Whether MRP valuation is dependant on nature of sale?

Case: H & R JOHNSON (INDIA) LTD. VERSUS COMMISSIONER OF C. EX., RAIGAD

Citation:2014(306) E.L.T 645 (TRI.-MUMBAI)

Brief Facts:The appeals are directed against Order-in-Original No. 06-08/AT(06-08)COMMR/RGD/12-13, dated 29-8-2012 passed by the Commissioner of Central Excise, Raigad Commissionerate.
Vide the impugned order the learned adjudicating authority has confirmed a duty demand of Rs. 2,78,22,938/- against the appellant, M/s. H & R Johnson (India) Ltd. in respect of the clearances of tiles made by them to persons other than the dealers, during the period from 17-1-2007 to December, 2011. He has also confirmed interest on the duty demand and imposed equivalent amount of penalty. Aggrieved of the same the appellant is before Tribunal.

Appellant Contentions:The learned counsel for the appellant submits that the appellant is a manufacturer of ceramic tiles falling under Chapter 69 of the First Schedule of the Central Excise Tariff Act, 1985. These tiles have been notified under Section 4A of the Central Excise Act, 1944 and the appellant is discharging duty on these tiles as per the provisions of Section 4A of the said Act. The case of the Revenue is that the ceramic tiles are cleared to institutional buyers as well as industrial consumers such as, builders, real estate developers, etc., and in respect of sales made to such institutional/industrial consumers, there is no statutory requirement of declaring/affixing the MRP on the packages of the goods and, therefore, the provisions of Section 4A of the Central Excise Act are not attracted and the duty liability needs to be determined in terms of the transaction value under Section 4 of the Central Excise Act. The learned counsel for the appellant submits that the appellant manufactures tiles of various designs and sizes and packs the tiles in standard packages, on which MRP is declared. These tiles are sold through their own depots/dealers to the ultimate consumers. Sometimes, they receive orders from builders/real estate developers for supply of tiles in bulk. The tiles which are already packed on which MRP is declared is cleared to these buyers. There is no difference between the tiles sold to these buyers vis-a-vis the tiles sold to others and the packages in which the tiles are sold to the so-called institutional buyers are the same as those sold to the others. On the packages, there is also no declaration to the effect that the ‘tiles are meant for institutional/industrial consumers or for any particular service industry and the tiles are not meant for retail sale’. In these circumstances, it is the contention of the appellant that the discharge of excise duty liability on the basis of MRP declared on the packages of tiles is correct in law.
The appellant submits that they had also referred the matter to the Legal Metrology authorities in Maharashtra, Karnataka and Gujarat and they had obtained clarifications that the provisions of Legal Metrology (Packaged Commodities) Rules, 2011 regarding mandatory declarations on retail packages are not applicable to the packages meant and marked as industrial/institutional consumers and if the packages are not marked as such, they will be treated as packages for retail sale. It has been further clarified that by the said authorities that if exemption from declaration of MRP is sought, the packages should be further marked as “not meant for retail sale”. In the packages in which the tiles have been supplied, the appellant has not made any declaration that the packages are not meant for retail sale. Therefore, in terms of the clarification given by the Legal Metrology Department, which is the competent department to enforce the provisions of Legal Metrology (Packaged Commodities) Rules, 2011, the appellants are required to declare the MRP on the packages supplied to builders/real estate developers and, therefore, the discharge of excise duty liability under Section 4A is correct in law.
