Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, ... vs M/S L Oreal India Pvt. Ltd on 16 October, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. E/1068/10 (Arising out of Order-in-Original No. 05/CEX/2010 dated 5.3.2010 passed by the Commissioner of Central Excise), Pune-I). For approval and signature: Honble Shri M.V. Ravindran, Member (Judicial) Honble Shri C.J. Mathew, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== Commissioner of Central Excise, Mumbai-I Appellant Vs. M/s LOreal India Pvt. Ltd. Respondent Appearance: Shri Hitesh Shah, Commissioner (AR) for Appellant Shri V.S. Nankani, Sr. Advocate with Shri C. Nand Gopal & Prithviraj Chaudhari, Advocate for Respondent CORAM: SHRI M.V. RAVINDRAN, MEMBER (JUDICIAL) SHRI C.J. MATHEW, MEMBER (TECHNICAL) Date of Hearing: 16.10.2015 Date of Decision: 08.01.2016 ORDER NO. Per: M.V. Ravindran
This appeal is filed by the Revenue against Order-in-Original No. 05/CEX/2010 dated 5.3.2010 passed by the Commissioner of Central Excise), Pune-I.
2. The relevant facts that arise for consideration, after filtering out the unnecessary details, based upon information, officers of Directorate General of Central Excise Intelligence (DGCEI), Pune visited the factory of the respondent on 17.9.2008/18.9.2008. After recording statements of various individuals and responsible officers of the respondent, it was noticed by the officers that respondents were undervaluing the products which are sold to Salon by resorting to discharge the duty liability on the said products which are termed as technical products (hereinafter referred to as products) without assessing them under the provisions of Section 4 of the Central Excise Act and assessing the same under the provisions of Section 4A of the Central Excise Act, 1944. On completion of the investigation, a show-cause notice dated 19.6.2009 was issued to the respondent directing them to show cause as to why differential Central Excise duty aggregating to Rs.21,26,07,051/- as per the Annexure to the show-cause notice should not be demanded and recovered for the products cleared during June, 2004 to 30th April, 2009 and why the amount should not be appropriated which has been paid by them and penalties be not imposed on the respondent as also various individuals.
2.1 The respondent assessee contested the show-cause notice as also other noticees on the merits of the case as well as on limitation. The adjudicating authority after following the due process of law, dropped the proceedings initiated by the show-cause notice and held that the products were correctly valued.
2.2 Aggrieved by the said order, the Revenue preferred an appeal before the Tribunal. The Tribunal by an order dated 21.5.2012 set aside the impugned order and remanded the matter back to the adjudicating authority.
2.3 Aggrieved by the said order, the respondent assessee filed a Writ Petition before the Hon'ble Bombay High Court, which was disposed of by their Lordships vide an order dated 21.8.2012 by setting aside the order of the Tribunal dated 21.4.2012, with a direction to decide the appeal only with reference to valuation of technical products and for that purpose consider the submissions and pass an order on merit.
2.4 In continuation to such proceedings, the matter was listed today and taken up for disposal.
3. Learned Commissioner (AR) after taking us through the Order-in-Original and the findings thereon would submit as under: -
(i) Commissioner erred in appreciating the evidence collected by the Department and the allegation made in the show-cause notice, as it exclusively deals with the manner of sale of the technical professional products only, which are only meant for professional use in salons and the technical products are not offered/intended for retail sale, as per policy of the respondent. It is also his submission that the technical products are meant for use in the salons, were kept outside the provisions of Section 4A of the Central Excise Act, Commissioner ignored the distinction between technical professional products meant for consumption in salons (service industry) and retail professional products meant for sale by salons to consumers.
(ii) After taking us through the Standards of Weights and Measures (Package Commodity) Rules, 1977 (hereinafter referred to as said Rules), he would submit that the adjudicating authority had laid undue emphasis on the said Rules and erred in not appreciating the facts that such rule cannot be invoked in reverse, as the said rule provides that where institutional or industrial customers purchase package commodities directly from the manufacturers or packers, the provisions of Chapter II would not apply. That does not mean that where institutional or industrial customer buy packaged product from dealers, there is requirement to declare MRP on the package.
