By TIOL News Service

MUMBAI, AUG 06, 2014: THE appellants are manufacturers of cement. There is a statutory requirement to affix MRP on packages sold to dealers for further sale to consumers in retail under the Legal Metrology (Packaged Commodities) Rules, 2011 and which the appellants have complied with.

The appellants have also cleared cement in 50kg bags to various bulk consumers like, builders/developers/industrial users, who use the cement for construction purpose or as raw material. Such buyers are covered by the definition of ‘industrial consumer' or ‘institutional consumer' under explanation to Rule 2A of PC Rules, 1977 and Rule 3(ii) of PC Rules, 2011. As per these provisions, commodity meant for industrial consumer or institutional consumers are not required to be affixed with MRP. Accordingly, the appellants have not declared the MRP on the cement bags and specifically have declared on the packages - “Not for Retail Sale- meant for industrial consumer/institutional consumer/RMC consumption”.

They have discharged excise duty liability on such cement bags availing the benefit of Sr. No. 1C of Notification No. 4/2006-CE dated 1.3.2006 as amended from time to time during the period May, 2007 to 16.3.2012 and under Sr. No. 52 of Notification No. 12/2012-CE dated 17.9.2012 for the period from 17.3.2012 onwards. As per these entries in the notifications, cement bags of 50 kg cleared to industrial or institutional consumers, which is not subject to fixation of MRP, is eligible for concessional rate of duty as provided therein.

The department was of the view that sale to buyers like, builders/developers etc. cannot be considered as sale to ‘industrial/institutional consumer' and, therefore, the appellants are liable to discharge excise duty at the tariff rate.

Consequently, vide various orders the CCE, Nagpur & Raigad have confirmed the differential duty liability of Rs.36.30 crores and Rs.11.35 crores respectively against the appellants along with interest and penalties.

The appellants are in appeal before the CESTAT.

After hearing the submissions made by both sides, the Bench extracted the contents of Rule 2A of the PC Rules, 1977 & rule 3 of the PC Rules, 2011 &observed thus -

++ It can be seen that packages of commodities containing a quantity of more than 25 kg or 25 litre excluding cement and fertilizers sold in bags upto 50 kg and packaged commodity meant the industrial or institutional consumer are excluded from the provisions of the said Rules. In other words, the Rules exclude two categories - the first category is packaged commodity containing a quantity of more than 25 kg or 25 litre and cement and fertilizer bags containing more than 50 kg. The second category is packaged commodity meant for industrial or institutional consumer. As regards the second category there is no restriction with respect to the quantity of the goods contained in the package. There is a ‘semi colon' between the two clauses. This would clearly indicate that the word ‘and' between the two clauses have to be read disjunctively and not conjunctively. In other words, in respect of both the above categories, the provisions of PC Rules would not apply.

++ Further, ‘institutional consumer' is defined to mean consumers like transportation, Airways, Railways, Hotels, Hospitals or any other service institutions who buy packaged commodity directly from the manufacturer and ‘industrial consumer' means those who purchase the packaged commodity for use by that industry.

++ There is no dispute that the goods were sold by the appellant directly to the builders/developers/Ready Mix Concrete (RMC) manufacturers. RMC is an excisable product and therefore, the sale of cement for manufacture of RMC would definitely come within the category of sale to industrial consumers. As regards builders/developers etc., construction activity is a service activity as is well understood and there is also a Service Tax levy on construction activity. Therefore, sale to such builders/developers would certainly qualify as sale to institutional consumers.

++ The argument of the Revenue that since the sale is not to consumers like transportation, airways, railways, hotels, hospitals and any other service institution and since the builders/developers have not been specifically included and, therefore, such sale would not qualify as sale to institutional consumer is bereft of logic because only certain service providers have been specifically mentioned therein; others are covered by the expression ‘like' and ‘any other service institution' similar to those specifically mentioned. The institutional consumers mentioned are transportation, hotels and hospitals which do not form any particular class. Therefore, the principle of ejusdem generis will not apply. Any service institution would qualify as institutional consumers.

++ From a reading of the Notifications [4/2006-CE & 12/2012-CE], especially the third proviso to entry at Sl. No. IC, it is clear that if the declaration of retail price is not required to be made in terms of PC Rules, then such goods are deemed as cleared in ‘other than packaged form' and the rate of duty prescribed under Sl. No. IC would apply.

Noting that in the cases of Grasim Industries 2008-TIOL-2328-CESTAT-MAD, & Mysore Cement Ltd. 2009-TIOL-1775-CESTAT-MAD, 2010-TIOL-702-HC-KAR-CX & India Cement Ltd. - 2009-TIOL-1464-CESTAT-MAD it is consistently held that cement cleared to industrial/institutional consumers in 50 kg bags are eligible for the benefit of Notification No. 4/2006 under Sr. No. 1C, the CESTAT held that the demands are not sustainable in law.

The appeals were allowed.

In passing : Yet another reason to take a relook at the proposed section 35F of the CEA, 1944.

(See 2014-TIOL-1433-CESTAT-MUM )