Customs, Excise and Gold Tribunal - Bangalore
Hindustan Lever Ltd. vs Commissioner Of C. Ex. on 1 July, 2005
Equivalent citations: 2005(185)ELT375(TRI-BANG)
JUDGMENT T.K. Jayaraman, Member (T)
1. In the Misc. order Nos. 994, 995/2004 dated 19-11-2004, in Appeal Nos. E/441/2004 & E/725/2002, this Bench observed that there are contra judgments on the issue of determination as to whether a particular sale is to be considered as wholesale or retail and hence, the matter was referred to the Hon'ble President of CESTAT to constitute a Larger Bench to resolve the controversy involved in the said appeals. Consequent to the constitution of the Larger Bench, we are deciding the issue in respect of these appeals. As regards the appeal filed by M/s. Steel Complex Ltd., Kerala, an additional issue is involved.
2. The relevant facts briefly stated are as follows :
M/s. Hindustan Lever Ltd.:
In this case, the appellants claimed the benefit of exemption under Notification 6/2002-C.E., dated 1-3-2002 as amended by Notification No. 6/2003-C.E., dated 1-3-2003. The Notification benefit was available to Vanaspati, Bakery Shortening, Margarine and other edible preparations. However, in case the goods bear a brand name and are put up in unit containers and meant for retail sale, the exemption would not be available. The impugned goods, no doubt, bear a brand name and are put up in unit containers. However, there is a label indicating that the goods are meant for Bakery/Catering Industry use. It is further indicated that the impugned goods are 'not for retail sale'. The appellants contend that they are entitled for the exemption on the ground that the impugned goods are not meant for retail sale but, the Revenue, is of the view that the goods are sold to consumers and, therefore, the sale is a retail one. The appellants rely on a number of case laws. Revenue also relies on certain case laws. We have to examine all the case laws to arrive at a proper conclusion.
M/s. Steel Complex Ltd.:
In this case, the appellants declared a price, which is different from what is shown in the commercial invoice. The appellants supply steel products to Government Units. The appellant contended that clearances to Government Units who utilised the goods for construction purposes should be considered as retail sale. Since, during the relevant period, excise duty was charged on the basis of wholesale price, the appellant considered the price at which they sold the goods to be retail price and worked out the assessable value in terms of Rule 6(a) of the Central Excise (Valuation) Rules, 1975. There is another issue in this appeal. The appellant charged a price of 10% over the normal price to all the Government Units by virtue of the Kerala Government Circular. This is called Price Preference. This extra amount was not taken into account while arriving at the Assessable Value. The appellant contends that this extra price is not includible as it is in the nature of a subsidy.
3. In the case of both these appeals, the concerned authorities passed orders in favour of the Revenue.
4. Shri B.V. Kumar, the learned Advocate appeared for M/s. Hindustan Lever Ltd. and Shri K. Parameswaran, the learned Advocate appeared for M/s. Steel Complex Ltd. Shri L. Narasimha Murthy, the learned SDR appeared for Revenue.
5. Before examining the case laws, we like to delve on the general meaning of 'wholesale' and 'retail' transactions. When commodities are purchased, one can purchase in either large or small quantities depending upon the requirement. A trader normally purchases goods in appreciable quantity for the simple reason that the goods are purchased for re-sale. It does not mean that only a trader would purchase goods in huge quantities. Sometimes, on special occasions, an individual may require huge quantities of goods. In that case, even an individual consumer can purchase items on the basis of wholesale price. It is a well-known trade practice that when goods are purchased on wholesale basis, the price charged would be less. That is why there are discounts for bulk purchases. The Black's Law Dictionary defines wholesale' as 'a sale in large quantity to one who intends to resell'. Further, a wholesaler is one who buys in comparatively large quantities and then re-sells usually in smaller quantities but never to the ultimate consumer. On the contrary, 'retail' means "to sell by small quantities, in broken lots, parcels, not in bulk, directly to consumer". In general, wholesalers sell to retailers who in turn sell to consumers. In other words, normally wholesalers do not sell directly to consumers.
