Assessment under Section 4A not possible for sales to institutional consumers.

PJ/CASE LAW/2014-15/2493

Case:-M/s BAJAJ FOOD PRODUCTS (P) LTDVs COMMISSIONER OF CENTRAL EXCISE, ROHTAK

Citation:-2014-TIOL-2580-CESTAT-DEL

Brief Facts:- These appeals are filed against Order in Original No.10/Commissioner/RP/2005 dated 22.9.2005 in terms of which demand of Rs.75,65,626/- for the period April 2002 to February 2003 was confirmed along with interest and equal mandatory penalty in respect of M/s Bajaj Food Products (P) Ltd. In addition personal penalty of Rs.5 lakhs each was imposed on Shri Arvind Maheshwari, Director and Shri A.D. Bajaj, Managing Director.

The appellants were manufacturing and clearing biscuits to Municipal Corporation of Delhi on contract basis as well as to other independent buyers. The clearances/supplies of biscuits made to MCD under the National Programme of Nutritional Support of Primary Education were assessed by them under Section 4A of the Central Excise Act, 1944 and duty was paid thereon after claiming abatement of 40% up to 20.2.2003 (and 35% thereafter), on the so called MRP printed thereon.

The adjudicating authority held that the supplies of biscuits to MCD did not qualify to be called retail sale, MRP was not required to be printed thereon, the price printed on packages was not (true) MRP and the impugned goods were required to be assessed not under Section 4A but under Section 4 ibid. The adjudicating authority also held the appellants guilty of suppression of facts and as it was done with the knowledge and connivance of Shri A.D. Bajaj and Shri Arvind Maheshwari, penalty was also imposed on them.

Appellant contentions:-The appellants have contended that the clearances made by them to MCD fell under the scope of Section 4A for assessment as MRP was printed on those packages. They stated that the two judgements in the case of Australian Foods Ltd. Vs. CCE, Chennai 2010 (254) ELT 392 (Mad.) and in the case of CCE, Mysore Vs. Nestle India Ltd. 2009 (248) ELT 37 (Tri.Bang.) are not applicable in their case because in both these cases the supplies of goods were made to institutional customers and no MRP was marked thereon. They referred to the judgement of the Supreme Court in Jayanti Foods Processing Pvt. Ltd. 2007 (215) ELT 327 (SC) to press the point that in a situation when MRP is printed the assessment is to be done under Section 4A. They stated that MCD is a local body and that their case is also covered by Tribunal's judgement in the case of P.G. Electro Plast Ltd. Vs. CCE, Noida 2014 (307) ELT 787 wherein it was held that the television sets sold to M/s ELCOT for free distribution were liable to assessment under Section 4A. Regarding the fact that the MRP on the packages cleared for MCD was uniformly declared to be Rs. 2/-though the packages were of 63 gms., 71 gms., and 100 gms, they said that the price was fixed at Rs. 2 per unit pack and the only variation was with regard to the quality of the biscuits and that the price pertained to different periods. They also contended that there was no suppression on their part and they have been filing their periodical returns and the issue is also interpretational inasmuch as it requires interpretation of whether the MRP is required to be printed on the impugned goods. They also referred to the clarification dated 4.9.2003 issued by Legal Metrology department to the effect that such packages sold to MCD require declaration of MRP.

Respondent Contentions:- The ld. AR stated that the case is squarely covered by the judgements of CESTAT in the cases of Australian Food Ltd.(supra) and Nestle India Ltd.(supra). He stated that the price marked on the packages was not Retail Sale Price and the appellants had been receiving wheat free of cost from the MCD and the letter dated 4.9.2003 of the Director of Legal Metrology, New Delhi is with reference to appellants' letter dated 12.8.2003 regarding a general query as to whether supply of biscuits to MCD would attract provisions of SWM (PC), Rules without mentioning any details regarding the nature of contract under which such supplies were made.

Reasoning of Judgment:- We have considered the submissions of both sides. It is an admitted fact that the impugned biscuits were supplied to MCD under the National Programme of Nutritional Support of Primary Education under a contract entered into by the appellants with MCD. It is also an admitted fact that on the packages, it was clearly mentioned that the impugned goods were "for MCD supply." While biscuits are clearly covered for the purpose of assessment under Section 4A ibid, in terms of Schedule 2 of SWM (PC) Rules, 1977, the quantity in which the biscuits are required to be packed are specified as 25 gms., 50 gms., 75gms., 100gms., 150 gms, 200 gms, and 300 gms. The impugned supplies to MCD were made by the appellants in the packing of 63 gms., 71 gms., and 100 gms. From this, it is obvious that at least the supplies made to MCD in packages of 63gms. and 71gms. were obviously not in conformity with the requirements of/under the PC Rules. In the case of Nestle India Ltd.(supra) where coffee was supplied to defence services and ITBP with clear markings "for defence services only" and "for ITBP" respectively it was held that the valuation was to be done under Section 4 and not under Section 4A. In the case of Australian Foods Ltd. (supra), it was, inter alia, held that supplies to institutional customers was to be assessed under Section 4 as against Section 4A. The Madras High Court in that case (i.e M/s. Australian Foods Ltd. ) observed that:

"The products are being supplied by the assessee to their institutional customers in bulk based on specific contracts entered into with them, printing on them that they are specifically packed for such institutional customers and not meant for retail sale, and thus are exempted under Rule 34(a) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, the assessee cannot say that he is obliged under the provisions of the Standards of Weights and Measures Act to declare the
retail sale price on the package. A precondition to claim benefits under Section 4A of the Act."

