Central Excise Act, 1944 – s.4(A) – Interpretation of – Goods sold by the respondent if eligible to claim tax benefits within the purview of the notification u/s.4(A) – Held: While the goods in the impugned sale were notified u/s.4(A) by way of an official notification in the gazette, r.3(b) of the 2011 Rules exempts the sale to institutional consumers from its purview – In the present case, the purchasers are military and paramilitary institutions, who purchase the goods in bulk from the respondent, and then further distribute it to their employees – Thus, the purchaser military and paramilitary institutions become industrial consumers, as they serve as an intermediary between the end consumer and the original purchaser – The purchasers being institutional consumers are exempt from the 2011 Rules, and since s.4(A) mandates the applicability of the said rules, the transaction automatically becomes ineligible to claim refuge u/s.4(A) – Further, a consumer, as clarified by the Jayanti Foods case, is the final consumer of the product, and not the intermediary – 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 – 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 MRP on the goods sold, and hence the said impugned transaction cannot claim benefit u/s.4(A) – CESTAT committed error in law by passing the 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 and the Jayanti Food Processing judgment would show that to attract a MRP based valuation of goods under the Central Excise Act, the goods should be notified under Section 4(A) of the Act and that such goods must come within the purview of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, now repealed and replaced by the legal Metrology (Packaged Commodities) Rules,2011. In the present case at hand, the respondent entered into a sale with the paramilitary and military as per the terms of agreement signed. While the goods in the impugned sale were notified under Section 4(A) of the Act by way of an official notification in the gazette, what is most relevant is Rule 3(b) of the Legal Metrology (Packaged Commodities) Rules, 2011 which exempts the sale to institutional consumers from its purview. [Paras 7, 8][1152-C-F]
Jayanti Food Processing Pvt. Ltd. v. Commissioner of Central Excise, Rajasthan (2007) 8 SCC 34 : [2007]
9 SCR 221 – relied on.
1.2 The purchasers in this case are military and paramilitary institutions, both of whom purchase the goods in bulk from the respondent, and then further distribute it to their employees. In this entire process from the sale of the goods to the goods Actually being used by the end consumer, the purchaser military and paramilitary institutions become industrial consumers, as they serve as an intermediary between the end consumer and the original purchaser. Due to the purchasers, on account of them being institutional consumers, are exempt from the Legal Metrology (Packaged Commodities) Rules, 2011, and since Section 4(A) of the Act mandates the applicability of the abovesaid rules, the transaction automatically becomes ineligible to claim refuge under Section 4(A) of the Act. [Paras 9, 10][1152-F-H]
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 such goods relating to their retail price on the package. In simpler terms, it would mean that for a sale of goods to take assessment benefits 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 affix a retail price on the goods for a sale to be considered a retail sale. A mere affixation of the MRP on a good 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. [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. In the 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 the Act, there exists no mandate of law on the Respondent herein to affix an MRP on the goods sold, and hence the said impugned transaction cannot claim benefit under Section 4(A) of the Act. The CESTAT committed an error in law by passing the impugned order dated 09.01.2019 and the Respondent being under an obligation is directed to pay the differential amount to the relevant tax authority. [Paras 15, 16 and 19][1153-E-G; 1154-C]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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