In a recent case, the Supreme Court recently held that chewing tobacco packed in High-Density Polyethylene ( HDPE ) bags could not be considered as retail product for imposing excise duty under Central Excise Act, 1944.
A show cause notices were issued to the respondent-assessee, Miraj Products Pvt. Ltd who is a chewing tobacco manufacturer. The notices challenged the packaging and pricing strategy employed by the respondent. As per 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 submitted 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. 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).
It was argued by the respondent that the HDPEs not intended for direct retail sales 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 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. This decision was overturned by the Appellate Tribunal relying upon the Supreme Court decision in the case of the Commissioner of Central Excise, Vapi v. Kraftech Products Inc.
The bench viewed that the larger poly packs and the HDPE bags used to distribute them did not meet the criteria for retail sale under Rule 2(q) and therefore are not retail packaging. It was found that the respondent’s packaging strategy did not aim at selling directly to consumers but to intermediaries like distributors, which aligns with the definition of wholesale packaging under Rule 2(x) of the 1977 Rules.
As per the definition under Rule 2(x), a wholesale package means a package that is not sold directly to individual consumers but rather to intermediaries like stores or distributors.
The two judge 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).
The Supreme Court observed that even if it assumed that the 100 poly packs were retail packages, since they are pouched together in HDPE bags, it will covered under the definition of ‘wholesale packages as they were being sold only to distributors and dealers. The HDPE bags are not group packages under Section 2(g) and cannot be taxed on the basis of retail sales.
The Court upheld the impugned order and dismissed the appeals being devoid of merit.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