The learned counsel further submits that the builders and developers further resell these goods when they transfer the building/flat to the ultimate buyers and on the works contracts executed by them, they have to discharge sales/VAT liability on the sale price of the various materials used in the construction activity. Therefore, it cannot be said that the supplies made to the real estate developers/builders are not for retail sale. The learned counsel further argues that from the purchase orders placed by the buyers of these goods on the appellant, it can be seen that the goods have to be supplied in retail packages; therefore, even as per the contract entered into with the buyers, the goods are meant for retail sale and hence the impugned demands are not sustainable in law.
The learned counsel places reliance on the decision of the Hon’ble Apex Court in the case of Jayanti Food Processing (P) Ltd. v. Commissioner of Central Excise, Rajasthan - 2007 (215) E.L.T. 327 (S.C.) wherein it was held :
“sub-section (1) of Section 4A was linked with the packages of the goods in respect of which the retail sale price was required to be printed under SWM Act and the Rules made thereunder or any other law. Sub-section (2) then provides that such specified goods where they are excisable goods would be valued not on any other basis but on the basis of the retail sale price declared on such packages. The Section also provides that the assessee would be entitled to the deduction from such valuation the amount of abatement provided by the Central Government by a notification in the Official Gazette. In short after introduction of Section 4A, the nature of sale lost its relevancy in the sense that the valuation did not depend upon the factor whether it was a wholesale or sale in bulk or a retail sale. The whole section covered the goods which were packaged and sold as such”
In view of the above ruling of the Hon’ble Apex Court the question of demand of duty under Section 4 would not arise at all. The Hon’ble Apex Court in the said decision further observed that “the nature of sale is of no consequence and the material consideration is that such sale should be in a package and there should be a requirement in the SWM Act or the Rules made thereunder or any other law for displaying the MRP on such package”. In view of the decision of the Hon’ble Apex Court, the question of assessment of the goods under Section 4 of the Act would not arise at all.
Reliance is also placed on Daenyx International Pvt. Ltd. v. Commissioner of C. Ex, Noida - 2008 (229) E.L.T. 682 wherein colour televisions for use in hotels were cleared. While the department contended that the duty liability should be discharged in terms of Section 4, this Tribunal held that, since the goods are sold in packages bearing MRP, duty liability has to be discharged under Section 4A and not under Section 4. In another case relating to Commissioner of Central Excise, Hyderabad-III v. Sagar Cements Ltd. - 2010 (256) E.L.T 616, the question for consideration was whether cement sold to Andhra Pradesh State Housing Corporation Ltd., which was in retail packages on which MRP was declared, should be assessed to duty under Section 4A or under Section 4. The Tribunal held that, since the goods are in retail packages on which MRP has been declared, the assessment should be under Section 4A of the Central Excise Act. The said decision was challenged by the Revenue before the Hon’ble Apex Court which was dismissed as reported in 2011 (271) E.L.T. A16 (S.C.). Reliance is also placed on the decision of the Tribunal in the case of Mexim Adhesive Tapes Pvt. Ltd. v. Commissioner of Central Excise, Daman - 2013 (291) E.L.T. 195 wherein also a similar question arose and it was held that, as a general rule, all packaged commodities are required to be printed with MRP and once MRP is required to be affixed and it is affixed, assessment has to be done under Section 4A only. It was further held that, it is for the assessee to claim exemption if they did not want assessment to be made under that section.
In the light of the above, the learned counsel pleads for setting aside the impugned order and allowing the appeal.

