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Indirect Tax implications of Amendment in Packaged Commodities Rules

MARCH 17, 2014

By Bipin Kumar Verma

THROUGH this article the author wishes to draw the attention of the authorities concerned tothe June 2013 amendment made in the definition of expression 'institutional consumer' in the Legal Metrology (Packaged Commodities) Rules,2011 (PC Rules). The said amendment besides affecting all persons dealing in packaged commodities,including consumers thereof,has implications on the manufacturers or importers of goods which are assessedto duty on MRP basis under section 4A of the Central Excise Act.

The Legal Metrology Act,readwith PC Rules,provides for declaration of MRP on every package intended for retail sale,with some exceptions. One of the exceptions pertains to the packaged commodity meant for institutional consumers. Thus it becomes relevant to understand as to what is meant by the expression 'institutional consumer'.

Prior to the amendment dated 6.6.2013 the 'institutional consumer' was defined to mean the institutional consumer like transportation,airways,railways,hotels,hospitals or any other service institutions who buy packaged commodities directly from the manufacturer for use by that institution.

Apparently there does not appear to be any problem in understanding or interpreting the above definition. However from legal perspective an expression should not be defined by the same expression. Here the definition said 'institutional consumer' means the institutional consumer... In fact,instead of defining the expression,it suggests adopting the common parlance meaning and then qualifies the same to restrict its scope to certain specified institutions acting in specified manner. Thus it covered service institutions who buy packaged commodities directly from the manufacturer for use by that institution.

Probably with an intention to improve upon the language employed in the above definition this amendment has been carried out. Now the amended definition reads as below:

"Institutional consumer " means any institution which hires or avails of the facilities or service in connection with transport,hotels,hospitals or such other service institutions which buy packaged commodities directly from the manufacturer for use by that institution.

Let us see whether the amendment has merely improved upon the language and brought more clarity or the scope of the meaning of the expression has been changed.

When compared to the earlier definition following changes can be noticed -

++ institution [replaced for institutional consumer]

++ which hires or avails of the facilities or service [added]

++ in connection with transport,hotels,hospitals or such other service institutions ['any other' replaced by 'such other']

++ which buy packaged commodities directly from the manufacturer for use by that institution .

It can be seen that an additional qualification has been introduced by adding the words 'which hires or avails of the facilities or service'.

Normally a service institution is the one which provides services or facilities. Therefore the question arises as to whether the term institution used in the beginning of the definition refers to a service institution. Here the institution is the one which hires or avails of service i.e. the institution which receives the service.

Thus the institutional consumer would be the institution which avails or receives services from specified service institutions like hotels,hospitals etc. Now the question arises as to why only an 'institution' and not 'any person' has been considered. In fact the recipient of services in connection with hospitals,hotels,etc are individuals or natural persons and rarely are the institutions.I fail to comprehend the reason for using the term institution here in the definition. In order to give some sense to the definition you need to either replace the word institution with consumer or person. In that case,the institutional consumer would mean any person who avails services from the specified institutions. This would,however,mean a shift from the earlierdefinition according to which service institution providing the service was considered as institutional consumer and not its customers receiving such services.

Another possible attempt to give some meaning to the amended definition can be by replacing the expression 'hires or avails of' with 'provides'. Then it would be in line with earlier definition to say that institutional consumers are the institutions which provide services in connection with hotels,etc or such other service institutions....which buy packaged commodities directly from the manufacturer for use by that institution.

But the provision of law has to be read with its plain meaning and no words should be replaced or added. Thus the present definition being unclear and ambiguous would lead to exposures on compliance requirements under Legal Metrology Act for the industry concerned. Further,on the indirect tax front it throws open a lot of questions the answers to which shall be vital for the manufacturers of such excisable goods which are assessed on MRP basis and even for importers of such goods for which CVD as a component of customs duty is levied on MRP basis.

For example:

++ Will the passenger availing service from airline be considered as an institution?

++ Should a manufacturer or an importer selling packaged juice directly to an airline declare MRP on the package?

++ In the above example,will the excise duty or CVD in case of import be payable on MRP basis?

++ Which other service institutions (other than transport,hotels,hospitals) shall be covered? As the expression 'any other service institution' has been replaced with 'such other service institution'.

Already a period of more than 9 months has elapsed since the above amendment came into effect and it is high time that the industries concernedrepresent for review of the above definitionfor bringing out actual intent and meaning in a simple and unambiguous manner to have certainty in tax implications and to avoid future litigations.

(The author is Partner,M/s Lakshmikumaran& Sridharan)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site. )

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