COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, KANPUR versus M/S. A. R. POLYMERS PVT. LTD. ETC. on 21 March 2023

[2023] 2 S.C.R. 1147

COMMISSIONER OF CENTRAL EXCISE & SERVICETAX, KANPUR

v.

M/S. A. R. POLYMERS PVT. LTD. ETC.

(Civil Appeal Nos. 9569-70 of 2019)

MARCH 21, 2023

[KRISHNA MURARI AND SUDHANSHU DHULIA, JJ.]

Central Excise Act, 1944 – s.4(A) – Interpretation of – Goodssold by the respondent if eligible to claim tax benefits within thepurview of the notification u/s.4(A) – Held: While the goods in theimpugned sale were notified u/s.4(A) by way of an official notificationin the gazette, r.3(b) of the 2011 Rules exempts the sale toinstitutional consumers from its purview – In the present case, thepurchasers are military and paramilitary institutions, who purchasethe goods in bulk from the respondent, and then further distribute itto their employees – Thus, the purchaser military and paramilitaryinstitutions become industrial consumers, as they serve as anintermediary between the end consumer and the original purchaser– The purchasers being institutional consumers are exempt from the2011 Rules, and since s.4(A) mandates the applicability of the saidrules, the transaction automatically becomes ineligible to claimrefuge u/s.4(A) – Further, a consumer, as clarified by the JayantiFoods case, is the final consumer of the product, and not theintermediary – Where the purchaser institution is deemed to not bea consumer, the sale also cannot be held to be a retail sale as perthe Act – Since the impugned sale is not a retail sale as per the Act,there exists no mandate of law on the respondent to affix an MRPon the goods sold, and hence the said impugned transaction cannotclaim benefit u/s.4(A) – CESTAT committed error in law by passingthe impugned order – Legal Metrology (Packaged Commodities)Rules, 2011 – r.3(b) – Legal Metrology Act, 2009.

Allowing the appeals, the Court

HELD: 1.1 A bare perusal of Section 4(A) of the Act andthe Jayanti Food Processing judgment would show that to attracta MRP based valuation of goods under the Central Excise Act,the goods should be notified under Section 4(A) of the Act and

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Athat such goods must come within the purview of the Standardsof Weights and Measures (Packaged Commodities) Rules, 1977,now repealed and replaced by the legal Metrology (PackagedCommodities) Rules,2011. In the present case at hand, therespondent entered into a sale with the paramilitary and militaryas per the terms of agreement signed. While the goods in theBimpugned sale were notified under Section 4(A) of the Act byway of an official notification in the gazette, what is most relevantis Rule 3(b) of the Legal Metrology (Packaged Commodities)Rules, 2011 which exempts the sale to institutional consumersfrom its purview. [Paras 7, 8][1152-C-F]CJayanti Food Processing Pvt. Ltd. v. Commissioner ofCentral Excise, Rajasthan (2007) 8 SCC 34 : [2007]9 SCR 221 – relied on.

1.2 The purchasers in this case are military and paramilitaryinstitutions, both of whom purchase the goods in bulk from theDrespondent, and then further distribute it to their employees. Inthis entire process from the sale of the goods to the goods Actuallybeing used by the end consumer, the purchaser military andparamilitary institutions become industrial consumers, as theyserve as an intermediary between the end consumer and theEoriginal purchaser. Due to the purchasers, on account of thembeing institutional consumers, are exempt from the LegalMetrology (Packaged Commodities) Rules, 2011, and sinceSection 4(A) of the Act mandates the applicability of the abovesaidrules, the transaction automatically becomes ineligible to claimrefuge under Section 4(A) of the Act. [Paras 9, 10][1152-F-H]F

1.3 For the sale of goods to take refuge under Section 4(A)of the Act and pass the test of point (iii) in the Jayanti Judgment,there must be a requirement in the the Legal Metrology Act,2009 or the rules made thereunder to declare the price of suchgoods relating to their retail price on the package. In simplerGterms, it would mean that for a sale of goods to take assessmentbenefits under Section 4(A) of the Act, it must be a retail sale,and there must be a mandate of law that directs the seller to affixa retail price on the goods for a sale to be considered a retailsale. A mere affixation of the MRP on a good does not qualify it to H

claim benefits under Section 4(A) of the Act, and that there mustbe a “requirement” for the affixation of such MRP. [Paras 12,13][1153-B-D]

1.4 A consumer, as clarified by the Jayanti Foods Judgment,is the final consumer of the product, and not the intermediary. Inthe present case at hand however, the purchaser institutions,are intermediaries, who after the purchase of the said goods,distribute it further to the final consumer. In such a circumstance,where the purchaser institution is deemed to not be a consumer,the sale also cannot be held to be a retail sale as per the Act.Further, since the impugned sale is not a retail sale as per theAct, there exists no mandate of law on the Respondent herein toaffix an MRP on the goods sold, and hence the said impugnedtransaction cannot claim benefit under Section 4(A) of the Act.The CESTAT committed an error in law by passing the impugnedorder dated 09.01.2019 and the Respondent being under anobligation is directed to pay the differential amount to the relevanttax authority. [Paras 15, 16 and 19][1153-E-G; 1154-C]

Case Law Reference

[2007] 9 SCR 221relied onPara 6

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.9569-70 of 2019.

