2012 PLP (Trib (PTD)

ABDUL RAUF (ACCOUNTANT MEMBER).

This appeal has been filed by the registered person against the Order-in-Original No.20 of 1999 dated 31-8-1999 passed by the Additional Collector, Central Excise Faisalabad.

2. Facts for the purpose of disposal of the instant appeal, briefly stated, are that the Federal Board of Revenue (then Central Board of Revenue) in consultation with the Pakistan Beverages Manufacturers' Association notified the consumer retail price of 250 Ml bottle at Rs.4.50 inclusive of Central Excise Duty and Sales Tax. On the basis of above notified price the retail price for the purpose of levy of excise duty worked out to be Rs.3.193 per bottle whereas the registered person had paid the excise duty on the basis of price of Rs.3.83 per bottle for the period 11-7-1994 to 15-10-1994. A short fall of Rs.139,956 and Rs.167,948 was identified on account of Central Excise Duty and sales tax, respectively, which was confronted to the registered person through a show cause notice dated 7-4-1997. Reply/explanation submitted by the registered person failed to convince the learned Additional Collector who proceeded to pass the order in original dated 12-8-1997 on the lines of show cause notice. Being aggrieved, the registered person filed appeal before the Collector(Appeals) Central Excise and Sales Tax, Lahore, who after noting certain factual discrepancies in the order in original remanded the case to the adjudicating officer for de novo consideration. In pursuance of the order of the Collector(Appeals), proceedings were taken up afresh by the Additional Collector Central Excise, Faisalabad, who repeated the treatment meted out to the registered person earlier vide order-in-original dated 12-8-1997. The registered person feeling aggrieved has come up in appeal before us.

3. Initiating the arguments on appeal, learned representative of the registered person strongly objected to the levy of excise duty and sales tax on the basis of agreement between the Central Board of Revenue and the Beverages Manufacturer Association. Reliance in this context was placed on the judgment of the Supreme Court of Pakistan reported as 1996 SCMR 700, wherein the Apex Court held as under:-- "The learned counsel for the appellants, however, contended that the respondents given a number of Association with whose consent the rules were framed, they should not be allowed to challenge the validity of the Rules. Apart from the fact, that the respondents claimed in their writ petition that the scheme of taxation officer framed by the appellants left no option for them but to opt for payment of excise duty under the Rules, they also challenged the validity of the proviso to Rule 7 on the ground that it infringed their fundamental right guaranteed under Article 25 of the Constitution. Article 25 of the Constitution guarantees for equality of all citizens before law and their entitlement to get equal protection of law. This provision casts a duty on the Government to ensure enactment of laws which provide equal protection to all citizens. Such rights of citizens cannot be defeated on the ground of waiver."

4. Advancing his argument further the learned AR contended that under section 4(2) of the Central Excise Act, 1944 fixation of retail price is the sole prerogative of the manufacturer. He further pointed out that the retail price so fixed is also notified to the Central Excise Authorities and also printed on the crown corks. Since the retail price was fixed, in strict conformity with the provisions of section 4(2) of the Central Excise Act, 1944, the Revenue officials had no authority to interfere with the price so determined on the basis of an agreement which had not been made part of law. The learned AR also drew our attention to two parallel cases wherein the Revenue did not raise any objection to the payment of Central Excise Duty on the basis of Rs.3.83 per bottle. The period involved in one of the cases was 9-6-1994 to 31-8-1994, whereas in the other case it was 1-9-1994 to 31-10-1994.

5. The learned DR on the other hand, supported the impugned order and stated that the Central Excise Duty was payable by the appellant on the basis of retail price of Rs.3.913 because association of the registered person had itself intimated the Federal Board of Revenue (then Central Board of Revenue) that 250 ml bottle was available for Rs.4.50 to the general of body of consumers.

