2023 (3) TMI 951 - SC - Central Excise

Footwear Manufacturer Denied Tax Benefits Under Central Excise Act

COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, KANPUR Versus M/s. A.R. POLYMERS PVT. LTD. ETC.

The Court held that the Respondent, a footwear manufacturer, was not eligible for tax benefits under Section 4(A) of the Central Excise Act, 1944, due to ... Valuation - Transaction value of MRP based value - institutional buyer - Section 4(A) of the Central Excise Act - retail sale of footwear under Rs. 500/- - whether the goods sold by the respondent are eligible to claim tax benefits within the purview of the abovementioned notification under Section 4(A) of the Central Excise Act? - HELD THAT:- In the case of JAYANTI FOOD PROCESSING (P) LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, RAJASTHAN [2007 (8) TMI 3 - SUPREME COURT], this Court, while deciding on a similar issue, held that for goods to be included under the assessment of Section 4(A) of the Central excise Act, it must comply with five factors. 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come within the purview of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, which has now been repealed and replaced by the legal Metrology (Packaged Commodities) Rules, 2011 - In the present case at hand, the respondent entered into a sale with the paramilitary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 to us is Rule 3(b) of the Legal Metrology (Packaged Commodities) Rules, 2011 which exempts the sale to institutional consumers from its purview. 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 - 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 - Appeal allowed. Issues Involved:The judgment involves the interpretation of Section 4(A) of the Central Excise Act, 1944, regarding the eligibility of goods for tax benefits under a specific notification.Facts:The Respondent, a footwear manufacturer, was found to be availing tax benefits under a notification limited to retail sales, which exempted Central Excise Duty for footwear under a certain value. The Respondent was issued a demand notice, and the adjudicating authority held that the benefit did not extend to the Respondent's sales, leading to a penalty. The CESTAT later overturned this decision, prompting the current appeal.Analysis:The primary issue is whether the goods sold by the Respondent qualify for tax benefits under Section 4(A) of the Act. Reference is made to a previous judgment outlining five factors for goods to be included under Section 4(A), emphasizing the need for goods to be excisable, sold in a package, price declared on the package, specified by the Central Government, and valuation based on retail sale price.The judgment highlights that for goods to qualify under Section 4(A), they must be notified under the Act and comply with the Legal Metrology Rules. In this case, the sale to military and paramilitary institutions exempts the transaction from the Legal Metrology Rules, making it ineligible for Section 4(A) benefits. The judgment also emphasizes the requirement for goods to be sold to consumers, not intermediaries, to qualify as retail sales.Conclusion:The Court found that the CESTAT erred in law by not considering all relevant conditions laid down in previous judgments. The Respondent was directed to pay the differential amount to the tax authority, and the appeals were allowed without costs.