http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 9  

CASE NO.: Appeal (civil)  2597 of 2005

PETITIONER: Commissioner of Central Excise, Vapi

RESPONDENT: M/s. Kraftech Products Inc

DATE OF JUDGMENT: 14/03/2008

BENCH: S.B. Sinha & V.S. Sirpurkar

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO. 2597 OF 2005 WITH CIVIL APPEAL NOS. 325-326 OF 2006  CIVIL APPEAL NO. 2575 OF 2005 CIVIL APPEAL NO. 1029 OF 2007 CIVIL APPEAL NO. 1174 OF 2007 CIVIL APPEAL NOS. 2703-2704 OF 2005 CIVIL APPEAL NOS. 5069-5073 OF 2007

S.B. SINHA, J.                                   

1.      Interpretation of Rule 34 of the Standards of Weights and Measures  (Packaged Commodity) Rules, 1977 is in question in these appeals which  arise out of the judgments and orders dated 10th May, 2004 and 23rd March,  2005 passed in Appeal No.E/293/03-MUM and E/182-183/04-NB(A) by the  Customs Excise and Service Tax Appellate Tribunal, Mumbai and Customs  Excise and Service Tax Appellate Tribunal, New Delhi respectively.

2.      We, however, may notice the factual matrix of the matter from C.A.  No.2597 of 2005.  

3.      Respondent manufactures hair dye.  It is packed in pouches each  containing 3 gms..  3 pouches (sachets) are sold in one packet.  The net  weight of each pouch, as also the net weight of the commodity in 3 pouches  and the maximum rate is printed on the pouches.     

4.      Valuation of exciseable goods for purposes of charging the duty of  excise is laid down in Section 4 of the Central Excise Act, 1944 in the  following terms: "4. Valuation of excisable goods for purposes of  charging of duty of excise:   (1) Where under this Act, the duty of excise is chargeable  on any excisable goods with reference to value, such  value shall, subject to the other provisions of this section,  be deemed to be - (a) the normal price thereof, that is to say, the price at  which such goods are ordinarily sold by the assessee to a  buyer in the course of wholesale trade for delivery at the  time and place of removal, where the buyer if not a  related person and the price is the sole consideration for  the sale."

5.      Section 4A of the Act provides for mode of valuation envisaged under

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 9  

Section 4.  It reads as under :- "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 Measures Act, 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. (2) Where the goods specified under sub-section (1) are  excisable goods and are chargeable to duty of excise with  reference to value, then, notwithstanding anything  contained in section 4, such value shall be deemed to be  the retail sale price declared on such goods less such  amount of abatement, if any, from such retail sale price  as the Central Government may allow by notification in  the Official Gazette. (3) The Central Government may, for the purpose of  allowing any abatement under sub-section (2), take into  account the amount of duty of excise, sales tax and other  taxes, if any, payable on such goods. (4) If any manufacturer removes from the place of  manufacture any excisable goods specified under sub- section (1) without declaring the retail sale price of such  goods on the packages, or declares a retail sale price  which does not constitute the sole consideration for such  sale, or tampers with, obliterates or alters any such  declaration made on the packages after removal, such  goods shall be liable to confiscation. Explanation 1: For the purposes of this section, "retail  sale price" means the maximum price at which the  excisable goods in packaged form may be sold to the  ultimate consumer and includes all taxes local or  otherwise, freight, transport charges, commission payable  to dealers, and all charges towards advertisement,  delivery, packing, forwarding and the like, as the case  may be, and the price is the sole consideration for such  sale. Explanation 2: (a) Where on the package of any excisable goods more  than one retail sale price is declared, the maximum of  such retail sale price shall be deemed to be the retail sale  price for the purposes of this section. (b) Where different retail sale prices are declared on  different packages for the sale of any excisable goods in  packaged form in different areas, each such retail sale  price shall be the retail sale price for the purposes of  valuation of the excisable goods intended to be sold in  the area to which the retail sale price relates."

6.      Indisputably, the commodity in question is governed under the  Standards of Weights and Measures (Packaged Commodity) Act, 1976.   Indisputably again the Central Government in exercise of the powers  conferred upon it by Section 83 of the Act framed Rules known as the  Standards of Weights and Measures (Packaged Commodity) Rules, 1977  (the Rules).   