(a) The Hon'ble Supreme Court in the case of Collector of Central Excise, Madras v. Abex Rubber Co. -1998 (99) E.L.T. 489 (S.C.) held that there is no presumption in law that a sale to an industrial consumer must be in bulk and the price charged must be in wholesale price. Any such inference will have to be drawn from the facts of the case. In the same decision, it has been observed that, "There is no dispute that bulk sale to a single consumer may constitute wholesale sale and the price for such sales should be taken as the normal price basis for determining the assessable value of the goods." From the above observations, it is evident that in order to decide whether a transaction is a wholesale transaction or retail transaction, one has to examine the facts of the case. During the hearing, an impression was created by the learned Advocate for M/s. Hindustan Lever Ltd., that in view of the Abex Rubber decision, the quantity of sale is irrelevant to decide the question of wholesale or retail. We are afraid that this is not correct. There cannot be a general proposition that sale to Industrial consumer is wholesale and sale to individual consumer is retail. The factual position should be examined in the light of the Central Excise law for reaching a conclusion.
(b) In the case of Gora Ma Hari Ram Ltd. v. Collector of Central Excise, Delhi - 1994 (69) E.L.T. 269 (Tribunal), the Tribunal made the following observations.
As regards the sale "by the assessee at different prices to different classes of buyers", it appears reasonable to assume that it is for the assessee to classify his buyers according to his commercial considerations; of course, the classification has to be rational and identifiable, based purely on commercial considerations. It could not be arbitrary or capricious".
(c) While deciding whether a sale is wholesale or not, one should take into account the quantity also. In our view, it is not an irrelevant factor in view of the common understanding of the term 'wholesale'. Sometimes, manufacturers issue several invoices to the same buyer on the same day to indicate that the sale is a retail sale. This practice was deprecated by the Tribunal in Collector of Central Excise, Madras v. Madras Rubber Factory Ltd. - 1984 (18) E.L.T. III (Tribunal). We quote Para 23 of the Tribunal's decision :
"23. The question remains whether MRF's dealers, and for that matter, the other institutional buyers such as State Transport Undertakings, motor vehicle manufacturers, etc. purchase their requirements from MRF otherwise than in retail as contemplated in Section 4(4)(e) of the Act. We have seen how MRF has been splitting up sales of quantities of goods which cannot be termed small into a large number of sales involving small quantities and issuing several invoices. This aspect of the sales itself is a tell-tale indication of the true nature of such sales and purchases. Purchases of the requirements of these buyers are given the appearance of purchases of their requirements in retail. But that cannot detract from the true nature of these purchases and sales : they are otherwise than in retail. While the element of direct re-sale may not be there in the case of the institutional buyers, they have a commercial interest in the purchase of MRF's goods. Vehicle manufacturers, for instance, fit tyres and tubes as original equipment on vehicles manufactured by them for sale. Transport Undertakings fit them to their vehicles which ply on commercial basis. The fact that the element of direct re-sale (of tyres, tubes purchased from MRF) may be absent in the case of such buyers would not detract from the position that such purchases (and MRF sales to them) are not purchases (sales) in retail."
We infer from the above observations, that quantum of sale is very relevant. The erstwhile Section 4(4)(e) defines 'wholesale trade' as follows :
'"Wholesale trade" means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail'.
(emphasis supplied) In other words, any supply to dealers, industrial consumers, Government, local authorities can be considered as wholesale trade provided they do not purchase in retail quantity. The purchase must be otherwise than in retail. The fact of a sale being wholesale does not depend on to whom the goods are sold but how much is sold.
(d) In the case of D.C.W. Ltd. v. Collector of Central Excise - 1992 (62) E.L.T. 153 (Tribunal), the point that Industrial Consumers are a class of buyers is emphasised.
Section 2(k) of the Central Excise Act is reproduced herein below :
"2(k) "wholesale dealer" means a person who buys or sells excisable goods wholesale for the purpose of trade or manufacture, and includes a broker or commission agent, who in addition to making contracts for the sate or purchase of excisable goods for others, stocks such goods belonging to others as an agent for the purpose of sale".
A careful reading of the above definition supports the contention of the appellant that a wholesale transaction not only means sale or purchase or excisable goods for re-sale but includes a transaction for the purpose of manufacture. In view of this definition, a sale or purchase by an industrial consumer is a wholesale transaction within the meaning of Section 2(k) of the Central Excise Act, 1944, provided, the quantity is Wholesale.