From the Judgment and Order dated 09.01.2019 of the Customs,Excise and Service Tax Appellate Tribunal, Allahabad in AN Nos. 70618and 70445 of 2017.

N. Venkatraman, A.S.G., Chandra Shekhar, Mukesh KumarMaroria, Zoheb Hussain, Rajat Nair, V.C. Bharathi, H. R. Rao, AshokPanigrahi, Advs. for the Appellant.

The Judgment of the Court was delivered by KRISHNA MURARI, J.

The present appeals are directed against the final judgment andorder dated 09.01.2019 passed by CESTAT, Allahabad in Order Nos.A/70266- 20267/2019 -EX (DB) in Appeal Nos.E/70445/2017 and E/70618/2017, whereby the Respondent’s plea was allowed.

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1150SUPREME COURT REPORTS

AFACTS

2. Briefly, the facts relevant for the purpose of these Appealsare as follows:

I.The Respondent No.1, M/s AR Polymers Pvt. Ltd. is amanufacturer engaged in the manufacture of footwear andBthe sale of the same to defense/paramilitary forces in bulkfor their use.

II.An intelligence was received by the DGCEI that therespondent was availing benefits under notification No. 12/2012-CE dated 17/03/12 and Section 4(A) of the CentralCExcise Act, 1944, which is limited to footwear sold in retail.The said notification wholly exempts the payment of CentralExcise Duty for retail sale of footwear under Rs. 500/- andlimits Central Excise Duty to 6% where the rate of thefootwear is between Rs. 501/- to Rs. 1000/- DIII.Acting on the abovementioned intelligence, a team ofDGCEI officers visited the factory premises of theRespondent, where it was found that the respondent wasmanufacturing the footwear as per a contract entered intobetween the parties, and a rate for the sale and purchaseof the footwear was fixed under the contract. It was alsoEfound that the respondent was printing and attaching MRPstickers on the insole of the said shoes, only to avail thebenefits of the abovementioned notification and Section 4(A)of the Act.

FIV.A demand-show cause notice was issued to the respondenton 05.02.2016 requiring them to show cause to thecommissioner of central Excise, Customs & Service tax.

V.Subsequently, the Ld. Adjudicating authority vide order dated13.02.2017 passed an order against the respondent holdingthat the benefit of the aforesaid notification does not extendGto the footwear sold by the respondent, and hence therespondent was directed to pay the difference amountbetween the tax already paid and the tax which was liableto be paid. A penalty was also imposed on the director ofthe respondent company.

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VI.The respondent, aggrieved by the abovementioned orderfiled an appeal in the CESTAT, and vide impugned orderdated 09.01.2019, the CESTAT overturned the judgment ofthe adjudicating authority and held that the benefit of theabovementioned notification extends to the Respondentherein. As against this the Appellant herein has filed thepresent Appeal.

ANALYSIS

3. We have heard the counsels appearing on behalf of theAppellant in great detail. We must, however, mention that despite severalopportunities being afforded to the Respondent and the counsel for therespondent being served the notice, and the matter being called multipletimes, none appeared before this Court.

4. The Respondent, due to the tax assessment being less underSection 4(A) of the Act, is seeking benefit under the same, however,due to the assessment under Section (4) of the Act being more, theAppellant is claiming for the assessment to be done thereunder. Thisappeal, therefore, fundamentally depends on the interpretation of Section4(A) of the Act.

5. The primary question posed in front of us today is only one,whether the goods sold by the respondent are eligible to claim tax benefitswithin the purview of the abovementioned notification under Section4(A) of the Central Excise Act?

6. In the case of Jayanti Food Processing Pvt. Ltd. v.Commissioner of Central Excise, Rajasthan[1], this Court, while decidingon a similar issue, held that for goods to be included under the assessmentof Section 4(A) of the Central excise Act, it must comply with fivefactors. The relevant paragraph of the judgment is being reproducedherein:

“….Even at the cost of repetition the following would be thefActors to include the goods in Sections 4-A(1) and (2) of the Act:

(i) The goods should be excisable goods;

(ii) They should be such as are sold in the package; 1 (2007) 8 SCC 34

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A(iii) There should be requirement in the SWM Act or theRulesmade thereunder or any other law to declare the priceof such goods relating to their retail price on the package;

(iv) The Central Government must have specified such goodsby notification in the Official Gazette; B(v) The valuation of such goods would be as per the declaredretail sale price on the packages less the amount of abatement.

