In a landmark decision, the Supreme Court has ruled that chewing tobacco packaged in High-Density Polyethylene (HDPE) bags qualifies as a ‘wholesale package.’ Consequently, these products are not subject to excise duty as per the provisions concerning retail sale price under the Central Excise Act, 1944.
The ruling, delivered by Justices AS Oka and Pankaj Mithal, upheld the Central Excise Appellate Tribunal’s stance that chewing tobacco in HDPE bags is intended for distribution to intermediaries, such as distributors and dealers, under the Standards of Weight & Measures (Packaged Commodity) Rules, 1977. This categorization exempts these packages from being taxed as retail products.
The case arose from show cause notices issued to a chewing tobacco manufacturer, challenging the packaging and pricing strategies employed. The manufacturer packaged 33 small pouches of 6 grams each and one larger pouch of 15 grams in a single HDPE bag, with distinct maximum retail prices marked on the individual pouches.
The notices argued that these HDPE bags, containing 33 small and one large pouch, constituted ‘group packages’ intended for retail sale, thereby making them liable for excise duty under S. 4A of the Central Excise Act, 1944. However, the manufacturer contended that the HDPE bags were not meant for direct retail but for distribution to intermediaries, classifying them as wholesale packages under Rule 2(x) of the 1977 Rules.
The Commissioner originally rejected this argument, asserting that the packaging indicated an intention for retail sale. However, this decision was overturned by the Appellate Tribunal, which cited a Supreme Court precedent involving the interpretation of packaging rules in the context of hair dye products.
The Supreme Court bench focused on whether the packaging was intended for retail sale, a key factor in determining the applicable excise tax provisions. The appellant argued that the products, being packaged for individual sale, justified the application of S.4A of the Excise Act. The respondent countered that the HDPE bags were intended for wholesale distribution, not individual sales.
The Court noted that the respondent’s packaging strategy aimed at selling to intermediaries, aligning with the definition of wholesale packaging under Rule 2(x) of the 1977 Rules. The Court concluded that the Tribunal’s judgment was correct, reaffirming that the HDPE bags did not meet the criteria for retail packaging under Rule 2(q) and thus could not be taxed as retail products.
The Supreme Court dismissed the appeals, confirming that the duty imposed under S.4A of the 1944 Act was not applicable to the HDPE bags. This ruling provides clarity on the classification of wholesale versus retail packaging for excise duty purposes, potentially impacting similar cases in the future.