(e) In the case of HCL Picker Ltd. v. CCE, Meerut - 1999 (114) E.L.T. 998 (Tribunal), it was held that sale of CT Scanners to the Hospitals amounts to retail trade since the item as such was used by the consumer for his own use and the transaction has to be treated as retail. This is acceptable as Hospitals normally purchase one or few CT scanners for their use, but not in wholesale quantity. The Revenue relied on this case to support their contention that the sale of Margarine in unit containers by HLL amounts to retail sale. In our view, this decision is distinguishable and cannot be compared with the supply of the impugned goods to the Bakery/Catering Industry. We have already seen that wholesale trade is not only sale to buyers who re-sell the goods but also to buyers who purchase for manufacture. In this case, the Bakery/Catering Industry purchase goods from M/s. HLL for further manufacture. In other words, they are industrial consumers. It has been clearly spelt out in the erstwhile Section 4(4)(e) that sale to industrial consumers is a wholesale sale, provided the quantity sold is not in retail. In view of the fact that the label on the impugned goods indicates that the goods are not meant for retail sale, we have to accept the contention of the appellant that the impugned goods are meant only for wholesale sale.
(f) In the case of Jay Industrial Company v. CCE, Bangalore - 2002 (141) E.L.T. 437 (Tri. - Bang.), it has been held that material exclusively used for industrial purposes but also capable of being used as consumer goods are not covered under consumer goods even if they are not further processed. In the case of CC, Mumbai v. Jaysons Hard Metals P. Ltd. - 2003 (155) E.L.T. 193 (Tri. - Mum.), it has been held that goods will not become consumer goods merely because of being packed in a particular manner. In the case of Telco Ltd. v. CC, Mumbai - 2003 (158) E.L.T. 621 (Tri.), it has been held that packing is not determinative of whether goods are for industrial application or consumer goods. The learned Advocate relied on these case laws for contending that mere packing is not an indication for determining the nature of the goods. In the case of Hercules Rubber Co. v. CCE -1984 (18) E.L.T. 479 (T), the distinction between the industrial consumer and individual consumer has been clearly brought out.
"The distinction between an industrial consumer and an individual consumer is not one without difference. While there can be sale by the manufacturer in retail in terms of Rule 6 of the Central Excise (Valuation) Rules, 1975, such a sale cannot be to an industrial consumer but to an individual customer or consumer for his personal consumption and not for industrial use. The industrial consumers are a class apart from individual consumers insofar as valuation of excisable goods in terms of Section 4 of the Act is concerned."
(g) Sri. K. Parameshwaran, relied on the following case laws to hold that clearances made to Government for their own consumption (other than for resale) should be considered as retail sale.
* CCE v. MRF-1984 (18) E.L.T. III (T) * Hercules Rubber Co. v. CCE, Madras -1984 (18) E.L.T. 479 (T) * Macneill Engineering Ltd. v. CE, Calcutta - 2001 (134) E.L.T. 173 (T) * Godrej & Boyce Mfg. Co. Ltd. v. CCE, Bombay -1994 (71) E.L.T. 429 affirmed by Apex Court by only reducing the margin for retail sale as reported in 1998 (98) E.L.T. 12 (S.C.) * CCE v. Indian Communication Network Ltd. - 1989 (41) E.L.T. 643 (T) * International Computers Indian Mfr. v. CCE, Pune - 1994 (74) E.L.T. 672 * CCE, Bombay v. Voltas Ltd. -1987 (27) E.L.T. 718 (T) * CCE, Meerut v. Escorts Ltd. -1988 (33) E.L.T. 147 (T) * CCE, Bombay v. Sanghi Oxygen -1998 (99) E.L.T. 117 (T)
(h) In the case of Macneill Engineering Ltd. v. CE, Calcutta - 2001 (134) E.L.T. 173 (T), it has been held that where the goods are produced by the manufacturer and sold in retail the assessable value should be determined under Rule 6(a) of the Valuation Rules. It has also been held that sale of forklift and other work trucks from the factory gate of the assessee directly to the individual customer who may be an industrial consumer using these goods for own use can be considered as retail sales. In the case of Godrej & Boyce Mfg. Co. Ltd. v. CCE, Bombay - 1994 (71) E.L.T. 429, it has been held that the forklift trucks manufactured as per specifications of customers and sold directly to them for their own use should be treatable as a retail sale irrespective of whether some customers purchased more than one truck. While coming to the above conclusion the Tribunal has observed the following :-
"Considering the factual position in the present set of appeals, undisputedly, there is no sale to any dealer. It is not the allegation from the department that any of the customers under consideration has purchased the trucks for effecting any further sale. They all appear to have purchased them to be used in their normal activities, and the nature of transaction between the appellants and the consumers clearly indicates the sale in the nature of retail sale. Separate sale transactions have been entered into with each individual consumer, at the price negotiated and with modifications supply of extra accessories as desired by each one of them. These are the major criteria which exist in the retail transactions and are generally absent in the wholesale trade, where general requirements of the consumers at large, as against specific requirements of each individual consumer, are considered. The sale transactions, therefore, provide clear indication of the sales being in the nature of retail sale. Some of the customers have purchased more than one truck, but merely on that count, the sale cannot be construed to be in the nature of wholesale trade. In such cases also the essence of the transactions remain to be of the retail nature."
