Only Retail Sale Can Claim Assessment Benefits Under Section 4A Of Central Excise Act : Supreme Court

The Supreme Court has held that mere affixation of MRP does not make goods eligible for central excise duty exemption, and what is required along with the affixation is a mandate of law that directs the seller to affix such MRP.

The Division Bench of Justice Krishna Murari and Justice Sudhanshu Dhulia has observed that 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 sale was not a retail sale, there is no legal mandate on the respondent or assessee to affix an MRP to the goods sold, and hence the transaction cannot claim benefit under Section 4(A) of the Central Excise Act, 1944.

The respondent, M/s AR Polymers Pvt. Ltd., is a manufacturer engaged in the manufacture of footwear and the sale of it in bulk to defence and paramilitary forces for their use.

An intelligence report was received by the DGCEI that the respondent was availing of benefits under Notification No. 12/2012-CE dated March 17, 2012, and Section 4(A) of the Central Excise Act, 1944, which is limited to footwear sold in retail. The notification wholly exempts the payment of Central Excise Duty for retail sales of footwear under Rs. 500 and limits Central Excise Duty to 6% where the rate of the footwear is between Rs. 501 and Rs. 1000.

A team of DGCEI officers visited the factory premises of the respondent. 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 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 shoes only to avail himself of the benefits of the notification and Section 4(A).

The adjudicating authority passed an order against the respondent, holding that the benefit of the notification does not extend to the footwear sold by the respondent. Hence, the respondent was directed to pay the difference between the tax already paid and the tax that was liable to be paid. A penalty was also imposed on the director of the respondent company.

The respondent, aggrieved by the order, filed an appeal with CESTAT. The CESTAT overturned the judgement of the adjudicating authority and held that the benefit of the notification extends to the respondent.

The issue raised was whether the goods sold by the respondent are eligible to claim tax benefits within the purview of the notification under Section 4(A) of the Central Excise Act.

Section 4(A) of the Central Excise Act 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. The goods must come within the purview of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, which have now been repealed and replaced by the legal Metrology (Packaged Commodities) Rules, 2011.

The Supreme Court noted that the respondent entered into a sale with the paramilitary and military as per the terms of the agreement signed. While the goods in the sale were notified under Section 4(A) 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.

The court observed that the purchasers are military and paramilitary institutions, both of whom purchase the goods in bulk from the respondent, and then further distribute them to their employees. In the 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.

The court held that due to the purchasers' status as institutional consumers, they are exempt from the Legal Metrology (Packaged Commodities) Rules, 2011, and since Section 4(A) of the Act mandates the applicability of the rules, the transaction automatically becomes ineligible to claim refuge under Section 4(A) of the Act.

"For a sale of goods to qualify for 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," the Apex court said while quashing the CESTAT order.

Case Title: Commissioner Of Central Excise & Service Versus M/S. A.R. Polymers Pvt. Ltd. Etc.

Citation: 2023 LiveLaw (SC) 223

Central Excise Act 1944- Section 4(A)- For a sale of goods to qualify for 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,

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