By TIOL News Service

CHENNAI, JULY 01, 2009: THE issue has a very interesting back-drop. The assessee is a paint manufacturer and has been clearing Base Paint by paying Central Excise duty on the basis of MRP. The base paint is mixed with the colourants at the dealers' premises as per the choice of the customers. As per the revenue, the Base Paint is not covered under the Packaged Commodity Rules, 1977 and has to be assessed under Section 4 of the Central Excise Act, 1944. The stay applications against the demand came up before the West Zonal Bench and the appellants were directed to pre-deposit Rs 2.5 crores as no prima facie case was made out against the demand. (2008-TIOL-269-CESTAT-MUM) . After nearly three months, the issue came up before the South Zonal Bench in respect of the same assessee. This time, complete waiver was granted as prima facie case was made to assess the goods under Section 4A. (2008-TIOL-913-CESTAT-MAD) While granting stay, the SZB observed that the permission granted by the Central Government to clear base paint in non-standard quantities and the subsequent amendment to the Third Schedule to the PC Rules were not brought to the notice of the Bench.

After obtaining stay at SZB, the appellant filed application for modification of Stay before the WZB for waiving the pre-deposit of Rs 2.5 crores. However the WZB refused to modify the earlier order. (2008-TIOL-1034-CESTAT-MUM)

And the SZB has passed the final order on the issue setting aside the demand of duty under Section 4.

The appellant argued that base paint being paint necessarily requires pre-packing. All paints are subject to the provisions of SW&M Act and PC Rules made thereunder with stipulation for standard packing. The permission of Government given under order dated 24.07.2004 and amendment to Schedule III to Rule 5 of the PC Rules to include base paint with specified sizes of package proved that the base paints have been pre-packed commodity all along under the PC Rules, even before the paints were notified by the Government for valuation under Section 4A of the Act. When base paints are covered under PC Rules and paints are a notified commodity under Section 4A, the impugned order valuing the product under Section 4 is incorrect. The base paint is opened only after the consumer decides to purchase it. The consumer decides the exact shade and the quantity. In order to get the shade he has to purchase the base paint of required quantity and the necessary quantity of colourant. On purchase, at the behest of the consumer, the dealer opens the tin of the base paint, places it on the stirrer for adding drops of colorant and stirring. After the mixing, the tin is closed and the paint is delivered in the same tin. Thus the purchase of base paint in the packed condition is in-built in the process of purchase by the consumer. This established process of purchase is recognized in the PC Rules and the base paint is hence expressly covered in those provisions.

The CESTAT held:

In response to a representation filed by M/s. Berger Paints, the concerned administrative ministry namely the Ministry of Consumer Affairs, Food and Public Distribution in the Govt. of India issued the order dated the 24 July 2002 to allow pre-pack base paints in sizes of 450 ml, 900 ml and 3.60 litres for making paints to be delivered through the computerised machine.

This relaxation to pre-pack base paint in non-standard quantities was statutorily recognized by including ‘Base paint' in Schedule III to the Standard of Weights and Measures (Packaged Commodities) Rules 1977 by introducing the following entry at Sl. No. 20 of the Schedule:

“(c) Base paint: 450 ml, 500 ml, 900 ml, 925 ml, 950 ml, 975 ml, 1 litre, 3.6 litre, 3.7 litre, 3.8 litre, 3.9 litre and 4 litre and no restriction above 4 litre”.

On a perusal of the order dated 24.7.2002 of the Ministry of Consumer Affairs, Food and Public Distribution, Govt. of India it is clear that tins containing base paint of 450 ml, 900 ml and 3.6 litres as specified in that order and further extended vide the Entry at Sl. No. 22 of Schedule III of Standard of Weights and Measures (Packaged Commodities) Rules 1977 continued to be pre-packed commodity subject to the restrictions and privileges extended to such class of commodities under Standard of Weights and Measures (Packaged Commodities) Rules 1977. All varieties of paint including ‘Base paint' are notified for MRP-based assessment under Section 4A of the Act during the material period. By issuing the order dated 24.07.02, the appropriate authority in the Government of India clarified that its status as pre-packed commodity of Schedule III to Rule 5 of PC Rules was not disturbed by packing in non-standard quantities. From 15.09.04 base paints and standard quantities in which it was to be prepacked was notified by legislation. As the base paint tins carry the MRP and the ultimate consumer buys the base paint from the dealer for tinting which is done in his presence in the manner desired by him, it cannot be said that the consumer buys only the tinted paint. Customer cannot refuse to take the tinted paint prepared with the base paint of his choice. It cannot be held that the consumer does not buy the prepacked base paint or that he does not get the same at the MRP marked on it. The Commissioner wrongly held that the base paints ceased to be prepacked commodity on opening its container for tinting and that MRP at which they are sold cannot be accepted for assessment of these goods under Section 4A of the Act. In the circumstances the impugned orders of the Commissioner denying MRP-based assessment to base paint and demanding differential duty on assessment of clearances during the material period assessing them under the provisions of Section 4 of the Act are unsustainable.

(See 2009-TIOL-996-CESTAT-MAD in 'Excise')