6. We have given due consideration to the rival arguments and also gone through the relevant record available on file. Before proceeding further it will be advantageous to reproduce the provisions of section 4(2) of the Central Excise Act, 1944 which read as under:-- "4(2) Notwithstanding the provisions of subsection (1), the Federal Government may, by notification in the official Gazette, declare that in respect of any goods or class of goods the duty shall be charged on the retail price fixed by the manufacturer, inclusive of all charges and taxes, other than sales tax levied and collected under section 3 of the Sales Tax Act, 1990, at which any particular brand or variety of such article should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price: Provided that the retail price shall be legibly, prominently and indelibly printed or embossed on each article, packet, container, package, cover or label, as the case may be.

7. From the above quoted provision of law it is abundantly clear that the fixation of retail price is the sole prerogative of the manufacturer. The question of determination of retail price in the case of aerated water came up for consideration before the Supreme Court of Pakistan in the case reported as 2001 PTD 1854. The honourable court held that retail price, as determined by the manufacturer would include only those charges and expenses which were "incurred" by the manufacturer in connection with the production of the product and also make it fit or sale. Advancing his argument further, the learned AR explained that by levelling the charge of deduction of chilling charges from the retail price against the appellant the department has, as a matter of fact, distorted the whole issue. He clarified that as a matter of fact the department insisted upon the "inclusion" (addition) of chilling charges to the retail price declared by the manufacturer from time to time and as such the case of the department was precisely for increasing the declared retail price by including the cost of chilling Activity rather than deduction of chilling charges from the declared retail price.

8. As regards the concept of retail price of aerated water with reference to the Board's Circular dated 10-10-1994 and the judgments cited at the bar we would like to highlight that in the case of aerated water one must be aware of the distinction between the consumer price and retail price (as increased by sales tax). This distinction is of pivotal importance because the controversy leading to the litigation between the taxpayers and the department stems from the failure to realize this distinction in the context of aerated water. The distinction, in our view, is attributable to the fact that the condition of aerated water when it leaves the manufacturing premises is altogether different from the one in which it is used as an instant drink. It is an admitted fact that bottles of aerated water, when they leave the manufacturing facility, are unchilled and are delivered to the distributors/retailers in the same condition. It is only at the retail outlets that the process of chilling is performed, whereby the product becomes ready for consumption i.e. to be used as instant drink. Determination of retail price with reference to the chain of activities performed exclusively by the manufacturer leads to the irresistible proposition that a manufacturer, under the law, is obliged to include only those charges in the retail price as are incurred by him up to the stage when the product is sold to the distributor/retailers. It is not disputed by the Revenue that the manufacturer does not perform the chilling activity. As per plain language of provisions of section 4(2) of the Central Excise Act, 1944, a manufacturer cannot be compelled to include the cost of those activities in the retail price as are not undertaken by him. It is also not the case of The Revenue that the manufacturer himself undertakes the chilling process in order to make the aerated water fit to be used as instant drink. Thus both logically and legally he cannot be compelled to include cost of an activity which is not performed by him at all.

9. On the basis of facts discussed supra, we feel inclined to agree with the learned AR of the Registered Person and hold that the determination of the retail price is not only the sole prerogative of the manufacturer and the said retail price would include the cost of all the processes and activities which are undertaken or performed by the manufacturer. The department could discard or interfere with the declared price of the registered person only if it had evidence to assert that the some of the expense/cost incurred in connection with the manufacturing of aerated water had not been accounted for in the determination of retail price. No such allegation has been levelled either in the show cause notice nor any finding to this effect has been recorded in the impugned order. We have already in our earlier order passed in FEA Nos. 18, 19, 26, 27, 34, 35, 37/LB of 2009 on 5-9-2011 that the price fixed by the owners of retail outlets after including the chilling cost is not relevant for the purpose of levying excise duty and sales tax on the manufacturer is not relevant at all because the chilling cost is the exclusive burden of the owners of retail outlets with which the manufacturer has no concern at all.

10. For reasons discussed supra we direct that the retail price as declared by the Registered Person i.e. Rs.3.83 per 250 Ml bottle be accepted for the purpose of charging sales and excise duty. C.M.A./89/Tax(Trib.) Order accordingly.