7.      Rule 2 contains the interpretation section.   A distinction is made in  regard to "combination package", "group package" and "multi-piece  package".   

       Multi-piece package is defined in Rule 2(j) to mean :-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 9  

(j) "multi-piece package means a package containing two  or more individually packaged or labeled pieces of the  same commodities of identical quantity, intended for  retail sale, either in individual pieces or the package as a  whole;    Illustration.- A package containing "5 toilet soap cake,  net weight 20 g each, total net weight 100 g" is a multi- piece package."

8.      Rule 6 provides for declarations to be made on every package, which  reads as under :-

"6. Declaration to be made on every package.-    (1) Every package shall bear thereon or on a label  securely affixed thereto a definite, plain and conspicuous  declaration, made in accordance with the provisions of  this chapter as to-   (a) the name and address of the manufacturer, or where  the manufacturer is not the packer, of the packer or with  the written consent of the manufacturer, of the  manufacturer;   (b) the common or generic names of the commodity  contained in the package.   Explanation.- Generic name in relation to a commodity  means the name of the genus of the commodity, for  example, in the case of common salt, sodium chloride is  the generic name;   (c) the net quantity, in terms of the standard unit of  weight or measure of the commodity contained in the  package or where the commodity is packed or sold by  number, the number of the commodity contained in the  package;   (d) the month and year in which the commodity is  manufactured or pre-packed;   [(e) * * * ] (omitted by GSR 521 (E) dt. 26-6-1995)  

(f) the [retail sale price] of the package;  

(g) where the sizes of the commodity contained in the  package are relevant, the dimensions of the commodity,  contained in the package and if the dimensions of the  different pieces are different, the dimensions of each such  different piece;   (h) such other matters as are specified in these rules:"   

Rule 12 provides for the manner in which the declaration of quantity  shall be expressed, sub-rule (2) whereof reads as under :-

"12. Manner in which declaration of quantity shall be  expressed. \026

(1)             \005                            \005.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 9  

(2) Except in the cases of commodities specified in the  Fifth Schedule, the declaration of quantity shall be in  terms of the unit of \026   (a) mass, if the commodity is solid, semi-viscous or  mixture of solid and liquid;   (b) length, if the commodity is sold by linear measure;   (c) area, if the commodity is sold by area measure;   (d) volume, if the commodity is liquid or is sold by cubic  measure; or   (e) number, if the commodity is sold by number:    Provided that in the case of solid commodity contained  in a free-flowing liquid which is sold as such, the  declaration of quantity shall be in terms of the drained  weight of such solid commodity."

Schedule V appended to the Rules specifies the commodity in  packaged form which may be sold by weight, measures or numbers as  shown against the commodity, item No.25 whereof reads as under :-

"25.    Cosmetics including creams,             Weight or measure         shampoo, lotions and perfumes.                                  "

Rule 17 of the Rules mandates additional declarations to be made on  multi-piece packages.   

9.      Admittedly the valuation of the commodity for the purpose of  payment of excise duty was carried out in terms of Section 4 of the Act.   Respondent, however, was served with eight show cause notices dated   29th  August, 2001, 26th March, 2001, 4th July, 2001, 3rd September, 2001, 30th  October, 2001, 8th January, 2002, 27th March, 2002 and 16th May, 2002 in  terms of Section 11A of the Act asking it as to why :-

(i)     Differential Central Excise duty should not be  demanded and recovered under the provisions of  Section 11A(1) of the Central Excise Act, 1944.

(ii)    Penalty should not be imposed under Rule 173Q of  Central Excise Rules 1944/now Rule 25 of the  Central Excise (No.2) Rules, 2001.

(iii)   Interest due under Section 11AA/11AB of the Act,  should not be charged/recovered from them."

 Cause was shown to the said notices.  

10.     The Deputy Commissioner, Central Excise, Division-II, Vapi by two  separate orders dated 25th October, 2001 and 12th July, 2002 rejected the  contention of the respondent that it was entitled to exemption by operation  of the Rules in respect of their product and confirmed the demand of Central  Excise duty and imposed a penalty of equal amount as proposed in the show  cause notices.   

