LEGAL ISSUE: Whether the goods sold by the respondent-assessee are covered by Section 4 or Section 4A of the Central Excise Act, 1944.
CASE TYPE: Excise Law
Case Name: Commissioner of Central Excise, Jaipur -II vs. M/s Miraj Products Pvt. Ltd.
[Judgment Date]: July 08, 2024
Date of the Judgment: July 08, 2024
Citation: 2024 INSC 470
Judges: Abhay S. Oka, J., Pankaj Mithal, J.
Can the method of packaging of tobacco products determine whether they are subject to retail sale price valuation under the Central Excise Act? The Supreme Court of India recently addressed this question, focusing on whether the manner in which chewing tobacco is packaged attracts the provisions of Section 4A of the Central Excise Act, 1944. The court examined whether the assessee’s packaging practices qualified as retail or wholesale sales, impacting the valuation of excise duty. The judgment was delivered by a two-judge bench comprising Justice Abhay S. Oka and Justice Pankaj Mithal.
Case Background
The case revolves around M/s Miraj Products Pvt. Ltd., an assessee engaged in the manufacturing and sale of chewing tobacco. The dispute arose from show cause notices issued by the Commissioner of Central Excise, Jaipur -II, concerning the classification of the assessee’s tobacco packaging for excise duty purposes. The assessee packed 33 pouches of 6 grams each and one pouch of 15 grams of chewing tobacco into a larger poly pack. The 6-gram pouches were marked with a Maximum Retail Price (MRP) of Rs. 1, and the 15-gram pouch with an MRP of Rs. 3. The larger poly pack was labeled with a weight of 213 grams and an MRP of Rs. 36.
The revenue contended that these larger poly packs were “group packages” intended for retail sale, as defined under Rule 2(g) of the Standards of Weight & Measures (Packaged Commodity) Rules, 1977. The revenue argued that since the weight of these packs exceeded 10 grams, they did not qualify for exemption under Rule 34(b) of the said Rules, and thus, the assessee was liable to pay duty under Section 4A of the Central Excise Act, 1944, which deals with valuation of excisable goods with reference to retail sale price. The assessee, however, argued that they were not selling the poly packs directly to consumers. Instead, they packed 100 such poly packs into a High-Density Polyethylene (HDPE) bag, which was sold to distributors and dealers, thus classifying them as wholesale packages under Rule 2(x) of the said Rules and not subject to Section 4A.
Timeline:
| Date | Event |
|---|---|
| April 2003 | Brief period covered by the first show cause notice. |
| 1st March 2003 | Tobacco was notified under Section 4A of the Excise Act. |
| May 2003 – December 2003 | Period covered by the second show cause notice. |
| 22nd April 2004 | First show cause notice issued to the respondent-assessee. |
| 31st May 2004 | Second show cause notice issued to the respondent-assessee. |
| 10th June 2004 | Addendum to the first show cause notice issued. |
| 19th July 2005 | Order-in-original passed by the Commissioner, rejecting the assessee’s contentions. |
| 7th November 2008 | The Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) passed the impugned judgment. |
| July 08, 2024 | The Supreme Court of India delivered the judgment. |
Course of Proceedings
The Commissioner of Central Excise rejected the assessee’s arguments, holding that the poly packs were intended for retail sale due to the declarations made on them, including the MRP. The Commissioner relied on Rule 16 of the Standards of Weight & Measures (Packaged Commodity) Rules, 1977, which pertains to retail sales, and noted that the mention of sale price on the poly packs was not a requirement for wholesale packages under Rule 29. The Commissioner concluded that the assessee’s intent was to sell the poly packs at retail, irrespective of whether the manufacturer actually sold them at retail. The assessee appealed to the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal), which overturned the Commissioner’s order. The Tribunal relied on the Supreme Court’s decision in Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321, holding that the poly packs were not meant for retail sale, and thus, Section 4A of the Excise Act did not apply. The revenue then appealed to the Supreme Court of India.
Legal Framework
The core legal issue revolves around the interpretation and application of Section 4 and Section 4A of the Central Excise Act, 1944, along with the Standards of Weight & Measures (Packaged Commodity) Rules, 1977. Section 4 of the Central Excise Act deals with the valuation of excisable goods for the purpose of charging excise duty, while Section 4A provides for valuation with reference to retail sale price. Section 4A(1) states:
“Section 4A. Valuation of excisable goods with reference to retail sale price. – (1) The Central Government may, by notification in the Official Gazette, specify any goods, in relation to which it is required, under the provisions of the Standards of Weights and Measure (PC) Rules, 1976 (60 of 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, to which the provisions of sub-section (2) shall apply.”
