Whether duty liability of “Combination packs” determined on the basis of individual MRP of goods contained?

Case:- VIDEOCON INTERNATIONAL LTD. VERSUS COMMISSIONER OF C. EX., NOIDA

Citation:- 2013 (295) E.L.T. 624 (Tri.- Del.)

Brief facts:-The facts leading to this appeal are, in brief, as under:-

The appellant manufactures various consumer durables like viz, different models of colour T.V. sets, VCDs, washing machines, refrigerators and water purifiers. All these items during the period of dispute i.e. during December, 2002 to May, 2003 and Feb. 2003 to Jan. 2004 were notified under Section 4A of the Central Excise Act, 1944 for determination of their assessable value on the basis of their MRP and accordingly the assessable value of these items, when cleared in packaged form for retail sale, were required to be determined on the basis of their MRP declared on the packages i.e. MRP minus abatement, notified by the Central Government under by notification issued under Section 4A. During December, 2002 to May, 2003 the appellant cleared a refrigerators of model 5-166, NE 5167 and S 170 and washing machines of models 60 T, 36 TDC and 45 T as "combination packs" under a combined MW' which was less than the sum of their individual MRPs. During Feb. 03 to Jan. 04 they cleared "combination pack" of certain models of refrigerators with washing machines of certain models, "combination pack" of certain models of refrigerators with water purifiers and "combination pack" of certain models of colour T.V. sets with VCD players under combined MW' and each of MRP of the 'combination pack' was less than the sum of the individual MRPs of the items in the combination pack. These "combination packs" consisting of items individually packed were not further packed in a bigger package and according to the Appellant were delivered to the customers together tied by a ribbon. The appellant while clearing the combination packs of refrigerators with washing machines, refrigerators with water purifier and TV with VCDs, instead of paying duty separately on each item of the combination packs on the basis of its MRP, paid duty on the assessable value determined on the basis of combined MRP of the combo pack. The department being of the view that in case of combination pack of dissimilar items, each notified under Section 4A, the duty liability has to be discharged separately on each items and accordingly, the appellant have short paid the duty, issued two show cause notices for demand of allegedly short paid duty amounting to Rs. 4,55274/- and Rs. 2,99,231/- along with interest thereon under Section 11AB and also for imposition of penalty on the appellant company under Section 11AC of the Central Excise Act, 1944.

The first show cause notice was for demand of allegedly short paid duty in respect of the clearances of the combination pack of refrigerator with washing machine and the second show cause notice was for demand of allegedly short paid duty in respect of the combination packs of refrigerator with washing machines, refrigerator with water purifier and CTVs with VCD players.

Both the show cause notices were adjudicated by the jurisdictional Dy. Commissioner by a common order-in-original dated 30-11-2003 by which the above mentioned duty demands were confirmed along with interest and besides this, penalties of equal amounts were imposed on the appellant company under Section 11AC of the Central Excise Act, 1944.

On appeals being filed before the Commissioner (Appeals), the same was dismissed vide order-in-appeal dated 22-1-2005. The Commissioner (Appeals) while dismissing the appeal observed that since the notification issued under Section 4A does not specify the abatement for combination pack, in the scheme of the notification issued under Section 4A, it is not possible to assess combination pack of dissimilar items under MRP based value procedure. The Commissioner (Appeals) relying upon the Tribunal's judgment in the case of C.S. Enterprises reported in 2002 (144) E.L.T. 387 which has been affirmed by the Apex Court vide judgment reported in 2003 (151) E.L.T. A297, held that in this case duty in respect of the clearances of combination packs should have been paid on the basis of MRP of each individual item. Against this order of the Commissioner (Appeals), this appeal has been filed.

Appellant’s contention:-The appellant pleaded that during the period of dispute, Rule 15 of the Standards of Weight & Measures (Packaged Commodity) Rules, 1977 (SWM) Rules provided for declaration of MRPs of combination of the dissimilar items, provided the individual pieces contained in the packaged do not carry retail sale price and carry a declaration that the same are not intended for retail sale as such, that in this case, in each combination pack the individual items carried a declaration that the Same are not for retail sale as such, that when MRP has been declared of a combination pack, that MRP would the basis for determining assessable value of the combination pack and not the MRP of the individual item in the combination pack, that the issue involved in this case stands decided in the appellant's favour by the judgment of the Tribunal in the case of Millenium Appliances India Ltd. reported in 2009 (248) E.L.T. 713 (Tribunal-Bang.), that the same view has been taken by the Tribunal in the case of ICON Household Products reported in 2007 (216) ELT. 579 (Tribunal-Chennai), that this view of the Tribunal is in accordance with the Board's Circular No. 673/64/2002/CX., dated 28-10-2002, according to which in a multi-piece package i.e. a package of containing two or more of the items of the same kind in which the individual items, though individually packed have no MRP on them or the MRP is scored out, then the MRP declared on the multi-piece package would be taken for the purpose of determination of assessable value under Section 4A, that the Tribunal in the above mentioned judgments has held that the principle laid down in the above mentioned circular of the Board in respect of multi-piece package would apply in the case of combination package also, as intention of the Board is not to discourage the trade from offering various schemes to promote their products and that in view of this, the impugned order is not sustainable.

