By TIOL News Service

NEW DELHI, APRIL 18, 2013: DURING the period from Feb.2003 to March, 2003 the appellant manufactured VCD players and also different models of colour T.V. sets. Both these items were chargeable to duty on the basis of the MRP declared on their packages in terms of s.4A of the CEA, 1944. As a promotional offer, the appellant during this period cleared combination packs of certain models of CTVs along with VCD players, the VCD being given free along with those models of CTVs. The duty was paid by the appellant on the value determined on the basis of MRP of the combo pack of the CTVs along with VCD players.

The Department was of the view that since the VCD players had been given as free, the MRP of the combo pack of the CTVs and the VCD players was the MRP of CTVs only and as such, the VCD had been cleared without payment of duty.

Accordingly, two demand notices were issued demanding a total duty of nearly Rs. 30 lakhs on the clearances on 5923 DVDs allegedly cleared without payment of duty. The assessable value for calculation of the duty on the VCDs cleared was determined on the basis of MRP of the VCDs ascertained by the department, as no MRP had been declared by the appellant in respect of the VCDs.

The demands were confirmed by the Additional Commissioner along with imposition of equivalent penalty and interest. However, the Commissioner(A) reduced the penalty to Rs.3 lakhs while upholding the demand and interest.

The appellant is before the CESTAT and submits that the MRP of the combo pack is the MRP of both the CTV and the VCD player, that when duty has been paid in respect of clearances of the combo pack of CTVs with the VCD players, on the assessable value determined on the basis of the MRP of the combo pack, no separate duty is required to be paid on the clearances of the VCD players, that both the products have been cleared as a combination pack and mere fact that both the products were not in one package, though were individually packed, does not mean that the same would cease to be combination pack.

Reliance is placed on the decision in Millenium Appliances India Ltd, Vs. CCE [2009-TIOL-2591-CESTAT-BANG] where it is held that duty is payable on the value determined on the basis of combined MRP and not the sum of the MRPs of both the products, even though the MRP of the combination pack may be less than the sum of the MRPs of the individual products. The decisions in Surya Food and Agro Ltd. (2003-TIOL-32-CESTAT-DEL) and Vinayaka Mosquito Coil Mfg. Co. Vs. CCE, Bangalore, (2004-TIOL-827-CESTAT-BANG) , as affirmed by the Apex Court were also adverted to. It was also submitted that VCD players are chargeable to the duty under Section 4 A on the basis of MRP and since the VCD players had been cleared free alongwith certain models of CTVs, their MRP is nil, and therefore, their assessable value also become nil and hence no duty would be payable in respect of the same; that in any case, calculation of duty is incorrect as the department has adopted the price of Rs.3325/- as MRP in respect of each VCD which was prevailing price in the year 2001, while in 2003, the price of VCDs had drastically come down, that another serious mistake in calculation of duty is that duty has been charged on the MRP of Rs.3325/- without any abatement, that at the worst, the MRP of the VCD supplied free along with CTVs can be taken Rs.2500/- per piece in 2003 and after 40% abatement, the assessable value would come to Rs. 1500/- per piece and the duty demand would get reduced to Rs.35,520/-; that in the circumstance of the case, no penalty was imposable on the appellant and that in view of the above, the impugned order is not sustainable.

The Revenue representative reiterated the findings of the lower authorities and placing reliance on the decision in G.S Enterprises 2002 (144) ELT 387 (T), as affirmed by apex court 2003 (15J) ELT 297 submitted that since VCD players had been supplied free, the MRP declared in respect of the CTVs is the MRP of CTVs only and cannot be treated as combined MRP of both the CTVs and VCD players, that even if the VCD had been supplied free duty would be chargeable on the same and since the MRP was not declared, the department has correctly taken the same as Rs.3325/- per VCD.