(iii) It is his submission that the issue involved in this case is for two periods, one prior to 15.1.2007 and subsequent to 15.1.2007, as the provisions of Rule 34 were deleted by an amendment dated 17.7.2006 in the said Rules, he would then take us through the definition of words Dealers, pre-packed commodity, retail dealer, retail package, retail sale, wholesale dealer and wholesale package from the said Rules and submit that the products did not pass test of any of the definition of retail package, as the said products are cleared by the respondent for the consumption of professionals in salon and hence, it is not a retail sale or a retail package.
(iv) It is also his submission that there is no independence or right to the dealers or the respondent herein to sell the technical products anywhere else, except the salons, which is confirmed by the packages on which there is mention for use of professionals in salon. It is his submission that the adjudicating authority has erred in coming to the conclusion that the provision of rule is irrelevant as to who consumed the goods. It is his submission that Standards of Weight and Measures (Package Commodity) Act, 1976 (hereinafter referred to as said Act) clearly states that the provisions are made with respect to the packaged commodities is for consumer protection.
(v) The adjudicating authority has not appreciated the fact that there is no allegation in the show-cause notice against the retail products sold by salons. The case is only in respect of the products which are consumed by Salon to provide services to their customers. It is his submission that these salons are a part of fashion (hair style industry), which undoubtedly render various services such as hair colour, hair styling, hair texture, etc. to the consumers. The supply of technical professional products ultimately used in the salons for service to the customers would be meant for servicing the salon industry and the provisions of Rule 34 of the Rules before 14.1.2007 will apply and the respondent should not have declared any MRP on the said products.
(vi) The adjudicating authority has erred in not appreciating the fact that the case of the department is that the packages containing the product are not offered or intended for retail sale in terms of said Rules and based upon definition of Consumer under Consumer Protection Act and the judgment of the Apex Court in the case of Laxmi Engineering Works Vs. Industrial Institute 1995 (SC2)-GJX-468-SC has held that all consumptions of professional products by salons run by individuals for the purpose of earning his/her livelihood would continue to be consumers, is wrong conclusion reached, for the reason that most of the products cannot be used similarly or to be used with other technical products and these products are not sold together. He would then refer to the 8th Edition of Blacks Law Dictionary for the meaning of the consumer, which according to him, means a person who buys goods or services for personal, family or household usage, with no intention of resale and as a natural person who uses product for personal rather than business purposes. It is his submission that in the instant case the salons are using and consuming the technical products to provide various services to their customers, and hence they cannot be called as consumer.
(vii) The adjudicating authority has not appreciated the fact that under the provisions of said Rules, there is no such thing as retail products, as terms used therein are retail package and retail sale and the products in question can be sold in retail or not, is a question which remained unanswered by the adjudicating authority.
(viii) The reliance placed by the adjudicating authority on the opinion of the Deputy Controller of Legal Metrology is also not correct as the said opinion was taken without informing the facts of the case to Legal Metrology Department. It is his submission that the products sold by salons are treated as retails product and thus they are to be exclusively used by salon would be technical products not intended for sale and would be covered by the provisions of Section 4 of the Central Excise Act and not Section 4A as being followed by the respondent assessee. It is his submission that the Legal Metrology Department by final letter dated 15.5.2010 withdrew its letter dated 9.3.2009.
(ix) It is his further submission that he is relying upon the judgment of the Apex Court in the case of Jayanti Foods Processing (P) Ltd. Vs. CCE, Rajasthan 2007 (219) ELT 327 (SC) for the proposition that in the said case, products which were considered were more or less identical to the case in hand. It is his further submission that the intention needs to be gauged by the literature printed on the product, which in this case indicates the technical product are not intended for retail sale. It is his submission that for this proposition, he relies upon the judgment in the case of Swan Sweets Pvt. Ltd. 006 (198) ELT 565 (Tri-Mum), Makson Confectionery Pvt. Ltd. 2010 (259) ELT 5 (SC), and Central Arecanut & Cocoa marketing and Processing Co-op. Ltd. 2008 (216) ELT 369 (Tri-Chenn).
