Valuation of Pakages of goods

Case: - LARSEN & TURBO LIMITED VERSUS UNION OF INDIA

Citation: - 2012 (25) E.L.T. 153 (Bom.)

Issue:- MRP Based Valuation of goods – Declaration on Package that goods not meant for individual consumer – cannot be held that package not retail pre-package to be consumed by ultimate consumer under deleted Rule 34(a) of Standards of Weights and Measures (packaged Commodities) Rules, 1977.

Industrial and institutional consumers will be same for the purpose of proviso to Rule 2(p) and explanation to Rule 2A of Standards of Weights and Measures (packaged Commodities) Rules, 1977.

Brief Facts:- The Officers from the Directorate General of Central Excise Intelligence, Mumbai Zonal Unit, seized goods (switch gear) from M/s. Total Logistics India Private Limited, a stockist of the Petitioners. These goods have been kept in safe custody of M/s. Total Logistics India Private Limited under a Supratnama (an undertaking of safe custody of seized goods).

The Petitioners herein aggrieved by the seizure, preferred a petition before this Court being Writ Petition No. 394 of 2007. Minutes of order came to be tendered and the petition came to be disposed off by order dated 10-3-2007. In terms of the Minutes of order, the petitioners were to make an application to respondent No. 6 who considering the provisions of the Standards of Weights & Measures Act, hereto referred to as the "Act" and the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, hereto referred to as the "Rules" framed thereunder, was to decide whether the provisions of the said Act and rules are applicable to the seized goods.

Circular No. 625/16/2002-CX., dated 28th February, 2002 clarified on the issue regarding the mode of valuation adopted in respect of goods notified under Section 4A of the CEA which were partly sold at the retail price printed on the packages and partly sold without printing the retail price on the packages. The Circular noted that the basic issue is to determine the circumstances in which Section 4A can be applied. It was therefore, clarified that where there are doubts as to whether the assessee is exempted from declaring the retail price or not, clarification may be obtained from the concerned department of the State Government.

Respondent No. 6-Authority by order dated 6th July, 2007 held that the seized goods packages under reference are indeed intended for retail sale and therefore, have to comply with the requirement of the provisions of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977. The arguments advanced before respondent No. 6 were that the packages were only for the sake of protection during transit and storage of the goods and would not fall within the definition of "Pre-packed Commodity" was rejected. Another contention raised was that the goods manufactured were meant for industrial consumer. A finding was recorded that the said items need not be used by industries only but can also be used in shopping malls, large residential complexes, commercial buildings etc. The plea made by the petitioners that the goods are not sold by weight, measure or number and are sold by the single piece only and as such the provisions of Act and Rules do not apply, was rejected by holding that it was sold by number. It was also contended that the goods are not meant to be sold to retail consumers, was also rejected as it was held that it was meant for sale to customers only.

Hence, Petitioners are before the High Court.

Petitioner’s Contention:- Petitioner submitted that the switchgear products manufactured by the petitioners are not a "commodity in the packaged form" within the meaning of Act and the Rules. Packaging is done only for the sake of convenience and for safe transportation and protection during storage and handling. The nature of the switchgear products manufactured by the petitioners is that they are not required to be packed before they can be sold and goods are not pre-packed commodity as they do not have pre-determined value at the time when they are placed in the package. Reliance is placed on the judgment of this Court and other High Courts. Though the definition of "pre-packed commodity" has been substituted effective from 14-1-2007 it does not in anyway alter the law as the amended definition of pre-packed commodity" is the same as in the un-amended definition. Amended definition of pre-packed commodity merely seeks to include the explanation contained in the unamended definition in the main part of the definition. Both unamended and amended definitions of pre-packed commodity can only be covered by the definition if the package contains the commodity having predetermined value. The switch gear products manufactured by the petitioners do not have a pre-determined value. Pre-determined value in the definition refers to the quantity viz. 100 ml, 10 Nos. or 100 gms. The value referred to in the definition in regard to the quantity of commodity contained in the package either by weight, measure or number.