The key provisions of the Standards of Weight & Measures (Packaged Commodity) Rules, 1977, are:
- Rule 2(g): Defines “group package” as “a package intended for retail sale, containing two or more individual packages, or individual pieces, of similar, but not identical (whether in quantity or size), commodities.”
- Rule 2(q): Defines “retail sale” as “the sale, distribution or delivery of such commodity through retail sales agencies or other instrumentalities for consumption by an individual or group of individuals or any other consumer.”
- Rule 2(x): Defines “wholesale package” as “a package containing (i) a number of retail packages, where such first mentioned package is intended for sale, distribution or delivery to an intermediary and is not intended for sale direct to a single consumer; or (ii) a commodity sold to an intermediary in bulk to enable such intermediary to sell, distribute or deliver such commodity to the consumer in smaller quantities; or (iii) packages containing ten or more than ten retail packages provided that the retail packages are labelled as required under the rules.”
- Rule 34(b): Provides an exemption for packages containing a commodity if the net weight of the commodity is 10 gms or less and if the same is being sold by weight.
The interplay between these definitions and the specific packaging practices of the assessee is central to determining whether the goods should be valued under Section 4 or Section 4A of the Central Excise Act, 1944.
Arguments
Appellant (Commissioner of Central Excise) Arguments:
- The appellant argued that the decision in Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321, was not applicable because the assessee in that case was selling packs of 9 grams, which were exempt under Rule 34(b) of the Standards of Weight & Measures (Packaged Commodity) Rules, 1977. The weight of the poly packs and HDPE bags in the present case is more than 10 grams.
- The poly packs sold by the respondent were group packages meant for retail sale, and therefore, Section 4A was rightly applied by the Commissioner.
- The poly packs are not sold by weight or measure, so Rule 34 (b) of the said Rules has no application.
- The Commissioner had thoroughly considered the factual position, which the Tribunal had overlooked.
- The 15-gram pouch of chewable tobacco within the poly pack was already subject to duty under Section 4A, indicating the retail nature of the packaging.
Respondent (M/s Miraj Products Pvt. Ltd.) Arguments:
- The respondent contended that the principles laid down in Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321, squarely apply to their case.
- The HDPE bags containing 100 poly packs were not meant for retail sale and should be treated as wholesale packages, not group packages.
- The poly packs were not sold directly to consumers but to distributors and dealers, indicating they were not intended for retail sale.
Submissions Table
| Main Submission | Sub-Submission (Appellant) | Sub-Submission (Respondent) |
|---|---|---|
| Applicability of Section 4A |
|
|
| Relevance of Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321 |
|
|
| Nature of Packaging |
|
|
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the Court was:
- Whether the goods sold by the respondent-assessee are covered by Section 4 or Section 4A of the Central Excise Act, 1944.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision and Reasoning |
|---|---|
| Whether the goods sold by the respondent-assessee are covered by Section 4 or Section 4A of the Central Excise Act, 1944. | The Court held that Section 4A of the Central Excise Act was not applicable to the goods in question. The Court reasoned that the respondent was selling HDPE bags containing 100 poly packs to distributors and dealers, which qualifies as wholesale packages under Rule 2(x) of the Standards of Weight & Measures (Packaged Commodity) Rules, 1977. The Court noted that these HDPE bags did not require a declaration of retail price under the said rules. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How the Authority was Considered | Legal Point |
|---|---|---|---|
| M/s.Varnica Herbs v. Central Board of Excise & Customs, New Delhi [2004 (163) ELT 160] | High Court of Judicature at Madras | The Tribunal held that this was not a binding precedent. | Classification of packages for excise duty. |
| Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321 | Supreme Court of India | The Tribunal relied on this case to set aside the Commissioner’s order. The Supreme Court distinguished this case on facts. | Applicability of Section 4A of the Central Excise Act, 1944. |
| Section 4A, Central Excise Act, 1944 | Statute | The Court analyzed the provision to determine its applicability to the facts of the case. | Valuation of excisable goods with reference to retail sale price. |
| Rule 2(g), Standards of Weight & Measures (Packaged Commodity) Rules, 1977 | Rules | The Court analyzed the definition of group package. | Definition of group package. |
| Rule 2(q), Standards of Weight & Measures (Packaged Commodity) Rules, 1977 | Rules | The Court analyzed the definition of retail sale. | Definition of retail sale. |
| Rule 2(x), Standards of Weight & Measures (Packaged Commodity) Rules, 1977 | Rules | The Court analyzed the definition of wholesale package. | Definition of wholesale package. |
| Rule 34(b), Standards of Weight & Measures (Packaged Commodity) Rules, 1977 | Rules | The Court analyzed the exemption for packages weighing 10 gms or less. | Exemption for small packages. |
Judgment
| Submission by the Parties | How the Submission was Treated by the Court |
|---|---|
| Appellant’s submission that poly packs are group packages meant for retail sale and Section 4A applies. | The Court did not directly address whether the poly packs were intended for retail sale. Instead, it focused on the fact that the respondent was selling HDPE bags containing 100 poly packs, which were considered wholesale packages. |
| Appellant’s submission that the case of Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321 was not applicable. | The Court agreed that the case was distinguishable on facts, as the Vapi case involved packs of 9 gms, which were exempt under the rules. |
| Respondent’s submission that HDPE bags are wholesale packages and not meant for retail sale, and Section 4A is not applicable. | The Court accepted this submission, holding that the sale of HDPE bags to distributors and dealers qualified as wholesale sale under Rule 2(x) of the Standards of Weight & Measures (Packaged Commodity) Rules, 1977. |
| Respondent’s reliance on the case of Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321 | The Court distinguished the case on facts but upheld the Tribunal’s decision based on the definition of wholesale packages. |
How each authority was viewed by the Court?
