Chewing Tobacco Packed In High-Density Polyethylene Bags Are 'Wholesale Package'; Cannot Be Taxed As Retail Product Under Excise Act : Supreme Court

The Supreme Court recently held that pouches of chewing tobacco packed in High-Density Polyethylene (HDPE) bags would be considered a 'wholesale package' and could not be considered for imposing excise duty as per the provisions relating to retail sale price in the Central Excise Act, 1944.The bench of Justices AS Oka and Pankaj Mithal upheld the decision of the Central Excise Appellate Tribunal which observed that chewing tobacco in HDPEs qualified as wholesale packages as they were sold only to intermediaries like distributors and dealers under Standards of Weight & Measures (Packaged Commodity) Rules, 1977 (Rules of 1977). Thus the HDPEs cannot be taxed as a retail product. As per the facts, show cause notices were issued to the respondent-assessee, a chewing tobacco manufacturer. The notices challenged the packaging and pricing strategy employed by the respondent. According to the notice, the respondent was packaging 33 small pouches of 6 grams each and one larger pouch of 15 grams in a single larger poly pack(HDPE), with different maximum retail prices (MRP) marked on different pouches- Rs 1 for the smaller pouches and Rs. 3 for the large pouch.It was alleged that the HDPEs containing 33 small and 1 large poly pack are group packages as defined in Rule 2(g) of the Rules of 1977 and therefore intended for retail sale. As per Rule 2(g), a group package would mean a package of two or more single packages intended for retail sale. Since the weight of each such package exceeded 10 gms it was not covered under the exemption of Rule 34(b) which excludes duty on packaged commodities under 10 grams. Thus the respondent was considered liable to pay duty on the larger poly packs under S. 4A of the Central Excise Act 1944 (Act of 1944). S.4A deals with the valuation procedure for excisable goods sold on retail sale price. It may be noted that chewable tobacco has been notified under sub-section (1) of S.4A. As the provision reads as follows- “Section 4A. Valuation of excisable goods with reference to retail sale price. – (1) The Central Government may, by notification in the Official Gazette, specify any goods, in relation to which it is required, under the provisions of the Standards of Weights and Measure (PC) Rules, 1976 (60 of 1976) or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods, to which the provisions of sub-section (2) shall apply.” The respondent replied that they were packing 100 poly packs in 1 HDPE bag. It was argued that the HDPEs not intended for direct retail sale but were instead meant to be sold to distributors. The respondent claimed that these were wholesale and not retail packages, thus not subject to the same tax rules as individual retail packages. The main contention was that the 33 small pouches of 6 gm come under the definition of 'wholesale packages as defined in Rule 2(x) under the 1977 Rules. Under Rule 2(x) any retail packages which are intended for sale, distribution or delivery to an intermediary and not directly to a single consumer are qualified as wholesale packaging. In the original order dated July 19, 2005, the Commissioner initially rejected the respondent's arguments, stating that the packaging indicated an intention for retail sale and not wholesale, which necessitated a different tax treatment. The order noted that (1) the retail sale price was mentioned on the poly packs contrary to Rule 29- a declaration made on wholesale packages; (2) it was irrelevant whether the poly packs were sold in retail but whether goods were intended to be sold in retail; (3) additionally, it was observed that the assessee's HDPE bags, which contain 100 larger poly pack packages and do not declare the sale price, would be wholesale packages.However, this decision was overturned by the Appellate Tribunal. The tribunal relied upon the Supreme Court decision in the case of the Commissioner of Central Excise, Vapi v. Kraftech Products Inc. The said decision dealt with the interpretation of Rule 34 of 1977 Rules in the context of packaging of hair dye.The Excise authorities (appellants) had challenged the Tribunal's order before the Apex Court. Before the Supreme Court bench, the debate centred on whether the packaging in question was intended for retail sale, which would determine the applicable taxing provision under the Excise Act. The bench analysed whether the HDPEs would fall under retail packaging and sale or wholesale packaging.Arguments Before The Bench The appellant argued that the decision of Kraftech Products didn't apply to their case as the products involved were different. In the said case, the product was a pack of hair dye weighing 9 grams, which was exempt from Rule 34(b). However, in the current case, the products are poly packs and HDPE bags, each weighing more than 10 grams, so the exemption doesn't apply as they are considered as 'group packages'. The appellant also mentioned...

Chewing Tobacco Packed In High-Density Polyethylene Bags Are 'Wholesale Package'; Cannot Be Taxed As Retail Product Under Excise Act : Supreme Court

Anmol Kaur Bawa

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