COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, KANPURversusM/S. A. R. POLYMERS PVT. LTD. ETC.

                        [2023] 2 S.C.R. 1147                              1147


     COMMISSIONER OF CENTRAL EXCISE & SERVICE                             A
                   TAX, KANPUR
                                  v.
             M/S. A. R. POLYMERS PVT. LTD. ETC.
                 (Civil Appeal Nos. 9569-70 of 2019)                      B
                          MARCH 21, 2023
   [KRISHNA MURARI AND SUDHANSHU DHULIA, JJ.]
       Central Excise Act, 1944 – s.4(A) – Interpretation of – Goods
sold by the respondent if eligible to claim tax benefits within the
                                                                          C
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     D
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
                                                                          E
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,    F
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.
                                                                          G
      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            H
                                1147
1148            SUPREME COURT REPORTS                      [2023] 2 S.C.R.


 A     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
 B
       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]
 C           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
 D     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
 E     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]
 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 such
       goods relating to their retail price on the package. In simpler
 G     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
 H
  COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, KANPUR v.               1149
             M/S. A. R. POLYMERS PVT. LTD. ETC.


claim benefits under Section 4(A) of the Act, and that there must       A
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,           B
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         C
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   D
tax authority. [Paras 15, 16 and 19][1153-E-G; 1154-C]
                       Case Law Reference
[2007] 9 SCR 221               relied on               Para 6
      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.                   E
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. 70618
and 70445 of 2017.
      N. Venkatraman, A.S.G., Chandra Shekhar, Mukesh Kumar             F
Maroria, Zoheb Hussain, Rajat Nair, V.C. Bharathi, H. R. Rao, Ashok
Panigrahi, Advs. for the Appellant.
      The Judgment of the Court was delivered by
      KRISHNA MURARI, J.                                                G
      The present appeals are directed against the final judgment and
order 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.
                                                                        H
1150               SUPREME COURT REPORTS                         [2023] 2 S.C.R.


 A           FACTS
              2. Briefly, the facts relevant for the purpose of these Appeals
       are as follows:
             I.      The Respondent No.1, M/s AR Polymers Pvt. Ltd. is a
                     manufacturer engaged in the manufacture of footwear and
 B                   the sale of the same to defense/paramilitary forces in bulk
                     for their use.
             II.     An intelligence was received by the DGCEI that the
                     respondent was availing benefits under notification No. 12/
                     2012-CE dated 17/03/12 and Section 4(A) of the Central
 C                   Excise Act, 1944, which is limited to footwear sold in retail.
                     The said notification wholly exempts the payment of Central
                     Excise Duty for retail sale of footwear under Rs. 500/- and
                     limits Central Excise Duty to 6% where the rate of the
                     footwear is between Rs. 501/- to Rs. 1000/-
 D           III.    Acting on the abovementioned intelligence, a team of
                     DGCEI officers visited the factory premises of the
                     Respondent, where it was found that the respondent was
                     manufacturing the footwear as per a contract entered into
                     between the parties, and a rate for the sale and purchase
 E                   of the footwear was fixed under the contract. It was also
                     found that the respondent was printing and attaching MRP
                     stickers on the insole of the said shoes, only to avail the
                     benefits of the abovementioned notification and Section 4(A)
                     of the Act.

 F           IV.     A demand-show cause notice was issued to the respondent
                     on 05.02.2016 requiring them to show cause to the
                     commissioner of central Excise, Customs & Service tax.
             V.      Subsequently, the Ld. Adjudicating authority vide order dated
                     13.02.2017 passed an order against the respondent holding
                     that the benefit of the aforesaid notification does not extend
 G
                     to the footwear sold by the respondent, and hence the
                     respondent was directed to pay the difference amount
                     between the tax already paid and the tax which was liable
                     to be paid. A penalty was also imposed on the director of
                     the respondent company.
 H
     COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, KANPUR v.                  1151
       M/S. A. R. POLYMERS PVT. LTD. ETC. [KRISHNA MURARI, J.]


