By TIOL News Service

NEW DELHI, DEC 21, 2014: 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 in terms of Section 4A of the CEA, 1944 based on the MRP printed thereon.

The Revenue was not impressed by this mode of valuation and 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 u/s 4A but u/s 4 of the CEA, 1944 on transaction value basis.

The result was that vide an o-in-o dated September, 2005, Central Excise duty demand of Rs.75.65 lakhs was confirmed with mandatory penalty and interest. The Director and Managing Director were held guilty of suppression of facts, connivance et al and penalty of Rs.5 lakhs each was imposed on them.

Before the CESTAT seeking relief, the appellant submitted that the judgements in the case of Australian Foods Ltd. 2010-TIOL-169-HC-MAD-CX and Nestle India Ltd. 2009-TIOL-1672-CESTAT-BANG are not applicable in their case because in both those cases the supplies of goods were made to institutional customers and no MRP was marked thereon. They also placed reliance on the decision of the apex court in the case of Jayanti Foods Processing Pvt. Ltd. 2007-TIOL-150-SC-CX to press the point that in a situation when MRP is printed the assessment is to be done under Section 4A. Furthermore, MCD is a local body and in view of the decision in P.G. Electro Plast Ltd. 2014-TIOL-861-CESTAT-DEL wherein it was held that the television sets sold to M/s ELCOT for free distribution was liable to assessment under Section 4A since ELCOT is neither an "Industrial Consumer" nor an "Institutional Consumer", the goods have been correctly assessed to duty u/s 4A of the CEA, 1944.

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.

The AR submitted that the case is squarely covered by the judgements of CESTAT in the cases of Australian Food Ltd. (supra) and Nestle India Ltd. (supra). It is further submitted 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.

The Bench observed -

++ 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 matter of applicability of the ratio of the decisions in Australian Foods Ltd. & Nestle India Ltd. , the Bench observed -

++ 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.

++ 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 63gms. 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 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.

Noting that the facts obtaining in the case laws cited by the appellant in support were entirely different, the Bench refused to apply the ratio contained therein.

The letter of the Metrology department was also held to be not relevant in view of the fact that the appellant had not stated the full facts including the fact of free supply of wheat by MCD.

The Bench, therefore, concluded -

++ 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.

++ It is evident that the appellant 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 ShriMaheshwari 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 mensrea on the part of the appellants is clearly evident making them liable to penalties adjudged by the adjudicating authority.

Holding that there is no merit in the appeals, the same were dismissed.

Biscuits & High Tea:

+ The Board had vide Circular 625/16/2002-CX, Dated: February 28, 2002 inter alia clarified -

"7. The Standards of Weights & Measures Act, 1976, and the rules made there under, are administered by the State Governments. Instances of dispute could arise between the deptt. and the assessee as to whether, in respect of a particular commodity/transaction, the assessee is exempted from declaring the retail price or not. In case of such doubt a clarification may be obtained from the concerned Deptt. (generally the Metrology Deptt .) of the State Government.”

+ Rule 5 of Standards of Weights and Measures (Packaged Commodities) Rules, 1977, as it then existed, read -

5. Specific commodities to be packed and sold in recommended standard packages: The commodities specified in the Third Schedule shall be packed for sale, distribution or delivery in such standard quantities as are specified in that Schedule:

Provided that if a commodity specified in the Third Schedule is packed in a size other than that prescribed in that Schedule , a declaration that 'Not a standard pack size under the Standards of Weights and Measures (Packaged Commodities) Rules, 1977' or 'non-standard size under the Standards of Weights and Measures (Packaged Commodities) Rules, 1977' shall be made prominently on the label of such package.'.

+ Biscuits find a mention in the Third Schedule.

+ The Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 came into being vide notification 13/2008-CX., (N.T.) , Dated: March 1, 2008.

+ Also see 2014-TIOL-708-HC-MUM-CX.

(See 2014-TIOL-2580-CESTAT-DEL)