The Hindu Business Line : O, in what sweets dost thou thy sins enclose!

Sweets with sweets war not, joy delights in joy, sang the Bard in a sonnet. But sweets may war with taxman, as one saw in a recent case before the tribunal: Swan Sweets Pvt Ltd, Makson Foods Pvt Ltd, Makson Confectionary Pvt Ltd and Cadbury India Ltd vs Commissioner of Central Excise, Rajkot and Commissioner of Central Excise, Gwalior.

The bitter fight that the candy companies waged with the Department was about how their sweets should carry the maximum retail price (MRP) info. Facts of the case begin with a narration about Makson Confectionary. The company manufactures and sells confectioneries of various brands and names on outright basis to Nestle India Ltd and Hindustan Lever Ltd.

Toffee story

The manner of packing/selling one of the products, Toffy Max Caramel/Chocolate, is described in the tribunal's ruling dated January 25, thus:

a) Individual Toffy Max Caramel/Chocolate is wrapped in a printed plastic film. The weight, including wrapper, is about 4 gm.

b) These arethereafter packed in wholesale pack, either in the form of plastic jar or plastic bag.

c) Weight of the wholesale package is around 500 gm in the case of poly bag and around 1 kg in the case of jar.

d) MRP printed on the individual Toffy Max Caramel/Chocolate is 50 paise.

e) Wholesale pack carries, inter alia, the following declaration on it: `Wholesale Package MRP 50 paise per piece (inclusive of all taxes) Net Weight 500 g (125 units)... Without affecting the Net Weight, occasionally, there could be variation in the number of units.'

Sugar confectionary came under MRP-based assessment (under Section 4A of the Central Excise Act, 1944) post-Budget 2002. However, Makson argued that there was no statutory requirement, under the Standards of Weights and Measures Act, 1976 or the Rules made thereunder, to declare the MRP on the wholesale package. The company also contended that there was no requirement under the law to declare MRP on the individual sugar confectionary, since the weight of the individual confectionary was less than 10 gm. Grounds were similar in the appeals of the other companies too.

What is retail?

After hearing both sides, S. S. Sekhon and T. Anjaneyulu, Members of the Customs, Excise and Service Tax Appellate Tribunal, Mumbai, said that the question was, whether in the form in which the goods are cleared are meant for retail sale or not. "It is only such packs, which are intended for retail sale, that are to be affixed with MRP, and only in respect of such commodities, Section 4A will be applicable, if notified by the Government, for the purposes of Section 4A. The view of lower authorities that the moment the goods are notified under Section 4A(1), then the goods are liable to duty with reference to the MRP, cannot be upheld."

The tribunal studied definitions of key words and phrases.

Retail sale, in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales agencies or other instrumentalities, or consumption by an individual or a group of individuals or any other consumer.

Retail sale price means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer.

Retail package means a package containing any commodity which is produced, distributed, displayed, delivered or stored for sale through retail sale agencies or other instrumentalities for consumption by an individual or group of individual.

Wholesale pack is package containing ten, or more than ten, retail packs irrespective of the value of such retail pack.

Multi-piece package is a package containing two or more individually packaged or labelled pieces of the same commodities of identical quantity intended for retail sale, either in individual pieces or the package as a whole (e.g. a package containing `5 toilet soap cakes net weight 20 gm each, total net weight 100 gm').

Don't confuse `retailer' with `consumer', prayed the confectionary companies. Since `consumer' is not defined in the Central Excise Act and the Central Excise Tariff Act, the tribunal had to refer to Black's Law Dictionary, as `one who consumes'.

Intention is a state of mind

If the plastic jar or plastic bag, in which the toffees are packed, are packages intended for retail sale, the law requires MRP to be printed on them, pointed out the tribunal.

Since Makson never intended the jar or bag to be sold to the retail consumers as such, MRP for the bag or jar was not printed on the bag or jar, it was reasoned.

"What is required to be printed on the bag or jar is the MRP for individual toffee... Information given on the bag or jar is only for the dealers or distributor, who handle the said bags or jars in the distribution channel."

If the company had intended to sell bag/jar to retail consumers, it would have printed the price of the bar/jar at one place in a `definite, plain and conspicuous' manner as Rule 6 requires, said the tribunal. "Whether a packaged commodity is intended for retail sale or not will depend on the persons who organise the distribution and sale of the product and on none else." For, "Intention is a state of mind," as the apex court noted in American Home Products Corn vs Mac Labs Pvt Ltd.

Per capita consumption of confectionary

Since per capita consumption of confectionary in India is 300 gm per annum, "it is not normal intent and feasible for a consumer to consume about 500 gm of confectionary of the same flavour on one consuming occasion," said the tribunal. From the taxman side, however, the Commissioner (Appeals) brought up the instance of "a purchase of 500 gm pack by a parent to distribute the Toffy Max Caramel/Chocolate to children at school or in neighbourhood to celebrate the birthday of a son."

On that, the tribunal said, "Such occasional purchase, if they shall take place, would not be a normal intended sale of Toffy Max Caramel/Chocolate. Therefore, 500 gm pack of individual toffees in jar, box or pouch would not be a normal sale and will not cause for assessments for Central Excise purposes under Section 4A."

Probably, the taxman had been dreaming, "The setting sun, and music at the close, as the last taste of sweets, is sweetest last..." as John of Gaunt philosophises in King Richard II, even while chasing the candy makers, saying "O, in what sweets dost thou thy sins enclose!" as in the Bard's Sonnet XCV.

But the ruling went in favour of the confectionary companies, to add `sweets to the sweet,' as Queen Gertrude exclaims in Hamlet.

Tailpiece

"If a taxman can evade surgery, as you do now... "

"Uh... "

"Why can't a surgeon evade tax?"

Detaxification@TheHindu.co.in

D. Murali

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