The appellants have contended that these two judgements do not cover their case because the MRP was not printed on the goods covered under these two judgements while in their case the MRP was printed. It needs to be pointed out that the circumstances obtaining in respect of supplies covered under the said two judgments are similar to the ones obtaining in the present case. In terms of explanation 2 to Rule 2A (b) of the SWM (PC) Rules "institutional consumer" means those consumers who buy packaged commodities directly from manufacturers/packers for service industry like transportation including airways, railways or any other similar service industry. It is clear from MCD Act that the MCD provides various services to public and even in this case it was performing its function by distributing the said biscuits free under a given scheme for primary education and thus the sales to MCD clearly qualified to be sales to institutional buyer and therefore no MRP was required to be printed on such goods as the provisions of Chapter 2 of the SWM (PC) Rules do not apply to packaged commodity sold to institutional buyers. Madras High Court in the case of Australian Foods Ltd. categorically observed that such supplies were exempted under Rule 34(a) of Standards of Weights and Measures (Packaged Commodities Rules 1977). Thus, their claim that so called MRP was printed on their packages is of no consequence when it was not required to be printed. However as this point is harped upon by the appellants, we deem it fit to discuss and analyse it further. The Retail Sale Price is defined under the SWM (PC) Rules 1977 as under:

"Retail sale price" means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer and where such price is mentioned on the package, there shall be printed on the packages the words maximum or Max, retail prices..............inclusive of all taxes or in the form MRP Rs.....inclusive of all taxes.

Explanation for the purpose of the clause "maximum price" in relation to any commodity in packaged form shall include all taxes local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like, as the case may be ".

As has been brought out earlier, the MRP printed on all the packages supplied by the appellants was uniformly Rs.2/- regardless of whether the weight of each package was 61 gms., 71 gms., or 100 gms. The appellants have conceded that this was as per the contract price agreed upon with MCD. Further as mentioned earlier, packages of 61gms. and 71gms. are not in accordance with the requirements of the SWM (PC) Rules and the contract price itself was fixed keeping in view that MCD supplied wheat (for making biscuits) free of cost. This obviously means that the so called MRP was legally not "MRP" in terms of SWM (PC) Rules; it was just a figure mentioned on the packages in the name of MRP. Further supplies to MCD were not even a sale at arms length because as per the contract under which the goods were supplied the MCD provided them free wheat. It is thus evident from the definition of retail sale price quoted earlier that the price at which MCD bought the impugned goods cannot be called MRP because that price was negotiated taking into account the fact that the appellants were given free supply of wheat. So, it is beyond doubt that what was mentioned on those packages was not MRP. Thus ground on which the appellants attempted to distinguish their case from the cases of Australian Foods Ltd.(supra) and Nestle India Ltd. is not sustainable.

The appellants have referred to the case of Jayanti Foods Pvt. Ltd.in their support. The facts obtaining in that case were entirely different. The goods involved in that case carried proper MRP as per the requirements of the SWM (PC) Rules. Similar was the situation in the case of P.G. Electro Plast Ltd. cited by them in their favour. The letter dated 4.9.2003 from the Metrology department is not relevant because that letter was written by Metrology department in response to their general query in which they had not stated the full facts including the fact of free supply of wheat by MCD. In any case it has already been demonstrated and also supported by the High Court decision in case of Australian Foods Ltd.(supra) that MRP was not required to be printed on the impugned goods and also that the price printed by the appellants was not MRP.

From the foregoing there remains no doubt that the biscuits supplied to MCD are not eligible for assessment in terms of Section 4A and consequently the demand of differential duty is clearly sustainable. As regards the allegation of suppression of facts, it is evident that they had nowhere declared that they were getting free supply of wheat from MCD and in spite of being fully aware of this fact, they deliberately and misleadingly claimed that Rs.2 printed on each of the packages was the correct MRP and that too for all packages ranging in weight from 61 gms. to 71 gms to 100 gms each. This shows that they were just printing a price in the name of MRP for the sake of making a claim for assessment under Section 4A and thereby evade duty by hoodwinking Revenue. Thus the suppression of facts and intent to evade duty are more than evident in this case. Both Shri Bajaj and Shri Maheshwari by virtue of their position knew of and allowed this modus operandi and thus abetted the evasion of duty which made the impugned goods liable to confiscation. In the circumstances mens rea on the part of the appellants is clearly evident making them liable to penalties adjudged by the adjudicating authority.

In the light of foregoing, we do not find any merit in the appeals. Accordingly the appeals are dismissed and the impugned order upheld.

Decision:-Appeals dismissed.

Comment:- The essence of the case is that the provisions of section 4A regarding MRP based assessment are not applicable for sales to institutional consumers. In terms of explanation 2 to Rule 2A (b) of the SWM (PC) Rules, institutional consumer means those consumers who buy packaged commodities directly from manufacturers/packers for service industry like transportation including airways, railways or any other similar service industry. Therefore, supply of biscuits to MCD for free distribution for the purposes of primary education were covered by the defination of institutional consumer. Therefore, no MRP was required to be printed on such goods as the provisions of Chapter 2 of the SWM (PC) Rules do not apply to packaged commodity sold to institutional buyers. Consequently, the assessment was to be done under section 4 rather than section 4A of the Central Excise Act, 1944.

Prepared By: Meet Jain

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PJ/CASE LAW/2014-15/2493

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