11.     Appeals preferred thereagainst by the assessee/respondent  to the  Commissioner (Appeals) were allowed by an order dated 24th October, 2002.   Appeal preferred by the appellant before the Customs Excise and Service  Tax Appellate Tribunal, Mumbai was dismissed by reason of the impugned

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 9  

judgment dated 10th May, 2004 stating :-

"2.     The main ground of the Departmental appeal is  that the exemption under the said Rule 34 does not apply  to a case where several units are packaged together.  We  have perused the relevant provisions under the Rule 34.    The exemption under the same clearly applies to any  package containing a commodity if the net weight of the  commodity is 20 gms. or less.  The language of the rule  does not warrant the interpretation sought to be placed by  the department that since the package contains 3 units,  the exemption under the rule is not available.  We are of  the view that since the combined weight of the 3 units of  the impugned goods is less than the prescribed weight of  20 gms. the Commissioner (Appeals) has rightly  concluded in his impugned order that the respondents are  eligible for exemption under the said Rule 34 and  consequently they are entitled to assessment under  Section 4 of the Central Excise Act, 1944 instead of  under Section 4A of the said Act."  

12.     The judgment of the appellate authority as also the Tribunal have been  questioned by the department contending that as admittedly the commodity  is sold in 3 sachets, each one of them can be sold separately, Rule 34 of the  Rules will have no application.  How the product, according to the learned  counsel for the appellant, is known in the market, should be the test to find  out as to how it is sold whether in unit or by weight or measure. Strong  reliance in this behalf has been placed on a decision of this Madras High  Court in Varnica Herbs  vs.  C.B.E.&C., New Delhi  : 2004 (163) E..L.T.  160 (Mad.)

13.     Mr. Ravinder Narain and Mr. Monish Panda, learned counsel  appearing on behalf of the respondents, on the other hand, would submit that  keeping in view the provisions of Rule 12(2) of the Rules, the commodity  can be sold by weight or measure.  It was so intended to be done as the  weight of each sachet has been notified on the packet.  It was submitted that  the decision of the Madras High Court in Varnica Herbs (supra) was  rendered per incuriam as has been held by a larger Bench of the Tribunal in  Commissioner of Central Excise, Mumbai  vs. Uirson Cosmetics Ltd. : 2006  (198) E.L.T. 508 (Tri.-LB).   

It was furthermore submitted that the notices under Section 11A of the  Act having been issued beyond the period of six months, the same were  barred by limitation.

14.     The commodity is in powder form.  It is sold in a multi piece package.   Admittedly the product is packed in small packets each containing three  sachets.  Each sachet discloses the weight of its contents.  The packet  containing the three sachets also disclose the total weight and the number of  sachets.  The weight of the product in each sachet is admittedly below 3  gms.  

15.     It is beyond any doubt or dispute that the commodity in question is  being sold in ’multi piece package’.  Identical quantity of commodity is  packed in each sachet.  Yet again admittedly three sachets are packed in one  packet.  The weight of three sachets is 9 gms, that is, less than the prescribed  weight of 10 gms.

16.     Rule 12, as noticed hereinbefore, provides for the manner in which  declaration of quantity shall be expressed.  Sub-rule (2) of Rule 12 would  not apply to the commodities mentioned in Schedule V.  Item No.25 of  Schedule V provides for a declaration to be expressed in terms of weight or  measure.  The packet describes the commodity in question.  It discloses also

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 9  

the weight.  It not only discloses the weight contained in each sachet but also  discloses the weight contained in the packet of three sachets.  In view of  Schedule V appended to the Rules, therefore, the intention of the  manufacturer to sell the commodity by weight is explicit.   

17.     Rule 17 provides for additional declarations to be made on multi-piece  packages.  It envisages declaration of the quantity and the sale price thereof  on each of the packets when the quantity is sold in the multi-piece package.   Requirements of Rule 17 have been complied with.  Section 4A of the Act  would apply only when it is statutorily required to apply the provisions of  the Rules.   

18.     Rule 34 contains an exemption clause.  The exemption clause would  apply if the commodity is sold by weight or measure, subject of course to the  condition that the net weight of the commodity is 10 gms. or less.  This legal  requirement in this case also stands complied with.  Once it is held that the  Rules have no application in respect of the commodity as marketed and sold  by the respondent, Section 4A of the Act will have no application.   The  appellate authority as also the Tribunal, in our opinion, therefore, were right  in their decisions.  