Placing reliance on the judgment of this Court in Titan Industries Ltd. v. U.O.I. reported in AIR 2006 Bom. 336, it is submitted that there is no material change in the definition of pre-packed commodity both, before and after the amendment. It is next submitted that Act applies only to a commodity in the packaged forms sold with reference to the weight, measures and or number/s. The switch gear products manufactured by the petitioners are not sold by Weights, Measures or numbers. Respondent No. 6 has misread the particulars provided by the petitioners on the package for ease of reference to mean that the commodity submitted that the switchgear products manufactured by the petitioners are sold with reference to combination of the technical parameters such as short circuit breaking capacity, application duty, operating characteristics (depicted as graph), ampere ratings, operating voltage and so on as well as the characteristics of equipment to be protected and not by weight, measure or number. Pre-packed commodity as set out provides that even when packages are open and commodity can be taken out for display or examination the provisions of the rules are attracted and are applicable. Considering the basic function of the goods it is manifest that items need not be used by industries only, but can also be used by shopping malls, large residential complexes, commercial buildings etc. The object of the act is to protect the interest of consumer. The petitioners and their stockist if they are able to establish that any particular sale is to an industrial consumer as described in the declaration, then the product transaction will be assessed under Section 4 of the said Act and not under Section 4A. "Quantity" as defined in Rules 2(n) includes number and one also is a number. It is submitted that good are not goods to which Chapter 3 of Rules would apply therefore, it is submitted that on this count also the impugned order of respondent no. 6 has to be set aside

Respondent’s Contention:- Respondents submits that the petitioners' goods are available for sale in retail through their stockist is borne out from the fact that the officers were able to make a purchase of the petitioners' goods from one of its stockist named M/s. Bhavdeep Enterprise. The purpose and object of the act is to protect the interest of consumer. The goods are for consumption of individual or group of individuals. That being the case, it is immaterial as to whether it is for consumption of the individual purchasing the same as long as retail sale is to any other customer. Insofar as Section 2A is concerned all that it says is that Chapter 2 would not apply to those products and to the consumer as set out in Rule 2A. That would not mean for the purpose of Rule 3 the definition of institutional consumer or industrial consumer has not to be looked into while considering the other provisions of the chapter which speak about retail sale and other definitions. The definitions of 2(o) "retail dealer"; 2(p) "retail package"; 2(q) "retail sale"; 2(r) "retail sale price" were referred.

Reasoning of Judgment:- The High Court noted that the definition of retail sale, is sale for consumption by individual or group of individuals or any other consumer. Retail package is defined to mean packages which are intended for retail sale to the ultimate consumer for the purpose of consumption of the commodity contained therein. The object therefore appears to be disclosure of the sale price to a customer for consumption, whether such consumer is individual, group of individual but excludes industrial or institutional consumer. An industrial consumer who purchases a retail package by retail sale would be normally a consumer in the absence of the proviso.

The question is who are the industrial or institutional consumers under the proviso to Rule 2(p) who are excluded from the definition of ultimate consumer. Can there be a distinction between a consumer who directly purchases the product and consumes the product or a consumer who purchases the product say for individual use or an industrial consumer for making another product, say a switch board and who does not fall within the explanation to Rule 2A namely a purchaser not purchasing directly from the manufacturer or packer. Are such consumers excluded from the expression ultimate consumer as set out in the proviso to Rule 2(p) or other consumer as set out in Rule 2(q) or for that matter consumer under Rule 2(0).

It was noted that the issue that the package is a pre-packed commodity in no longer res integra after Whirlpool (supra). Therefore, Chapter II would apply only to pre-packed packages. Rule 2A excludes certain consumers like institutional and industrial as set out therein and as already explained. The petitioners however, want this Court to accept the submission that apart from industrial and institutional consumers as excluded by explanation to Rule 2A, there are also other consumers both industrial or institutional who if they buy retail packages from the retail dealer as in the instant case from their stockist, if they are not ultimate consumers, to them also Chapter 3 would not apply. Such an interpretation, in our opinion, will defeat the basic objective of the Act and the Rules. The object of the Act and the rules is to protect the consumer inasmuch as the consumer must know the price of the retail package, when the consumer makes the purchase from the retail dealer by retail sale. A law for the protection of a consumer must be construed for the benefit of the consumer unless the interpretation would defeat the object of the act or the rules or result in absurdity.

Secondly where was the need for the rule making authority to explain in Rule 2A as to who are the institutional and industrial consumers to whom Chapter II would not apply, if the proviso to Rule 2(p) does not include these institutional or industrial consumers. Rule 2A(b) specifically provides the chapter shall not apply to pre-packed commodities meant for industrial and institutional consumers. Both Rule 2A and Rule 3 are part of Chapter II.

