By TIOL News Service

KOLKATA, OCT 14, 2015: THE appellant manufactures lubricating oil [Ch.27]and which are subjected to assessment for valuation u/s 4A of CEA, 1944 being notified under the Standards of Weights & Measures Act, 1976 & Rules made thereunder.

During the period 01.4.1998 to 31.3.2008 appellant cleared unit quantity of goods in their normal pack affixing the MRP as well as with some additional quantity, in another pack, called as bonus/promo pack, against the same MRP. For example, the packs containing of 4.5 ltrs. of Lub. oil were cleared at an MRP and lubricating oil with 5 ltrs. Pack, called as bonus/promo pack were cleared with the same MRP.

Revenue was of the view that the "additional quantity" cleared under the bonus/promo offer had not suffered any duty and, therefore, issued demand notices on ‘pro-rata value basis' for recovery of the same.

The adjudicating authority was pleased to confirm the duty demanded of Rs.1,30,14,474/- allegedly not paid by the assessee and for this misfeasance imposed an equivalent penalty u/s 11AC of CEA, 1944 and demanded interest too.

The appellant is before the CESTAT.

It is submitted that during lean period, in addition to the quantity in a standard pack, they also include certain extra quantity, declaring the same MRP, on the packages, so as to capture the market. It is also emphasised that the promotional packs are not at all different from the regular packs and both are governed by the provisions of Standards Weights and Measures Act and Rules made thereunder, hence, the MRP affixed on these packs should be the basis for determination of value under Sec.4A; it is incorrect to allege that this additional quantity was cleared without payment of duty. That as per Section 4A of CEA, 1944 the MRP printed on the pack is the only relevant factor and not the quantity that is contained in the packs. Support is derived from the decisions in Calcutta Chemicals Ltd. - 2008-TIOL-644-CESTAT-KOL, Surya Food and Agro Ltd. - 2003-TIOL-32-CESTAT-DEL & Himalaya Adrat Co. - 2009-TIOL-1203-CESTAT-BANG. The LB decision relied upon by the original authority of Indica Laboratories Pvt. Ltd. - 2007-TIOL-713-CESTAT-AHM-LB is distinguished on the ground that in the present case the additional quantity was not cleared in separate packs affixed with MRP.

The AR justified the demand by submitting that the additional quantity cleared in the promo packs had not suffered duty, inasmuch as, when a comparison is made between the bonus/promo packs and the normal pack, even though at the same MRP printed on both, but, the price at which unit quantity of Lub. oil was made available to the customers, was different.

The Bench observed that the issued involved is whether the additional quantity of manufactured lub. Oil cleared in the bonus/promo packs during the relevant period i.e. from 01.4.1998 to 31.3.2008, would attract duty on pro-rata basis of the MRP declared on the packs.

Elaborating on the genesis & the constitutional provisions regarding levy of excise duty on manufactured goods, the charging sections of the CEA, 1944 and the valuation provisions contained in s.4 and s.4A of CEA, 1944 and rejecting the findings of the adjudicating authority equating the additional quantity as being an ‘advertisement expense' which value is allegedly includible in the assessable value (by citing the apex court decision in Bombay Tyres International Ltd. - 2002-TIOL-374-SC-CX-LB by adopting a pro rata value vis-à-vis that of the MRP price declared, the CESTAT while setting aside the o-in-o and allowing the appeal made the following observations -

++ We are unable to persuade ourselves to accept any of the aforesaid reasoning. The first one is fallacious inasmuch as the ld. Commissioner has himself observed that the present goods are notified under section 4A and its assessable value is to be determined under Sec.4A and not under section 4 of the Central Excise Act, 1944; hence, the additional quantity or reduction in price from the declared MRP allowed by the Appellant to promote their business cannot be equated to the principle of law laid down by the Hon'ble Supreme Court in Bombay Tyres International's case(supra) on the inclusion or exclusion of certain expenditures in the assessable value, as the said principle was laid down in the context of Sec. 4 of CEA,1944.

++ The second reasoning is also devoid of merit inasmuch as in section 4A, it is laid down that if the MRP is not affixed as per provisions of The Standards of Weights and Measures Act, then the department would proceed to ascertain the correct MRP. In the present case, there is no dispute about the fixation of MRP on the bonus/promo pack and no objection has been raised by the department about the compliance of the requirement of the provisions of The Standards of Weights and Measures Act and the Rules made thereunder.

++ The Appellant is at liberty to ascertain its own MRP of the goods depending on the market conditions and required to affix the same on the packing, subject to the condition that in selecting the MRP for determination of value and payment of duty, in the event more than one MRP is fixed on the pack, as prescribed in section 4A of Central Excise Act, 1944, the duty is to discharged on the highest MRP. In the event the MRP is affixed correctly and satisfies the conditions laid down under Sec.4A, then it is not open to the department to dissect the MRP, and to examine its content and arrive at a different MRP for the purpose of determination of assessable value under Sec.4A by applying the principles of valuation laid down for determination of value under Sec. 4 of CEA,1944.

++ Accepting the contention of the revenue, if the pro rata value attributable to the additional quantity cleared as bonus quantity, in the same pack, is added to the MRP affixed on the said bonus pack, then the declared MRP will increase accordingly, which the appellant had not realized from its customers; also no such allegation has been levelled in the notice nor confirmed in the impugned order that the Appellant has collected any amount in addition to the MRP declared.

The LB decision cited by the AR was distinguished and the case laws relied upon by the appellant had more or less expressed a similar view, the Bench opined.

It was also observed that the CCE for the subsequent period had dropped the demand on the same issue vide Order-in-Original dated 13.09.2012 and which has been accepted by the department as no Appeal had been preferred against the same.

Holding that there was no merit in the impugned order, the same was set aside and the appeal was allowed with consequential relief.

(See 2015-TIOL-2194-CESTAT-KOL)