19.     Our attention, however, has been drawn to a Circular Letter dated 2nd  November, 1999 issued by the Central Board of Excise & Customs wherein  purportedly for the purpose of clarification of doubt in regard to the claim  made by certain manufacturers that there were no statutory requirements for  declaration of retail sale price on such packages under the Standards of  Weights and Measures Act, 1976 and the Rules framed thereunder, it was  stated :-   "Rule 6 of the aforesaid rules requires declarations of  certain particulars to be made on every package intended  for retails sale. Retails sale price of the package is one  such detail to be declared by a manufacturer/ packer.  Further rule 17 (1) provides for declaration of certain  additional details in respect of multi-piece packages such  as sale price of the multi-piece package and the number  of individual pieces of the commodity contained in such  packages. However under rule 34, exemption in respect  of certain packages have been provided. In particular sub  rule (b) to rule 34 provides that the MRP provisions do  not apply to a package containing a commodity if the net  weight or measure of a Commodity is 10 grams or 10ml  or less, if sold by weight or measure.  Some  manufacturers have claimed that the multi-piece package  containing individual pieces of less than 10 grams or  10ml or less, even though the net quantity of such multi- piece package exceeds 10 grams or 10ml would be  covered by the above exemption. Hence they would not  required to be assessed to excise duty on the MRP prices  under section 4A of Central Excise Act, 1994   3.    The matter has been examined in consultation with  the Law Ministry. The Law Ministry has given the  opinion that the exemption under rule 34(b) is applicable  to a package containing a commodity and this exemption  does not appear to be applicable to multi piece packages.   4.    Based on the above opinion of the Law Ministry, it is  clarified that the declaration of retail sale price of multi- piece packages and individual pieces contained in such  multi-piece package (if such individual pieces are  capable of being sold separately) is statutorily required  under rule 17 (1) of the Standards of Weights and  Measures (Packaged Commodities) Rules, 1977.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 9  

5.    In view of the above statutory requirements for  declaration of retail sale price under the Standards of  Weights and Measures (Packaged Commodities) Rules,  1977 for multi-piece packages, it is clarified that in  respect of multi-piece packages of a commodity intended  for retail sale and which are notified under section 4A,  they shall be assessed to excise duty under the provisions  of section 4A of Central Excise Act, 1944."   

20.     The opinion of the Law Ministry is not based on any legal principle.   Evidently in so doing it did not take into consideration the effect of Rule 12.    It proceeded on the premise that Rule 34(b) would be applicable to a  package containing a commodity and as such the exemption would not be  applicable to "multi piece package".  "Multi piece package" in terms of Rule  2(j) is also a package containing a common commodity.  To hold it  otherwise would be violating the plain language of the statutory Rules.   

21.     Rule 34(b) provides for exemption from the application of the Rules.   The expression contained therein "that nothing contained in these rules shall  apply to any package containing a commodity" is of wide amplitude.  There  cannot be any doubt whatsoever that Rule 34 would apply in a case of this  nature if it is sold by weight or measure.  The respondents not only do so,  they are permitted to do in terms of Schedule V read with sub-rule (2) of  Rule 12 of the Rules.   

22.    In Jayanti Food Processing (P) Ltd. v. Commissioner of C.Ex.,  Rajasthan [2007 (215) E.L.T. 327 (S.C.)], wherein one of us (Sirpurkar, J.)  was a member, this Court stated the law, thus:

"\005We have already explained earlier that the nature of  sale is of no consequence. The material consideration is  that such sale should be in a ’package’ and there should  be a requirement in the SWM Act or the Rules made  thereunder or any other law for displaying the MRP on  such package. We find the requirement to be only under  Rule 6(1)(f) which applies to ’retail package’ meant for  ’retail sale’. What is required to be printed under Rule  6(1)(f) is the ’retail sale price’ of the package. ’Retail sale  price’ is defined under Rule 2(r) and it suggests that the  ’retail sale price’ means the maximum price at which the  commodity in packaged form may be sold to the ultimate  consumer. The Rule further suggests the manner in which  the ’retail sale price’ shall be mentioned on the package. It  is the case of the appellant that the four litres pack was  not meant to be sold as the package to the ultimate  consumer and the sale was only to the intermediary or as  the case may be, to the hotel. If that was so, then there is  no necessity much less under Rule 6(1)(f) to mention the  ’retail sale price’ on the package."