- M/s.Varnica Herbs v. Central Board of Excise & Customs, New Delhi [2004 (163) ELT 160]: The Court noted that the Tribunal correctly held that this was not a binding precedent.
- Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321: The Court distinguished this case on facts, noting that the assessee in that case was selling packs of 9 gms, which were exempt under the rules. However, the Court upheld the Tribunal’s decision based on the definition of wholesale packages.
- Section 4A, Central Excise Act, 1944: The Court analyzed the provision and held that it was not applicable to the facts of the case, as the goods were not sold in a manner that required declaration of retail price on the packages.
- Rule 2(g), Standards of Weight & Measures (Packaged Commodity) Rules, 1977: The Court analyzed the definition of group package and concluded that the HDPE bags were not group packages.
- Rule 2(q), Standards of Weight & Measures (Packaged Commodity) Rules, 1977: The Court analyzed the definition of retail sale and concluded that the sale of HDPE bags was not retail sale.
- Rule 2(x), Standards of Weight & Measures (Packaged Commodity) Rules, 1977: The Court relied on the definition of wholesale package and concluded that the HDPE bags fell under this definition.
- Rule 34(b), Standards of Weight & Measures (Packaged Commodity) Rules, 1977: The Court noted that this exemption was not applicable as the weight of the packages exceeded 10 gms.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the factual finding that the respondent was selling HDPE bags containing 100 poly packs to distributors and dealers, which qualified as wholesale packages under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977. The Court emphasized that the crucial factor was not whether the poly packs were intended for retail sale but whether the packages being sold by the assessee required a declaration of retail price under the said Rules. Since the HDPE bags did not require such a declaration, Section 4A of the Central Excise Act, 1944, was not applicable. The court’s reasoning focused on the definition of “wholesale package” and the actual sales practice of the assessee. The Court also distinguished the case of Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321, on facts, noting that the weight of the packages in that case was different.
| Sentiment Analysis of Reasons | Percentage |
|---|---|
| Factual Analysis of Sales Practice (HDPE bags sold to distributors) | 50% |
| Interpretation of Rules (Definition of wholesale package) | 30% |
| Distinction from Precedent (Commissioner of Central Excise, Vapi v. Kraftech Products Inc. [2008] 12 SCC 321) | 20% |
| Ratio | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Logical Reasoning:
Issue: Applicability of Section 4A of the Central Excise Act, 1944
Question 1: Are the goods sold by the assessee required to declare retail price under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977?
Finding: Assessee sells HDPE bags containing 100 poly packs to distributors/dealers
Question 2: Do HDPE bags require retail price declaration under the Rules?
Finding: No, HDPE bags do not require retail price declaration
Conclusion: Section 4A of the Central Excise Act, 1944 is not applicable
The Court considered whether the poly packs were intended for retail sale, however, it was not necessary to decide the same. The Court focused on the fact that the respondent was selling HDPE bags containing 100 poly packs to distributors and dealers. The Court noted that the Commissioner accepted that the HDPE bags were wholesale packages, as they did not have a declaration of sale price. The Court held that the relevant question was whether the package being sold by the assessee required a declaration of retail sale price under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977. Since the HDPE bags did not require such a declaration, Section 4A of the Central Excise Act, 1944, was not applicable. The Court observed:
“In case of a package that does not attract provisions of the said Rules regarding mentioning the retail price, even if the retail price is mentioned on the package, that itself will not attract sub-section (1) of Section 4A of the Excise Act.”
