The Hindu Business Line : Out in the cold

EXCISE valuation based on `normal wholesale price' was in vogue till June 2000. The Government thought it fit to replace the wholesale price concept with transaction value, which is a WTO-approved method for Customs valuation.

MRP-based valuation was introduced by the Government in 1997, by inserting Section 4A in the Central Excise Act, which provides for notification of items for payment of excise duty based on printed retail sale price.

MRP-based valuation was introduced when the normal wholesale price concept was in force. While introducing MRP-based valuation, the Government had stated that the prime objective was to reduce disputes under the normal wholesale price concept.

Thus, MRP-based valuation has been seen as a major step towards simplification of excise law. However, it is doubtful whether this method is relevant when the system of valuation has changed from wholesale price to transaction value. Under transaction value, the thrust is on levy of duty based on each transaction. Hence, the concept of MRP-based valuation, which is in line with the erstwhile wholesale price concept, now seems dated and contrary to the principles of transaction value.

The other and the more important issue is the applicability of the Standards of Weights and Measures Act 1976 (SWMA) to certain notified items under Section 4A of the Act. An essential pre-requisite for an item to be notified under the Section 4A is that it should be covered under SWMA. While the Government had so far notified over 90 items under the Section, the underlying presumption is that SWMA would apply to all of these items.

It may be noted that SWMA does not contain a comprehensive list of items that would fall under the ambit of the Act. The only condition for a commodity or item to get covered under SWMA is that the said commodity/item should be capable of falling within the meaning of the term `pre-packed commodity' or `commodity in packaged form'.

Certain items such as colour televisions, air-conditioners, refrigerators and washing machines have been notified under Section 4A.

These items are generally opened, offered for sale to the customer in open condition and then packed again after the sale is concluded.

Hence, it would be difficult to interpret that these items would fall under the definition of the term pre-packed commodity as defined under the Packaged Commodity Rules under SWMA, as the said term would essentially contemplate `offer and sale' of an item in pre-packed condition.

Generally, items such as refrigerator come with guarantee and warranty and the order of the day is to give longer warranty. Now compare a typical pre-packed item, say, some energy drink, being sold in a container with details about weight, contents, shelf life and so on, with another product, say, television, which carries a guaranty for two or three years. The guaranty given for the television would adequately protect the interest of the consumer, in case of any defect or fault, even after using the said goods for a year or so.

At this juncture, it may be noted that the ultimate aim of SWMA is to protect the interest of the consumers and the guarantee given by the manufacturers would more than sufficiently achieve this purpose.

Going forward, the Bureau of Energy Efficiency (BEE), coming under the Ministry of Power, had indicated that electrical durables such as refrigerator or air-conditioner would soon carry star ratings depending upon the energy efficiency — from five, for the most energy efficient, to one, for the least energy efficient. There is huge variance in energy consumption of these electrical items, but these vital details are not disclosed to the consumer, as there is no requirement, at present, under SWMA or any other law.

The issue of whether refrigerators would fall under SWMA for the limited purpose of applicability of Section 4A came up before the Punjab and Haryana High Court in Whirlpool of India Ltd vs Union of India 2001 (137 ELT 42).

The court held that refrigerator is a packaged commodity (as it is packed in three wrappers) and that the provisions of declaration of MRP would apply to refrigerators. The court further held that this position would not change merely because the dealer has to open the carton and exhibit the contents to customers at the time of sale. It is humbly submitted that this decision does not reflect the correct position in law. Whirlpool has preferred an appeal against the High Court's ruling, which has been admitted by the Supreme Court (2002 141 ELT A183); the apex court's decision is awaited.

While it may be prudent for the Government to revisit MRP-based valuation, there is a need to clarify as to whether items such as refrigerator would get covered under SWMA and, if so, amendment of SWMA may be considered to bring out the intention clearly.

(The author is a Chennai-based advocate.)

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