Customs, Excise and Gold Tribunal - Mumbai
Rallis India Limited vs Cce on 23 February, 2007
Equivalent citations: 2007(116)ECC447, 2007ECR447(TRI.-MUMBAI)
ORDER K.K. Agarwal, Member (T)
1. The brief facts of the case are that the appellants are engaged in the manufacture of pesticides and insecticides which are sold by them in the packaging of 100 ml and 50 ml. On 25.2.2003, they entered into agreement with M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. for supply of the pesticides in bulk pack in 100 ml packing for purposes of being supplied free by M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. to farmers along with B.T. cotton seed sold by M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. to the farmers As per agreement M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. was required to purchase minimum 2,50,000 bottles during the course of 2003. The goods in packing of 100 ml cleared by M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. had legend thereon "specially packed for Mahyco Monsanto" and "Not for retail sale". On 1st March, 2003, the Central Government in exercise of its powers under Sub-section (1) and (2) of Section 4A of Central Excise Act, 1944 issued a Notification bearing No. 10/2003-CE (NT) dated 1.3.2003 to include all items falling under sub heading 3808.10 of the Central Excise Tariff Act, 1985 for valuation on the basis of maximum retail price under Section 4A of Central Excise Act, 1944. In view of this notification, the appellants started paying duty on pesticides of 100 ml packing sold to persons other than M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. on the basis of maximum retail price as per Section 4A of the Act. However, in respect of the goods being sold in bulk though in individual packing of 100 ml to M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. the appellants continued to value the same under Section 4 of the Act at transaction value on the understanding that since these packs were not intended for retail sale and also did not bear any retail price, the same shall not come under the purview of Section 4A. Similar agreements were entered into with M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. for subsequent period and selling pattern continuer to be the same. They were issued a show cause notice stating that since the pesticides were the notified items under Section 4A of the Act, the duty was chargeable on the basis of MRP even in respect of sales made to M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. as once the goods were specified under Section 4A, it is not necessary that the goods should be sold in retail and that only exemption provided is under Rule 34 of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 and since the appellants did not come under any of the exceptions provided under Rule 34, the duty was required to paid in tams of maximum retail price. The demand of Rs. 77,19,856/- was accordingly confirmed and penalty equivalent amount was imposed under Section 11AC and the interest was ordered under Section 11AB of the Act.
2. The learned Advocate for the appellants submits that in terms of Section 4A, the Central Government may by Notification in the official gazette specify any goods in relation to which it is required under the provisions of Standards of Weights and Measures Act, 1976 or the rules made thereunder or any other law for the time being in force to declare on the package thereof the retail sale price of such goods to which the provisions of Sub-section (2) shall apply. It was submitted that as per this section, there were two requirements, first is that the goods should be specified by Central Government by Notification and second is that the goods should be one in relation to which it is required under the provisions of the Standards of Weights and Measures Act, 1976 or the rules made thereunder or any other law for the time being in force to declare on the package thereof the retail sale price of such goods. It was submitted that though the pesticides were notified by the Central Government as the goods to which the provisions of Sub-section (2) of Section 4A shall apply, they were not the goods in relation to which under the provisions of Standards of Weights and Measures Act, 1976 or the rules made thereunder or any other law for the time being in force to declare on the package thereof the retail sale price of such goods. He invited our attention to the provisions of Standards of Weights and Measures (Packaged Commodities) Rules, 1977 whereunder Rule 3 it has been stated that the provisions of this chapter shall apply to packages intended for retail sale and expression "package", whenever it occurs in this chapter shall be construed accordingly. Therefore, it was submitted that the subject provisions apply only if the packages are intended for retail sale. The retail sale has further been defined under Rule 2(q) of Standards of Weights and Measures (Packaged Commodities) Rules, 1977 as "retail sale", in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales agencies or other instrumentalities for consumption by an individual or a group of individuals or any other consumer". It was submitted that since the pesticides supplied to M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. were not intended for sale but for free distribution by M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. they were not covered by the provisions of Standards of Weights and Measures (Packaged Commodities) Rules, 1977 and were under no obligation to declare maximum retail price and therefore the provisions of Section 4A in respect of the supply made to M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. were not attracted. In support, he refers to the clarification issued by the CBEC vide Circular No. 625/16/2002-CX, dated 28.2.2002 where the applicability of Section 4A in the following situations was considered:
(1) Bulk supplies for personal as well as industrial use.
(2) Supplies in bulk against contracts to DGS & D, Govt. Department, restaurants/hotels, etc. (3) Supplies to canteen stores depots (CSD) of the defense services (4) Items supplied free with another consumer items as marketing strategy. Example, one Lux soap free with one box of surf.
(5) Items supplied free as marketing strategy or for gauging the market response. Example, physician samples, bubble gums etc (6) Items meant for export, etc.