Can the explanation of industrial or institutional consumer be restricted only to Rule 2A and would not be applicable while construing Rule 3 to industrial or institutional consumers contemplated by proviso to Rule 2(p). Firstly when the rules use a term or expression normally unless contrary is provided they should be assigned the same meaning. Secondly a perusal of the definition clauses would not support the contention sought to be given by the petitioners. What runs through all these definitions is the ultimate consumer. Proviso to Rule 2(p) excludes only industrial or institutional consumers. Industrial or institutional consumer is not defined but explained only in Rule 2A. Rule 2A excludes packages of commodities containing quantity of more than 25kg or 25 litre excluding cement and fertilizer sold in bags of up to 50kgs; and packaged commodities meant for industrial consumers or institutional consumers who purchases directly from manufacturers or packers. If the contentions of the petitioner are accepted then it would have to be read that Chapter II speaks of two kinds of industrial or institutional consumers. One covered by the explanation to Rule 2A to whom the chapter would not apply and the second category covered by the proviso to Rule 2(p) to whom also the chapter would not apply. Such a construction would defeat Rule 2A(b). The explanation only excludes a class of consumers who in the absence of the explanation or Rule 2A would be consumers. The industrial or institutional consumers for the purpose of Rule 2(p), should be the same as in the explanation to Rule 2A. If this construction is not accepted it would amount to saying that although to consumers described in Rule 2A, Chapter II will not apply, yet also there are still other industrial or institutional consumers to whom the chapter will not apply. If that was the intention of the rule making authority, it could have defined industrial or institutional consumers independently and not provided an explanation to Rule 2A for the purpose of that chapter. Bad phraseology should not defeat the intent of the rule making authority. Rule 2A(a) also excludes certain packages by weight and measures from the operation of Rule 3. The same packages if sold in quantity lesser in weight or measure if the other provision of Rule 3 are applicable then the chapter applies. Secondly Rule 2A(b) excludes packaged commodities meant for industrial consumers or institutional consumers as they are directly sold to such consumers who buy packaged commodities for their institutional or industrial uses. These are also consumers. Therefore, it is only to such institutional and industrial consumers to whom the provisions of Chapter-II would not apply. To all other institutional or industrial consumers of a prepacked commodity sold as a retail package the chapter would apply. The explanation of institutional and industrial consumer in Rule 2A must also be read into the proviso to Rule 2(p), for the purpose of Chapter II.

While construing Rule 3, only purchasers of packages who are institutional or industrial consumer as explained under Rule 2A would be excluded. Every other retail sale by a retail dealer of a pre-packed commodity would be covered. If the packaged commodity purchased cannot be directly installed by the Co-operative Housing Society on the ground that such user is prohibited by the Electricity Rules that however, would only mean that a person qualified under the rules can install the same for the consumer who may have purchased the package. There is therefore, no prohibition on such society purchasing the product and installing it through a licensed person. They are the ultimate consumers. Similarly another consumer who is qualified may purchase the commodity and install the commodity directly. Such a consumer will not cease to be a consumer because the retail package is not consumed by such purchaser but supplied to some other consumer. The act of purchase and use also makes such purchaser the ultimate consumer. Yet another person may purchase the retail package and use it in combination with other goods, as an illustration to make a switch board. Such a consumer cannot be said not to be the ultimate consumer. Such a consumer also consumes the commodity. Such consumer may market or sell it as another commodity thereby loosing its original distinct character. All such consumers whether they be institutional or industrial will also be covered by Chapter II. Even the ordinary dictionary meaning makes such a purchaser a 'consumer'. We therefore, hold that while construing Rule 3, who are excluded are only the institutional or industrial consumers as explained in Rule 2A and that the industrial or institutional consumers in terms of the proviso to Rule 2(p) for the purpose of Chapter II are the same.

The issue whether packages seized before Rule 34(c) was omitted w.e.f. 13-1-2007 and which contains the declaration and whether Section 4 or 4A of Central Excise Act applies would be relevant before 13-1-2007. Even otherwise we have explained the scope of the declaration considering the judgment in LT.C. (Supra). If the person who purchases the prepacked commodity not directly from the manufacturer or packers, they are consumers and the declaration will be of no effect. The Bombay High Court find no infirmity in the order dated 6th July 2007 nor can the declaration as prayed for can be granted. Consequently, rule discharged.

Decision:- Petition dismissed.

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