Respondent Contentions:The learned Additional Commissioner (AR) appearing for the Revenue, on the other hand, reiterates the findings of the adjudicating authority. In particular, it is his contention that as per the Packaged Commodities Rules, 2011, ‘institutional consumer’ has been defined as those consumers who bought packaged commodities directly from the manufacturer/packer for service industries like transportation (including railways and airways), hospitals or any similar industry. ‘Industrial consumers’ means, those consumers who buy packaged commodities directly from the manufacturer/packers for using the product in their industry for production, etc. In the present case, the sales made to real estate developers/builders satisfy the above definition and therefore, such sales stand excluded from the purview of declaration of MRP of Packaged Commodity Rules, 2011. Inasmuch as there is no statutory requirement of declaring the MRP under the Packaged Commodities Rules, the provisions of Section 4A cannot apply and, therefore, the assessment to duty of the products sold to such institutional consumers should be made under Section 4 of the Act and not under Section 4A. It is accordingly, contended that the duty demand is sustainable in law and the impugned order merits to be upheld.

Reasoning of Judgment:CESTAT have carefully considered the submissions made by both the sides. We have also perused the sample purchase orders placed by some of the institutional buyers. From these documents, it is seen that the goods are required to be supplied in standard packages consisting fixed number of specified tiles. These packages are the same in respect of retail sale also and on these packages the appellant has declared the MRP. In other words, there is no difference in respect of packages of tiles sold to retail consumers or to the so-called institutional buyers and all of them are in standard packages, having MRP declared on them. It is also not in dispute that, on the packages, the appellant has not made any declaration that “the packages are not meant for retail sale or the packages are meant for use by any specified industry”. In the absence of such markings on the packages, it cannot be said that the goods supplied were not in retail packages. In their letter dated 23-2-2012 the Dy. Controller of Legal Metrology, Maharashtra has clarified that according to Rule 3 of Packaged Commodities Rules, 2011 the provision regarding mandatory declaration on retail packages are not applicable to the packages meant and marked as industrial/institutional consumers. Similarly, the Assistant Controller of Legal Metrology, Government of Karnataka, vide letter dated 24-2-2012 has clarified that institutional/industrial package does not bear the MRP marking but will have marking as meant for ‘industrial/institutional consumer’ and not meant for retail sale. Similarly, Controller of Legal Metrology, Government of Gujarat has clarified that the only packages which bear clear markings ‘meant for industrial consumer or meant for institutional consumer’ are excluded from the provisions of Packaged Commodities Rules and such packages should have a further marking that they are ‘not meant for retail sale’. From these clarifications, which have been issued by the authorities implementing the Legal Metrology (Packaged Commodities) Rules, 2011, it is absolutely clear that the supplies made by the appellant to the various institutional buyers are not excluded from the declaration of MRP under the Packaged Commodities Rules. We cannot disregard these clarifications given by the competent authorities in the matter.
We further observe that the Hon’ble Apex Court in the case of Jayanti Food Processing (P) Ltd. v. Commissioner of Central Excise, Rajasthan (supra), had clearly held that to come under the purview of Section 4A, the following conditions should be satisfied :
    (i)        The goods should be excisable goods;
   (ii)        They should be such as are sold in the package;
(iii)        There should be requirement in the SWM Act or the Rules made thereunder or any other law to declare the price of such goods relating to their retail price on the package;
(iv)        The Central Government must have specified such goods by notification in the Official Gazette; and
   (v)        The valuation of such goods would be as per the declared retail sale price on the packages less the amount of abatement.
In the said decision, the Hon’ble Apex Court further held that the material consideration for assessment under Section 4A is not the nature of sale but such sale should be in a package and there should be a requirement in the SWM Act or the Rules made thereunder for displaying MRP on such packages.
In the present case, the above stipulations are completely satisfied. This decision of the Hon’ble Supreme Court was also followed by the Tribunal in the case of Sagar Cements Ltd. (supra) where there was a bulk supply of cements in retail packages on which MRP was declared. This Tribunal held that such bulk supply would also come under the purview of Section 4A and the duty liability has to be discharged under the said provision. The said decision was also affirmed by the Hon’ble Apex Court. In ITEL Industries Pvt. Ltd. v. Commissioner of Central Excise - 2004 (163) E.L.T. 219 case, telephones were supplied in bulk for exclusive use of the Department of Telecom; this Tribunal held that duty liability discharged under Section 4A is correct as there was no exemption from packaging indicating special use by any industry.
In view of the above, we are of the considered view that, in the present case also, the same ratio would apply. Accordingly, we hold that the discharge of duty liability tiles supplied in retail packages to real estate developers/developers, etc., has to be made under Section 4A of the Central Excise Act, 1944. Therefore the impugned demands are not sustainable in law and accordingly, we set aside the same.
Thus, the appeals are allowed with consequential relief, if any, in accordance with law.

Decision:Appeal Allowed.

Comment:The gist of this case is that discharge of duty liability for tiles supplied in retail packages to real estate industry under Section 4A of Central Excise Act, 1944 is correct and proper. This is for the reason that goods were bearing MRP and no declaration was made on packages that said packages not meant for retail sale or meant for use by any specified industry. Hence, it was concluded that the nature of sale does not effects the manner of valuation and the tiles sold in retail packs on which there was requirement to affix MRP were correctly assessed under section 4A of the Central Excise Act.

Prepared by: Hushen Ganodwala

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