3. In para 4 of the circular it was clarified that the wording of Section 4A(1) makes it very clear that it will apply only to such goods...." In relation to which it is required, under the provisions of the Standards of Weights and Measures Act, 1976, or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods...." In other words, if there is no statutory requirement under the provisions of Weights and Measures Act to declare the retail sale price or the packages, Section 4A will not apply. As for example, in respect of bulk sale of ice-cream to hotels/restaurants which are not meant for retail sale as such, the provisions of the Weight and Measures Act will not apply. Chapter V of the Weights and Measures (Packaged Commodity) Rules, 1977 mentions the instances where MRP is not required to be printed on the packages. Thus, in these cases valuation will have to be done under Section 4 of the Act.
4. Attention was also invited to para 3 of the Circular which reads as under:
In respect of telephones falling under Heading 85.17 and notified Under Section 4A it was noticed that the manufacturers also make bulk supplies of telephone instruments to the deptt. of Telecommunication (DOT) and the MTNL, who in turn provide these instruments, on rental basis, to the telephone subscribers. The ownership of the telephone instruments remains with the telephone deptt. and there is therefore no retail sale involved. The manufacturers also sell the instruments in the open market on which MRP is printed. The issue, therefore, was how to value the telephone sets which were sold by the manufacturer in bulk to the telephone deptt. The matter was referred to the Ministry of Law, who have opined that valuation of telephone instruments supplied in bulk to the telephone deptt. will be done as per Section 4 of the C.E. Act, 1944 and the instruments sold in the market, with printed MRP, would be assessed Under Section 4A of the Act. The Ministry has accepted the opinion of the Law Ministry.
5. In view of the above circular, it was stated that their case is fully covered by the above clarification and since the packages sold to M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. were not meant for retail sale, there was no requirement to declare the MRP on the packages neither it was so declared and therefore the provisions of Section 4A were not applicable.
6. Reference was thereafter was invited to the Tribunal's decision in the case of G.S. Enterprises v. CCE, Jaipur where razors were distributed free along with shoe polish without bearing any MRP and it was held that in view of the Board's Circular No. 625/16/2002-CX., dated 28.2.2002, the goods when supplied free with another consumable item as marketing strategy without mentioning MRP on the packets are to be valued under Section 4 of Central Excise Act, 1944 and not under Section 4A of the Act. This decision was followed by the Tribunal in the case of CCE, Ludhiana v. Pepsi Foods Limited where 40 gm Lays potato chips were supplied free along with other goods viz. pepsi of 1.5 litre and it was held that since the packet of lays chips does not contain any MRP and bears the text 'free with 1.5 litre pepsi and not for retail sale'. The goods, were liable to be assessed under Section 4 of the Act and under Section 4A of the Act.
7. The learned Advocate, however, admitted that the contrary view was taken in the case of Nestle India Limited v. CCE and Jayanti Food Processing Pvt. Ltd. v. CCE wherein it was held that once the goods are specified under Section 4A, it is not necessary that there should sale in retail and the assessment will have to be made on the basis of MRP and not on the transaction value under Section 4. He, however, submitted that in the case of Nestle India Limited, Kitkat Chocolate was being supplied along with one bottle of pepsi of 1.5 litre but the price of Kitkat chocolate was also mentioned on the bottle of pepsi, therefore the facts are distinguishable as in their case the price of pesticides is not declared either on the packages of pesticides or package of cotton seed along with which it is supplied free.
8. Reference was also invited to the decision of the Tribunal in the case of BPL Telecom (P) Ltd. v. CCE, Cochin and ITEL Industries Pvt. Ltd. v. CCE, Calcut where telephone instruments supplied in bulk to DOT and MTNL against the contract price and where the ownership remained with DOT/MTNL, etc. and was provided by them to their customers on rental basis was held to be governed by Section 4A of Central Excise Act, 1944. Here also it was submitted that the packages in which the telephones were supplied showed the maximum retail price as per requirement of the Standards of Weights and Measures Act. A view was taken in this case that only exceptions provided under provisions of Standards of Weights and Measures (Packaged Commodities) Rules, 1977 are contained in Rule 34 and since the assessee's case did not fall in any of the exceptions they were liable to be assessed on the basis of MRP under Section 4A(2). The learned Advocate submitted that in their case, the goods were not intended for retail sale and were meant for exclusive use of cotton seed industries who supplied the same to the farmers for better yield and in that sense it can be said that to be servicing the needs of the customers i.e. farmers which is an agricultural industry and therefore they fall in the exception provided under Rule 34(a) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977.
