section 4A. According to the learned Counsel stated that this had a direct reference to Entry 4 in Para 1 of the Circular which we have extracted above. Our attention was also invited to a ruling of the Tribunal reported in Commissioner of Central Excise, Ludhiana v. Pepsi Foods Ltd. [2005 (186) E.L.T. 603] wherein a view has been taken, relying on the aforementioned circular, that the packet of Lays (Potato Chips) which was to be supplied free along with Pepsi of 1.5 litre was bound to be assessed under Section 4 and not under Section 4A of the Act. Learned Counsel points out that this judgment is not challenged by the Revenue and has become final. He further suggests that in keeping with the law laid down by this Court in CCE, Vadodara v. Dhiren Chemical Industries [2002 (139) E.L.T. 3] the Department cannot now turn back and take a contrary stand. There is no doubt that the judgment of the Tribunal cited supra was attempted to be distinguished in the impugned judgment of the Tribunal on the ground that there appeared a price printed on labels affixed on Pepsi bottle and sold by M/s. Varun Beverages indicating that KITKAT worth Rs. 12 is given free with the said Pepsi Bottle. In our view this printing of the price on the labels of Pepsi would be of no consequence for the simple reason that it is clearly meant for the advertisement of Pepsi and the MRP is not printed on the chocolate. It may be a move on the part of the Pepsi for advertising its product but that cannot be said to be binding vis-a-vis Nestle. What is required is the requirement under the Rules of printing the price. Therefore, the true test is not as to whether the price is printed on the labels of the accompanying product like Pepsi but whether there was a requirement under the SWM Act or the Rules made thereunder to print the MRP on the wrappers of KITKAT chocolates. The reason given by the Tribunal in Para 10 for distinguishing the earlier judgment in Pepsi Foods case, therefore, has to be ignored as not relevant to the controversy. Once that position is clear, we are left with the notification alone and the aforementioned ruling in Pepsis case. If the ruling has not been challenged by the Department, the same becomes binding as against the Department. Similar is the situation of the circular. The circular becomes binding as held in the case of Dhiren Chemical Industries (supra).
27.?The Tribunal in Para 8 of its judgment has observed :
Once the goods are specified items under Section 4A(1) and are excisable goods chargeable duty (sic) with reference value, then such value shall be deemed to be the retail sale price declared on such goods, less amounts of abatements etc. As we have already observed that Weights & Measures Act requires chocolate manufactured by the appellant to be printed with MRP on the same, we are of the view that the duty of excise on such goods is required to be assessed in terms of the MRP. The only exception where a manufacturer can deviate from the general rule of printing of MRP on the package is Rule 34 of Standards of Weights & Measures (Packaged Commodity) Rules, 1977. We are afraid the law is too broadly stated here. It may be that chocolates manufactured by the appellant are required to bear the declaration of MRP but that cannot be true of all the chocolates. In this the Tribunal has ignored Para 6 of the aforementioned circular dated 28-2-2002 wherein it is specifically provided that there would be instances where the same notified commodity would be partly assessed on the basis of MRP under Section 4A and partly on the basis of normal price prior to 1-7-2000 or transaction value from 1-7-2000. Again merely because the goods are specified items under Section 4A(1), that by itself will not be a be all and end all of the matter as before such goods are brought in the arena of Section 4A(1), there would have to be the satisfaction of a particular condition that the packages of such goods are required under the SWM Act and the Rules made thereunder to declare the MRP. The Tribunal has even erred in holding that the circular dated 28-2-2002 is not applicable to the present case. A cursory glance at the circular would suggest that it is applicable to the present case where two commodities have been sold as a market strategy.
28.?Shri Subba Rao also heavily relied on Para 9 of the impugned judgment and further relied on the first Explanation of Section 4A and suggested that the retail sale price would be the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumers and includes all taxes, local or otherwise. The Tribunal has held, relying on the expression may be in contradistinction to the expression shall be that even if a portion of the goods are sold at a lower rate than the MRP affixed therein, the assessable value in respect of such percentage of goods will not be lowered on the ground that they have actually been sold at a lower rate. In our opinion the thrust of the Explanation I is not as the Tribunal has shown but is more on as to what retail price should be. The explanation provides that the retail price, i.e., the maximum price would include all taxes, local or otherwise, freight, transport charges, commission payable to dealers and all charges towards advertisements, delivery, packing, forwarding and the like. The further thrust of the explanation is on the notion that the price is the sole consideration of such sale. The Tribunal has mixed up Explanation I with Explanation II which is not permissible. This was not a case under Section 4A, Explanation II(b) because we do not find different sale prices declared on the different packages of the chocolates. The case of the assessee has been consistent from the beginning that these chocolates were sold to Pepsi under a contract for a particular value and the said chocolates were to be offered as a free gift to the one who purchased a particular bottle of Pepsi (1.5 litres). The Tribunal has further expressed that the argument that the bar of KITKAT was not to be sold by Pepsi in the retail market but was to be given as a free gift, would be of no consequence as even if the appellant itself intended to give the bar of KITKAT as a free gift to its customers along with other item, the appellant would not be in a position to claim that there is no assessable value of the goods and as such no duty of excise shall be charged on the same. The logic is clearly faulty. In the given circumstances, the appellant would undoubtedly be assessable to duty under Section 4 of the Act. It is not as if the appellant would be totally exempt from paying any duty on such goods. It was rightly contended before the Tribunal that the thrust of Section 4A is on the packages and not on the commodity and it is only where the goods are sold in the packages that the section would be attracted. The submission was undoubtedly right. The Tribunal, while rejecting this submission, has clearly ignored the language of Section 4A(1) of the Act.
29.?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.
30.?Shri Lakshmi Kumaran lastly relied on Rule 34(a) of the SWM (PC) Rules and pointed out that the case was completely covered under that Rule since firstly the package in this case specifically declared that it was specially packed for Pepsi. The thrust of the argument was that there appears such declaration on the package of KITKAT and secondly it was for the purpose of servicing Pepsi thereby satisfying both the conditions for applicability of Rule 34(a). The Tribunal has rejected this argument in a very casual manner by observing :
Admittedly, the situation in the present case is not covered by any of the conditions noticed in the said Rule 34. Learned Counsel Shri Laxmi Kumaran pointed out that there was no question of the application of SWM (PC) Rules apart from any other reasons, because of the applicability of Rule 34. We accept the argument. 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. We accordingly allow this appeal without any order as to costs.
Civil Appeal Nos. 2150-2151 of 2004 Civil Appeal No. 1144 of 2004 Civil Appeal No. 1385 of 2005 Civil Appeal No. 3847 of 2005 Civil Appeal No. 6425 of 2005 From the above judgment, it can be seen that the facts are absolutely identical, therefore the ratio of the above judgment squarely applies in the present case. Following the ratio of the Honble Supreme Court judgment in the case of Jayanti Food Processing (P) Ltd. (supra), we set aside the impugned order and allow the appeal.
(Pronounced in court on 15/12/2016)
(C.J.Mathew)
Member (Technical)
(Ramesh Nair)
Member (Judicial)
SM.
8
Appeal No. E/1633/06