Respondent’s contention:- The respondent defended the impugned order by reiterating the findings of the Commissioner (Appeals) in it and pleaded that the Board's Circular dated 28-10-2002 is in respect of multi-piece package i.e. the packages containing two or more of the items of the same kind and the same is not applicable in respect of combination pack, which are the package of its dissimilar items, that the Commissioner (Appeals) has rightly observed that the scheme of valuation under Section 4A cannot be applied in case of combination pack of dissimilar items, where the abatements notified for different items may be different and the rate of duty applicable for different items may be different, and that in the facts of the case, it is the judgment of the Tribunal in the case of G.S. Enterprises (supra) which has been upheld by the Apex Court, which would be applicable. He, therefore, pleaded that there is no infirmity in the impugned order.

Reasoning of judgment:- Having considered the submissions from both the sides and perused the records, the undisputed facts are that all the items which are being cleared in combination pack are notified under Section 4A for assessment of the duty on the basis of their MRPs. There is also no dispute that each of the items in the combination pack was individually packed and while the individual items of the combination pack were not carrying individual MRP on them, there was MRP for the combination. There is also no dispute that the combination packs were not further packed in a bigger pack and according to the Appellant were being delivered together tied by a ribbon. The point of dispute is that as to whether in respect of clearances of such "combination packs", duty liability is to be determined in respect of each item in the combination on the basis of its individual MRP or duty is to be calculated by treating the combination as one item on the basis of its combined MRP.

Under Section 3(1) read with Section 4A of the Central Excise Act, 1944, central excise duty is payable on the goods manufactured in India at the rates specified in the schedule to the Central Excise Tariff Act, 1985 read with exemption notification, if any issued, under Section 5A of the Central Excise Act. When the rate of duty is ad valorem, the value is taken as –

(a) tariff value if the tariff value has been fixed under Section 3(2) of the Central Excise Act, 1944 in respect of that item,

(b) MRP minus abatement, if the items are sold in packaged form for retail sale and in terms of the provisions of the Standard of Weights and Measures Act, 1976 (SWM Act) and the Rules made thereunder or any other law in force, the maximum retail sale price is required to be declared on the their packages and the items are also notified by notification issued under Section .1A of the Central Excise Act for determination of assessable value on the basis of MRP and

(c) On the transaction value determined under Section 4 in other cases, not covered by Section 3(2) or Section 4A. The scheme of assessment of duty under Section 4A is that the Central Government in respect of the items notified under this Section, has also by notification issued under this Section, notified the percentage of the abatement to be deducted from the MRP and the assessable value of the item is the MRP minus abatement. The quantum of abatement may be different for different items.

In terms of the provisions of the Central Excise Rules, the duty is payable on any excisable goods at the time of their clearance from the factory or bonded warehouse and the same is payable irrespective of whether the goods are cleared individually or in combination with other items being manufactured or are cleared on sale or are cleared for free distribution for the purpose of sale promotion. Thus, when a manufacturer is manufacturing two excisable goods A and B, the duty would be chargeable at the time of their clearance, irrespective of whether these items are cleared individually and thereafter are sold as combination pack or are cleared from the factory in a combination pack and since the rate of duty and assessable value of different items may be different, the duty payable would have to be determined in respect of each item separately. A combination pack of dissimilar items which are sold as a combination as a marketing strategy, have no separate identity in central excise law. In their view, therefore, if a manufacturer manufactures two products A and B , both notified under Section 4A and in respect of these products, there are separate MRP and the same are cleared as a combination pack, the duty has to be determined in respect of each item separately on the basis of its individual MRP and it would not be correct to adopt the MRP of the combination pack, as the quantum of abatement notified for each item may be different and the rate of duty applicable for each item in the combination pack may be different. The judgment of the Tribunal in the case of Milleninm Appliances India Ltd. (supra) has not considered these aspects and has gone only by the Board's Circular No. 673/64/2002-CX., dated. 28-10-2002, which in their view, is applicable only in respect of the multi-piece package- i.e. package containing two or more consumer items of the same kind and this circular, in their view, cannot be applied to a combination pack. Though combination packs are recognized in the SWM Rules, they have no recognition in the Central Excise Law. They are of the view that it is the judgment of the Tribunal in the case of G.S. Enterprises (supra) which has been affirmed by the Apex Court, which is applicable to the facts of this case and accordingly, the duty payable in respect of the clearances of the combination pack of dissimilar item, both of which notified under Section 4A have to be determined on the basis of their individual MRPs and not on the basis of MRP of the combination pack, which in their view, has no relevance for assessment of duty on the goods being sold as a combination pack.

There is one more reason as to why the combined MRP of the combo pack cannot be the basis for determining the assessable value under Section 4A. Rule 15 of the SWM Rules refers to the "combination pack" of dissimilar items which are actually packed in a bigger pack on which MRP is required to be declared. In this case, admittedly the combination packs of Refrigerator with water purifiers. Refrigerators with washing machines or CTVs with VCD players are not actually packed in a bigger package. The "combination packs" in this case have to be treated as combination sales as a marketing strategy under which on purchase of two items refrigerator with washing machines, refrigerator with water purifier or CTVs with VCD players, the price charged is less than their individual MRP. Such combination sales, in their view, cannot be treated as "combination pack" or packaged commodity as understood in SVM Rules and have to be treated as sale of individually packed items at a combined price.

Hence, In view of the above discussion, they do not find any infirmity in the impugned order. The appeal is dismissed.

Decision:-Appeal dismissed.

Comment:- The analogy drawn from this case is that if dissimilar items that are assessable on the MRP based valuation are sold in combination wherein the combination pack MRP is lower than the sum total of individual MRPs of the items, then the excise duty is payable on the basis of MRP applicable to individual items. The reason for the same being that as the products are not similar, different rate of abatement may be applicable to them.

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