Strapping Not Packaging: CESTAT Rules MRF Tyres Bound with Plastic Straps Not Liable to S.4A Excise Valuation [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal(CESTAT) ruled that tyres, tubes and flaps tied with plastic straps cannot be treated as “pre-packaged commodities” and so they are not liable for valuation under Section 4A of the Central Excise Act, 1944.

MRF Ltd., the appellant, is a company manufacturing tyres, tubes and flaps. The company was clearing some goods in proper packaged form with MRP and paying duty under Section 4A. But in some cases, tyres, tubes and flaps were just put together and tied with plastic straps for transport, and for those goods, duty was paid under Section 4 based on transaction value.

The department issued a show cause notice saying that these strapped goods are “pre-packaged commodities” under the Legal Metrology Act and Packaged Commodities Rules, and so Section 4A should apply. The Commissioner confirmed a large demand along with interest and penalty. MRF Ltd. then filed appeal before the Tribunal.

The appellant’s counsel argued that Section 4A applies only when goods are actually in a package and there is legal requirement to declare retail price. It explained that just tying with plastic straps is not packaging, because goods are not covered or sealed in any way.

The appellant’s counsel pointed out that tyres were fully visible and straps were only for holding items together during transport. It also relied on earlier clarifications and case laws like Apollo Tyres and J.K. Tyres. They also argued that there was no suppression and issue is only about interpretation.

The revenue counsel argued that goods are sold as a single unit in fixed quantity and so they come under “pre-packaged commodity.” They also argued that tyres and tubes are notified goods and Section 4A should apply. The revenue further argued that the appellant used different valuation methods and did not challenge classification earlier.

The two-member bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that Section 4 is normal rule for valuation and Section 4A is special provision which applies only when conditions are satisfied.

The tribunal observed that “pre-packaged commodity” means goods must be placed in a package. It explained that package means something like box, wrapper, carton or container. The tribunal pointed out that in this case there was no such thing, only plastic straps were used.

The tribunal further observed that tying goods for transport purpose cannot be treated as packaging. It pointed out that just because goods are in fixed quantity, it does not automatically become pre-packaged unless they are actually packed.

The tribunal also observed that earlier clarifications saying tyres tied with plastic straps are not pre-packed commodities are still valid. It also followed the decision in Apollo Tyres and took same view. The tribunal pointed out that just fixing MRP internally does not mean there is legal requirement to declare it.

The tribunal set aside the order of the Commissioner and allowed the appeal filed by MRF Ltd., holding that tyres, tubes and flaps tied with plastic straps are not liable for Section 4A valuation.

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