The Court further noted:
“The respondent’s case that 100 poly pack packages are being put in one HDPE bag has been accepted by the Commissioner. Therefore, the respondent is selling HDPE bags containing 100 poly packs each to the distributors and dealers. The said Rules do not require the display of price on such HDPE bags.”
The court also stated:
“Even assuming that 100 poly packs were retail packages, HDPE bags would be covered by the definition of ‘wholesale package’ as defined in clause (iii) of Rule 2(x) of the said Rules. Thus, the HDPE bags are not group packages within the meaning of Rule 2(g).”
Key Takeaways
- The applicability of Section 4A of the Central Excise Act, 1944 depends on whether the packaging of goods requires a declaration of retail price under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977.
- The sale of goods in wholesale packages to distributors and dealers does not attract the provisions of Section 4A, even if the individual packages within the wholesale package are marked with a retail price.
- The actual sales practice of the assessee is crucial in determining whether the goods are intended for retail sale.
- The definition of “wholesale package” under Rule 2(x) of the Standards of Weight & Measures (Packaged Commodity) Rules, 1977, includes packages containing multiple retail packages intended for sale to intermediaries.
Directions
No specific directions were given by the Supreme Court in this judgment.
Development of Law
The ratio decidendi of this case is that the applicability of Section 4A of the Central Excise Act, 1944, depends on whether the package being sold requires a declaration of retail sale price under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977. This judgment clarifies that the sale of wholesale packages to intermediaries does not attract the provisions of Section 4A, even if the individual packages within the wholesale package are marked with a retail price. This decision reaffirms the distinction between retail and wholesale sales and provides clarity on the valuation of excisable goods under the Central Excise Act, 1944.
Conclusion
The Supreme Court dismissed the appeals, upholding the Tribunal’s decision that Section 4A of the Central Excise Act, 1944, was not applicable to the goods sold by M/s Miraj Products Pvt. Ltd. The Court emphasized that the assessee was selling HDPE bags containing 100 poly packs to distributors and dealers, which qualified as wholesale packages under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977, and did not require a declaration of retail price. This judgment clarifies the distinction between retail and wholesale sales for excise duty purposes and provides a clear interpretation of the relevant legal provisions.
Category:
Parent category: Central Excise Act, 1944
Child categories: Section 4, Central Excise Act, 1944, Section 4A, Central Excise Act, 1944, Standards of Weight & Measures (Packaged Commodity) Rules, 1977, Rule 2(g), Standards of Weight & Measures (Packaged Commodity) Rules, 1977, Rule 2(q), Standards of Weight & Measures (Packaged Commodity) Rules, 1977, Rule 2(x), Standards of Weight & Measures (Packaged Commodity) Rules, 1977, Rule 34(b), Standards of Weight & Measures (Packaged Commodity) Rules, 1977, Excise Duty, Wholesale Package, Retail Sale, Group Package
FAQ:
Q: What is Section 4A of the Central Excise Act, 1944?
A: Section 4A of the Central Excise Act, 1944, deals with the valuation of excisable goods with reference to their retail sale price. It applies to goods that are required to declare their retail sale price on the package under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977, or other applicable laws.
Q: What is a “group package” under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977?
A: A “group package” is a package intended for retail sale, containing two or more individual packages or pieces of similar but not identical commodities.
Q: What is a “wholesale package” under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977?
A: A “wholesale package” is a package containing a number of retail packages intended for sale to an intermediary, not directly to a consumer, or a commodity sold in bulk to an intermediary for further distribution.
Q: How does this judgment affect businesses selling packaged goods?
A: This judgment clarifies that if you are selling wholesale packages to distributors or dealers, and these packages do not require a declaration of retail price under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977, then Section 4A of the Central Excise Act, 1944, will not apply, even if the individual packages within the wholesale package have a marked retail price.
Q: What was the main point of contention in this case?
A: The main point of contention was whether the larger poly packs of chewing tobacco sold by M/s Miraj Products Pvt. Ltd. were “group packages” intended for retail sale, thus attracting Section 4A, or whether they were part of wholesale packages sold to distributors and dealers, thus falling outside the purview of Section 4A.
Q: What did the Supreme Court decide in this case?
A: The Supreme Court decided that the HDPE bags containing 100 poly packs sold by M/s Miraj Products Pvt. Ltd. were wholesale packages, not intended for retail sale, and therefore, Section 4A of the Central Excise Act, 1944, was not applicable to these goods.