In Varnica Herbs (supra) whereupon reliance has been placed by the  learned counsel for the appellant, the Madras High Court opined :-

"13.    The next contention of the learned counsel for the  petitioner is that the effect of the circular is to whittle  down the exemption contemplated under Rule 34(1)(b)of  the Rules. Relying upon the said rule, it is the contention  of the petitioner that since the weight of the individual  package is 8 grams, which is less than 10 grams, the  petitioner is not expected to declare MRP or the net  weight of the individual package. It is also the contention  of the petitioner that merely because sachets are placed in  a mono-carton that would not make the pack a multi- piece package and Rule 17 is not applicable."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 9  

Construing Rule 2(j) read with Rule 6 the learned Judge opined :-          "15.    A perusal of these provisions makes it clear that  articles kept in separate pouches by the petitioner can be  termed as multi piece package and such pouches can be  sold individually in single piece or together in a mono- carton of six pouches. The contention of the petitioner  that exemption under Rule 34 would be applicable is not  acceptable. Even though the net weight is less than 10  grams, it is evident that article is not intended to be sold  either by weight or by measure as contemplated under  Rule 34(b). The contention that clarification issued by the  respondent No.1 has the effect of whittling down the  exemption granted under Section 34 is not at all  acceptable."

23.     We have noticed hereinbefore that each package offered to sell to the  customer contains three sachets.  Net weight of all the three sachets are  stated thereon.  It is a "multi piece package" which is capable of being  offered to sell as such only because a package is a "multi piece package", the  same cannot be taken out of the umbrage of exemption clause contained in  Rule 34 of the Rules.  Why the commodity cannot independently be sold  either by weight or measure is beyond our comprehension particularly when  Rule 12(2) permits the same.  The illustration appended to Rule 2(j) bring  out a clearer picture.   It states that the combined net weight shall be taken  into consideration for the purposes mentioned therein.  After combined  weight is taken into consideration for the purpose of applicability of the  Rules, there is no reason as to why the said purpose shall not be considered  to be a relevant factor for applying the exemption provision.  Assuming Rule  2(j) was otherwise vague or unambiguous, illustration appended thereto  brings out the true meaning and purport thereof.  The reasoning adopted by  the Madras High Court in Varnica Herbs (supra) does not appeal to us.

It was rendered per incuriam.  It was held to be so in Urison  Cosmetics Ltd. (supra) by a Larger Bench of the Customs Excise and  Service Tax Appellate Tribunal.  We agree with the said opinion of the  Tribunal.

24.     For the reasons abovementioned the impugned judgment does not  warrant any interference.  The Civil Appeal Nos. 2597, 2575, 2703-2704 of  2005, 325-326 of 2006 fail and are dismissed with costs.  Counsel’s fees  assessed at Rs. 25,000/- in each case.

Civil Appeal Nos. 1029, 5069-5073 of 2007 [Re: M/s. Aero Pharma  (Silvassa) Inc.]

25.    The assessee manufactures Lip Smoother.  Each unit contains 4.3 ml.   They make a package of 72 pieces of lip smoother.  The Revenue proceeded  on the basis that a package containing 72 pieces of lip smoother would be a  multi-piece package.

Civil Appeal No. 1174 of 2007 [Re: M/s. Alfa Packaging]

         26.    The assessee manufactures Shampoo which is packed in sachets.   Each sachet contains shampoo below 10 ml.  It is packed in a carton  containing more than 500 pieces.  Such carton, according to the Revenue, is  a multi-piece package.   

       When a lip smoother or a shampoo is packed in a carton keeping in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 9  

view the quantity contained therein, the same cannot be said to be for retail  sale.  No person would ordinarily purchase for one’s own use 72 lip  smoothers or 500 pieces of shampoo.   

       Thus, it is not a case where the goods are being sold in multi-piece  package.  Each sachet or each lip smoother must be sold as a unit.

27.    Civil Appeal Nos. 1029, 5069-5073 of 2007 and Civil Appeal No.  1174 of 2007 are allowed with costs.  Counsel’s fees assessed at Rs.  25,000/- in each case.