If all these factors are applicable to any goods, then alonethe valuation of the goods and the assessment of duty wouldbe under Section 4-A of the Act.C

7. A bare perusal of Section 4(A) of the Act and theabovementioned judgment would show that to attract a MRP basedvaluation of goods under the Central Excise Act, the goods should benotified under Section 4(A) of the Act and that such goods must comewithin the purview of the Standards of Weights and Measures (PackagedDCommodities) Rules, 1977, which has now been repealed and replacedby the legal Metrology (Packaged Commodities) Rules,2011.

8. In the present case at hand, the respondent entered into a salewith the paramilitary and military as per the terms of agreement signed.While the goods in the impugned sale were notified under Section 4(A)Eof the Act by way of an official notification in the gazette, what is mostrelevant to us is Rule 3(b) of the Legal Metrology (PackagedCommodities) Rules, 2011 which exempts the sale to institutionalconsumers from its purview.

9. The purchasers in this case are military and paramilitaryFinstitutions, both of whom purchase the goods in bulk from the respondent,and then further distribute it to their employees. In this entire processfrom the sale of the goods to the goods Actually being used by the endconsumer, the purchaser military and paramilitary institutions becomeindustrial consumers, as they serve as an intermediary between the endconsumer and the original purchaser.G

10. Due to the purchasers, on account of them being institutionalconsumers, are exempt from the Legal Metrology (PackagedCommodities) Rules, 2011, and since Section 4(A) of the Act mandatesthe applicability of the abovesaid rules, the transaction automaticallybecomes ineligible to claim refuge under Section 4(A) of the Act.H

11. Further, even if we were to assume that Section 3(b) of theLegal Metrology (Packaged Commodities) Rules, 2011 is inapplicable tothe present purchaser, the impugned sale still fails the test of point (iii) ofthe Jayanti Foods judgment.

12. For the sale of goods to take refuge under Section 4(A) of theAct and pass the test of point (iii) in the Jayanti Judgment, there must bea requirement in the the Legal Metrology Act, 2009 or the rules madethereunder to declare the price of such goods relating to their retail priceon the package. In simpler terms, it would mean that for a sale of goodsto take assessment benefits under Section 4(A) of the Act, it must be aretail sale, and there must be a mandate of law that directs the seller toaffix a retail price on the goods for a sale to be considered a retail sale.

13. It would also mean that a mere affixation of the MRP on agood does not qualify it to claim benefits under Section 4(A) of the Act,and that there must be a “requirement” for the affixation of such MRP.Therefore, even if there is affixation of MRP in the goods, what must belooked at it is whether such affixation was mandated by law.

14. Apart from the exemption granted by way of Section 3(b) thatautomatically removes the mandate of law to affix an MRP on the soldgoods, the said sale still cannot be considered a retail sale because thesale of the goods must be done to a consumer.

15. A consumer, as clarified by the Jayanti Foods Judgment, is thefinal consumer of the product, and not the intermediary. In the presentcase at hand however, the purchaser institutions, as discussed above areintermediaries, who after the purchase of the said goods, distribute itfurther to the final consumer.

16. In such a circumstance, where the purchaser institution isdeemed to not be a consumer, the sale also cannot be held to be a retailsale as per the Act. Further, since the impugned sale is not a retail saleas per the Act, there exists no mandate of law on the Respondent hereinto affix an MRP on the goods sold, and hence the said impugnedtransaction cannot claim benefit under Section 4(A) of the Act.

17. Again, at the sake of repetition, we find it important to clarifythat the mere affixation of MRP does not make goods eligible to findrefuge under Section 4(A) of the Act, and what is required along withsuch affixation is a mandate of law that directs the seller to affix suchMRP.

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A18. Further, It is important to note that the tribunal in its reasoningfor passing the impugned judgment only considered whether the goodsin question were notified by way of a gazette, and did not consider theother four relevant conditions laid down by the Jayanti foods judgment.By not considering other relevant considerations, it is our opinion thatthe tribunal has committed a grave error in law, and hence the impugnedBjudgment is liable to be set aside.

19. In view of the above-mentioned facts and discussions, theCESTAT committed an error in law by passing the impugned order dated09.01.2019 and the Respondent being under an obligation is directed topay the differential amount to the relevant tax authority.C

20. These appeals, accordingly, stand allowed. However, in thefacts and circumstances, we do not make any order as to costs.

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Divya Pandey

(Assisted by : Shevali Monga, LCRA)

Appeals allowed.

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