The Bench noted that the decision in Millennium Appliances India Ltd . does not apply to the facts of the instant case since in the said case the microwave ovens were not being supplied ‘free' along with the refrigerators. The Bench then observed -

6. … In our view, irrespective of the correctness or otherwise of the Tribunal's judgement in case of Millenium Appliances (supra), the ratio of this judgment of the Tribunal is not applicable to the facts of this case as, in this case the VCD players had been supplied free on sale of certain models of CTVs. In such circumstances, it would not be correct to conclude that the value of the VCD players is included in the value of the CTVs. When the appellant have manufactured VCD players, the duty would be chargeable at the time of their clearances irrespective of whether the same are cleared as such or are cleared along with CTV sets and irrespective of whether the same are cleared on sale or are cleared as free supply to be given as free gift along with sale of certain models of CTVs. For example, duty is charged on physician's samples cleared by a manufacturer even though, the same are meant for price distribution among physicians for promoting the sale of the medicines. While the price of CTV is not required to be loaded with the price of VCD supplied free, as the sales consideration for any goods sold is what flows from the buyer to the seller and not from seller to the buyer, this cannot be the reason for not charging duly on the item supplied free, if the free supply item has also been manufactured by the same manufacturer. The issue of levy of duty under Section 3 of the Central Excise Act, 1944 on the clearance of the goods manufactured by an assessee cannot be mixed with the issue of valuation under Section 4 or 4A. Therefore, the question of levy of duty on the VCDs manufactured and cleared by the appellant has nothing to do with the question whether or not the value of VCD supplied free, is deemed to be included in the value of CTVs with which the same had been cleared. The Appellant's contention that MRP of the VCD is to be taken as 'nil' and on this basis, the duty chargeable would be nil, is totally incorrect as admittedly, the consideration for supply of VCD free is promoting the sale of certain models of CTV, while as per the definition of 'retail sale price' in Explanation-I to Section 4A. The retail sale price must satisfy the condition of the price being the sole consideration for sale. Therefore, when a product 'A' notified under Section 4A is supplied free (nil price) or at RSP less than the RSP at which the product is individually sold, for being sold in combination with another product 'B' also notified under Section 4A, with the objective of promoting the sale of the product B, the nil or lesser RSP of product A for its sale in combination with produce B cannot be said to be its correct RSP for the purpose of determining its assessable value under Section 4A. Therefore, the MRP of the VCD cannot be taken as nil.

7. In the case of G.S. Enterprises Vs. CCE (supra) M/s G.S. Enterprises were manufacturing Presto razors on job work basis for Indian Shaving Product Ltd. (ISPL), out of the components supplied by ISPL and besides this, they were also packing on job work basis, the razors so manufactured, with a set of 5 blades also supplied by ISPL, whose combo MRP declared was Rs.23/-. The Tribunal in this case has held that even though the razors were cleared in a combination pack along with 5 blades and Rs.23.- per pack declared was the MRP of the combo pack, duty would be chargeable on the presto razors by adopting its MRP as Rs.10/-, as this was the MRP of the razors, when the same were being sold by ISPL individually packed. This judgement of the Tribunal has been affirmed by the Apex Court vide judgment reported in 2003 (151) ELT A-297 . We are of the view that the ratio of this judgement of the Tribunal affirmed by the Apex Court, is squarely applicable to the facts of this case. Hence, in view of the facts of this case, the MRP declared by the appellant has to be treated as MRP of the CTVs only and not the combined MRP of the CTV and the VCD players supplied free and the duty would be chargeable separately on the VCD players. Since during the period of dispute the MRP of the VCD were not available, the same has to be ascertained by adopting a reasonable criteria.”

On the appellant's plea that the adoption of MRP of the year 2001 in respect of VCDs for arriving at the duty liability for clearances of the year 2003 is improper, the Bench agreed to the same and observed -

“8. …We agree with the plea of the appellant that MRP of VCD prevailing during 2003 must be adopted and assessable value must be determined after 40% abatement from the MRP. The Appellants" plea that during the period of dispute, the MRP of the VCDs, in question, was Rs.2500/- per piece should, therefore, be examined and a specific finding on this point should be given. Besides this, whatever MRP is adopted, duty is to be charged after giving 40% abatement. The duty on the clearances of VCDs is to be re-quantified in this manner. However, for re-quantification of the duty demand, the matter would have to be remanded to the Original adjudicating authority.”

On the question of imposition of penalty, the CESTAT held -

“9. …, since the VCD players were cleared without discharging duty liability, penalty under Rule 25(1)(a) would be attracted. However, the same would be in proportion of the quantum of the duty demand confirmed against the appellant.”

In fine, the matter was remanded to the original adjudicating authority.

In passing : Incidentally, the Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 came into force on 01.03.2008.

(See 2013-TIOL-623-CESTAT-DEL)