9. Lastly it was submitted that as per Section 4A(4) in case the goods are removed from the place of manufacture, without declaring retail price of such goods on the packages then the retail sale price of such goods is required to be ascertained in the prescribed manner and such price shall be deemed to be retail sale price for the purpose of that section. No rules have been framed so far for determining the retail sale price in such cases and therefore the adjudicating authority could not have adopted the MRP of similar other products. Argument was also made on the limitation on the ground that they had no intention to evade duty and it was their bonafide belief that since the goods are not meant for retail sail they were not covered by the MRP based valuation and that since they were not declaring MRP on their products their case was distinguishable from the Tribunal's decision in the case of Nestle India Limited, etc.
10. The learned SDR, however, submits that the Tribunal has in the case of Nestle India Limited v. CCE, Jayanti Food Processing Pvt. Ltd. v. CCE, BPL Telecom (P) Ltd. v. CCE, Cochin, ITEL Industries Pvt. Ltd. v. CCE, Calicut and CCE, New Delhi v. Ishaan Research Laboratories Pvt. Ltd. taken a consistent view that once the goods are notified under Section 4A(1) they are liable to be assessed on the basis of declared MRP as per Section 4A(2) and under Standards of Weights and Measures Act or the rules made thereunder it is not necessary that the goods should be actually sold in retail and that only exceptions provided are under Rule 34 of Standards of Weights and Measures (Packaged Commodities) Rules, 1977 and once the assessee does not fall under any of the exceptions provided under Rule 34 on the goods are to be assessed on the basis of MRP irrespective of the fact whether MRP is declared on those goods or not. It was submitted that in the case G.S. Enterprises v. CCE, Jaipur , the Tribunal's reliance on the Board's Circular No. 625/16/2002-CX., dated 28.2.2002 was misplaced as the Board nowhere clarified that in case the items are supplied free with another consumer item as marketing strategy, therefore the items are not governed by MRP based assessment. The goods in present case are not meant for servicing industries as M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. do not need pesticides for production or marketing of BT cotton seed. It was argued on limitation that the appellants have no case as in spite of Tribunal's decision in the case of Nestle India Limited holding to the contrary they continued to clear their goods on the basis of transaction value instead of MRP based value.
11. We have considered the submissions. We find that for MRP based assessment under Section 4A(1) there are two criteria, first is that the goods should be specified by the Central Government through Notification in the Official Gazette as being liable to be assessed under Section 4A(2) on the basis of MRP and secondly the goods should be one in relation to which it is required under the provisions of the Standards of Weights and Measures Act, 1976, or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods. We find that the Board's Circular dated 28.2.2002 and various CESTAT's decisions both for and against the appellants accept this principle that the goods should be one in respect of which there is a statutory requirement under the provisions of Standards of Weights and Measures Act to declare the retail sale price on the packages. However, while one set of decisions hold that once the goods are specified by Notification issued under Section 4A(1) of Central Excise Act, 1944 they are governed by MRP based assessment inspective of the fact that whether they are actually sold or intended for sale in retail unless they come under one of the exceptions provided under Rule 34 of Standards of Weights and Measures (Packaged Commodities) Rules, 1977, the other set of decisions holds that once the goods are not meant for retail sale and are sold in bulk, there is no requirement to declare the maximum retail sale price under the provisions of Standards of Weights and Measures Act and accordingly the value to be adopted is the transaction value. We note that the Board has issued a Circular No. 625/16/2002-CX, dated 28.2.2002 wherein they have given examples in respect of ice-cream sold in bulk to be consumed in hotels and restaurants and telephones which are sold in bulk to DOT and MTNL requiring no further sale and has clarified that MRP based assessment under Section 4A will be applicable only to that part of the goods (ice-cream and telephone instruments) which are sold in retail and not which are sold in bulk to hotels/restaurants/DOT/MTNL, etc. This circular has not been withdrawn so far. Though the Tribunal in the case of Nestle India Limited v. CCE, BPL Telecom (P) Ltd. v. CCE, Cochin and ITEL Industries Pvt. Ltd. v. CCE, Calcut has disagreed with the above circular and taken a contrary view. It is well settled law as laid down by the Supreme Court in the case of Paper Products v. CCE 1999 (112) 765 (SC) and CCE. Vadodara v. Dhiren hemicals Industries that the Revenue cannot challenge the position taken in the Circular even though it is open to challenge in the hands of the assessee. Therefore in the present case where the appellants are seeking shelter under the circular issued by the Board, the Revenue cannot argue against its own circular which is binding on it. Following the same, we hold that the pesticides supplied by the appellants in 100 ml pack in bulk to M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. which are not meant for retail sale but for free consumption will have to be assessed under Section 4 of the Act on transaction value and not under Section 4A. The appeal is accordingly allowed on merit and therefore there is no need in going into the limitation aspect.
(Pronounced in courts on 23.2.07)