         VI.    The respondent, aggrieved by the abovementioned order         A
                filed an appeal in the CESTAT, and vide impugned order
                dated 09.01.2019, the CESTAT overturned the judgment of
                the adjudicating authority and held that the benefit of the
                abovementioned notification extends to the Respondent
                herein. As against this the Appellant herein has filed the
                                                                              B
                present Appeal.
         ANALYSIS
       3. We have heard the counsels appearing on behalf of the
Appellant in great detail. We must, however, mention that despite several
opportunities being afforded to the Respondent and the counsel for the        C
respondent being served the notice, and the matter being called multiple
times, none appeared before this Court.
      4. The Respondent, due to the tax assessment being less under
Section 4(A) of the Act, is seeking benefit under the same, however,
due to the assessment under Section (4) of the Act being more, the            D
Appellant is claiming for the assessment to be done thereunder. This
appeal, therefore, fundamentally depends on the interpretation of Section
4(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 benefits   E
within the purview of the abovementioned notification under Section
4(A) of the Central Excise Act?
       6. In the case of Jayanti Food Processing Pvt. Ltd. v.
Commissioner of Central Excise, Rajasthan1, this Court, while deciding
on a similar issue, held that for goods to be included under the assessment   F
of Section 4(A) of the Central excise Act, it must comply with five
factors. The relevant paragraph of the judgment is being reproduced
herein:
         “….Even at the cost of repetition the following would be the
         fActors
                                                                              G
         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                                                           H
1152            SUPREME COURT REPORTS                          [2023] 2 S.C.R.


 A           (iii) There should be requirement in the SWM Act or the
             Rules made thereunder or any other law to declare the price
             of such goods relating to their retail price on the package;
             (iv) The Central Government must have specified such goods
             by notification in the Official Gazette;
 B           (v) The valuation of such goods would be as per the declared
             retail sale price on the packages less the amount of abatement.
             If all these factors are applicable to any goods, then alone
             the valuation of the goods and the assessment of duty would
             be under Section 4-A of the Act.
 C
              7. A bare perusal of Section 4(A) of the Act and the
       abovementioned 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
 D     Commodities) Rules, 1977, which has now been repealed and replaced
       by the legal Metrology (Packaged Commodities) Rules,2011.
              8. 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)
 E     of the Act by way of an official notification in the gazette, what is most
       relevant to us is Rule 3(b) of the Legal Metrology (Packaged
       Commodities) Rules, 2011 which exempts the sale to institutional
       consumers from its purview.
               9. The purchasers in this case are military and paramilitary
 F     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.
 G
             10. 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.
 H
  COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, KANPUR v.                         1153
    M/S. A. R. POLYMERS PVT. LTD. ETC. [KRISHNA MURARI, J.]


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

      13. It would also mean that 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.
Therefore, even if there is affixation of MRP in the goods, what must be
looked at it is whether such affixation was mandated by law.                      D

       14. Apart from the exemption granted by way of Section 3(b) that
automatically removes the mandate of law to affix an MRP on the sold
goods, the said sale still cannot be considered a retail sale because the
sale of the goods must be done to a consumer.
                                                                                  E
       15. 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, as discussed above are
intermediaries, who after the purchase of the said goods, distribute it
further to the final consumer.
                                                                                  F
       16. 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.                   G
       17. Again, at the sake of repetition, we find it important to clarify
that the mere affixation of MRP does not make goods eligible to find
refuge under Section 4(A) of the Act, and what is required along with
such affixation is a mandate of law that directs the seller to affix such
MRP.                                                                              H
1154              SUPREME COURT REPORTS                            [2023] 2 S.C.R.


 A             18. Further, It is important to note that the tribunal in its reasoning
       for passing the impugned judgment only considered whether the goods
       in question were notified by way of a gazette, and did not consider the
       other four relevant conditions laid down by the Jayanti foods judgment.
       By not considering other relevant considerations, it is our opinion that
       the tribunal has committed a grave error in law, and hence the impugned
 B
       judgment is liable to be set aside.
             19. In view of the above-mentioned facts and discussions, 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.
 C
              20. These appeals, accordingly, stand allowed. However, in the
       facts and circumstances, we do not make any order as to costs.

       Divya Pandey                                                    Appeals allowed.
       (Assisted by : Shevali Monga, LCRA)
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