(i) In the same decision at Para 9.7 it has been observed "9.7. From the decisions referred to above, as also considering the definition of the word "whole-sale trade" given in Section 4(4)(e) of the Act, the wholesale trade has to be understood as the one, where the element of further sale to other persons is involved, or where the purchase is by those specified, namely, industrial consumers, Government, local authorities and other, if they are purchasing the items under consideration "in bulk" and not as a retail purchase. What could be considered as purchase in bulk or "otherwise than in retail", has already been explained herein above"
(j) In the Modi Xerox case, distinction between sales to consumers and wholesale has been made. Sale of photocopiers to government is to be treated as wholesale sale and not retail sale. This decision has been affirmed by the Hon'ble Supreme Court. In the case of Collector of Central Excise v. Indian Communication Network, it has been held that goods purchased for own use even by industrial consumers should be treated as sales in retail and not wholesale. It has also been clearly spelt out that, "Wholesale sale are sales to dealers who re-sell the goods to others. The sales may even be made to industrial consumers who use the goods in the manufacture of other goods or the sale may be to institutions or bulk users who buy in bigger bulk for their own commercial purpose. This is in contradistinction to a buyer who makes the purchase for his own use."
(k) In the case of International Computers Indian Mfr. Ltd. v. CCE, Pune, the Tribunal has held that sale of office machines and apparatus and computers directly to consumers is a retail sale. In the Voltas case, it has been held that sale of forklifters supplied to direct users constitute retail sale only. In the case of Escorts limited, it has been held that, motorcycles sold directly to consumers, through dealers does not amount to wholesales sale, but only retail sale. In Sanghi Oxygen case it has been held -
"3. Where the industrial consumer purchases in wholesale, he has to be regarded as wholesaler for the purpose of Section 4(4)(e) of the Central Excises Act. We say so since "wholesale trade" has been defined in Explanation to wholesaler trade as; sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase the requirements otherwise than in retail. Where there are industrial consumers who buy their requirements in wholesale, they form a separate class of buyers as contemplated in proviso (i) to Section 4(1)(a) and in respect of goods sold to them a different assessable value can be arrived at but this cannot apply to stray case where industrial consumers buy goods in retail since such industrial consumers cannot be regarded as wholesale dealers."
6. A very careful examination of all the case laws cited indicate that each case has been decided based on the facts of that case. In other words we do not really find any contradiction or inconsistencies in the light of the facts of each case. However, while examining the definition of wholesale trade in the erstwhile Section 4(4)(e) and also the definition of Wholesale trader in Section 2(k) of the Central Excise Act, 1944, the following picture emerges. Wholesale transaction includes not only sale for purposes for trade but also for purposes of manufacture and hence sale to industrial consumer in bulk is a Wholesale trade and cannot be considered as retail sale. Further when the goods are supplied directly to a consumer the sale transaction is retail. But the quantum is important. Under certain circumstances an individual consumer may purchase in huge quantities, say, for a wedding. On that count, we cannot hold that the transaction is retail. There is always a difference between individual consumer and industrial consumer as brought out in the Hercules Rubber Co. case (mentioned supra). An industrial consumer consumes for manufacture or other industrial purposes, whereas an individual consumer consumes for a personal consumption. We have already brought out the observations of Hon'ble Supreme Court in the Abex Rubber Co. It has been categorically stated that bulk sale to a consumer may constitute wholesale sale. In other words, in our considered view the basic meaning of Wholesale trade cannot be ignored. Sometimes an industrial consumer may purchase a very small quantity of some items, just because the supply is to an industrial consumer, in that particular case, the transaction cannot be considered as a Wholesale transaction. Similarly in some other case, an individual in view of certain circumstances may buy a very large quantity of certain items. In that instance, the individual would definitely get the things at Wholesale rate and we cannot consider that transaction to be a retail transaction. Even when an industrial consumer purchases goods directly from the manufacturer for consumption the same can be considered either as Wholesale transaction or as retail transaction depending upon the quantity purchased. If the purchase is in Wholesale quantity the transaction will be Wholesale transaction. If the purchase is in retail quantity the transaction will be retail. But what is Wholesale and what is retail would depend upon the circumstance of the case. It would not be difficult to ascertain the limits of Wholesale and retail quantities in respect of the particular commodity. It all depends upon the trade practice.
7. Applying the above principles, it is seen that in the case of M/s. Hindustan Lever Ltd., the goods are supplied to baking/catering industry for their exclusive use. It has also been clearly mentioned in the label that the items are 'not for retail sale'. Applying the case laws cited above we find that the goods are not meant for the use of the ultimate consumers. They are meant only for the bakery/catering industry. By no stretch of imagination it can be construed that these items are sold in retail quantity. In view of the above findings, the appeal is allowed.
8. As regards the case of M/s. Steel Complex, all the case laws relied on by the learned advocate refer to the sale of photocopiers/forklifts/motor cycles etc., to the ultimate consumers. In these cases it has not been established that the buyers purchase in bulk. Even when a Government department purchases a photocopier it may be either one, two or three. It cannot be in very huge quantities. But in the present case, the appellant company supplied steel to different Government companies in bulk. The case of the appellants is that the steel purchased by the Government companies is not for resale but only for their own consumption. According to the Appellants, the nature of their sales is retail, as their buyers viz., Government units do not resell but use the goods for construction purposes. The learned Advocate maintains sphinx like silence with regard to the quantum. But the adjudicating authority, has observed that, "the main factor which decides whether the trade is wholesale or not is the quantum of the consignments sold. It is seen that majority of sale consignments weigh about 10 MTs and this cannot be termed as retail sale." Further the appellate authority in his findings has stated that, "there is no merit in their contention that their sales are in retail. All the sales were to Government institution in bigger lots for their own commercial use has been distinct from an individual consumer buying goods for personal or family use. Moreover the appellant has not convincingly rebutted the findings of the adjudicating and the appellate authority. In view of the factual position of this case, we are not inclined to give the benefit of the case laws cited by the appellants.
9. One more point is to be decided in the case of M/s. Steel Complex Ltd. The appellant has contended before the first appellate authority the difference in price between the commercial invoice and a price declared is on the account of the fact that 10% price preference is given to them pursuant to BIFR scheme/Govt. of Kerala circular in respect of sales made to Govt. Departments. The contention of the appellant is that this 10% extra amount given to them over the normal price by the Government Departments is in the nature of subsidy and is not includible in the assessable value in view of the following case laws :
* Mazagon Dock Ltd. v. CCE, Belgaum - 2000 (115) E.L.T. 396 (T) * CCE, Chandigarh v. Kashmir Handloom (I) - 2002 (53) RLT 259 (T)
10. In the Mazagon Dock Ltd. case, Mazagon Dock supplied jackup rigs to ONGC, there is a contract price. However the Central Government, separately paid subsidy to Mazagon Dock to maintain the ship Building yards. In this case, the subsidy was not paid by the buyer to Mazagon Dock. It was paid by the Central Government. Hence the value of the subsidy was not included in the assessable value. In the second case, which relied on the Mazagon Dock case, it was held that the State Government paid subsidy of 10% in the form of price preference to the respondent. The Tribunal held that this is not includible. These two cases are distinguishable. In these cases the subsidies were given by Central/State Governments to the assessee. But in the present case, the extra amount of 10% has flown from each buyer to the Appellants. Hence in our view these case laws cannot be relied upon. Moreover, the appellant had not disclosed the price preference to the department. Even in the original proceedings nothing is mentioned about the price preference. Only before the Commissioner (Appeals) the fact of price preference was revealed. Under these circumstances, we hold that the appellant has suppressed certain facts from the department. Hence, we confirm the demand of duty on the appellants but reduce the penalty under Section 11AC to Rs. 10,000/- (Rupees Ten Thousand only). While taking this decision we have considered the fact that the appellant unit is trying to revive on account of the BIFR scheme. The impugned order is modified to this extent only. Otherwise the Appeal is dismissed.