(x) It is also his further submission that when there is no need to mention retail sale price (RSP) on the package, mentioning the same will not automatically cover the product under the said Rules. For this proposition, he relies upon the judgment of the Bajaj Food Products Pvt. Ltd. Vs. Commissioner of Central Excise, Rohtak 2015 (317) ELT 116 (Tri-Del), Australian Foods Ltd. Vs. Commissioner of Central Excise, Chennai-II 2010 (254) ELT 392 (Mad.), Zodiac Clothing Co. Ltd. Vs. Commissioner of Central Excise, Bangalore 2009 (235) ELT 513 (Tri-Mum), Kroslink Polymer Pvt. Ltd. 205 (319) ELT 513 (Tri-Mum), India Cine Agencies 2007 (220) ELT 815 (Tri-Chenn), Controls & Switchgears Contractors Ltd. 2005 (183) ELT 95 (Tri-Del), Nestle India Ltd. 2009 (248) ELT 737 (Tri-Bang). He also relies upon the judgement of Hon'ble Bombay High Court in the case of G.S. Poddar Vs. Commissioner of Wealth Tax 1965 (57) ITR 207 (Bom) for the proposition that the enactment is to be interpreted by looking whether a product was capable of being intended for personal or household use.
4. Learned Sr. Counsel appearing for the respondent supported the order of the adjudicating authority to submit that technical products which were used by the professional in the hair style business and these products are for the consumption for their customers. It is his submission that the company in order to have proper control over the distribution of such technical professional product, has specifically formulated a policy by which these products can be procured only by the professional salons from the specific dealers and the company representatives certify and scrutinize such sale transaction. It is his submission that the entire activity was known to the department when they cleared the goods to the dealers, who in turn sold to the salons and that there is no dispute as the respondent had affixed the MRP/RSP on such goods.
4.1 After taking us through the order of the Commissioner, he would submit that
(i) Company has not wrongly assessed the technical product under provisions of Section 4A of the Central Excise Act as these technical products in retail package are sold through distributors to be consumed by the Salons and Beauty Parlors and such packages were indicating the RSP at which the same can be sold. It is his submission that provisions of Rule 2(q) read with Rule 6 of the said Rules would mean that sale, distribution or delivery of such commodity through retail sales agencies or other instrumentalities for consumption by an individual or a group of individuals. The salons use these goods for benefit of the customers and hence sale to such individual customers are retail sale. He would place reliance on the meaning of the word consumer, which means a person who buys the goods and uses it and person who use the original products and submit that it can be inferred that the consumer was a person and such a sale was retail sale.
(ii) It is his submission that where any definition is provided for ascertaining the correct meaning, the same should be construed as in common parlance or trade or commercial parlance and in their popular sense. It is his further submission that the expression any other consumer appearing in definition of retail sale meant for either an individual or a group of individual and was wide enough to cover the natural person or legal entities. He would submit that Hon'ble Bombay High Court in the case of Laxmi Engineerig (supra) had an occasion to interpret the word consumer under the Consumer Protection Act, wherein the Apex Court while interpreting the term consumer for commercial purpose held that a person who buys the goods and use them himself exclusively for the purpose of earning his livelihood, by means of self-employment, is consumer. Salon falling in this category and would get this covered to the word consumer. It is his submission that this view has been expressed by the Apex Court is binding judgement.
(iii) It is his further submission that in the context of the word consumer, Hon'ble High Court of Bombay in the case of L & T Ltd. Vs. Union of India -2012 (275) ELT 153 (Bom) held that professional purchase of packaged commodity from intermediaries and using the same for providing services would be treated as individual consumer, which is the case in hand.
(iv) It is his further submission that Hon'ble Supreme Court in the case of Jayanti Food Processing Pvt. Ltd. (supra) had the occasion to consider the entire gamut of the provisions of Standard of Weight & Measures (Packaged Commodity) Act and the rules made thereunder. It is his submission that learned AR has relied upon this judgment to press on a point that the sales to consumers of products are not covered under the retail sale is wrong proposition of the judgement. It is his submission that the same judgement in another issue observed that when 12 mineral water bottles of 200 ml capacity packed in a single package and sold to Jet Airways under a contract for consumption of passengers, who are flying and the bottles did not contain label of MRP but contain a declaration especially packed for Jet Airways, such packed bottle are liable to be duty as per Section 4A of the Central Excise Act and not under Section 4 of the Central Excise Act. It is his submission that the issue involved in this case is identical to the case which has been decided by the Apex Court where water bottles were directly sold to the consumers i.e. Jet Airways.
(v) It is his further submission that the Apex Court in the same judgement has taken a similar view in respect of the goods which is purchased by the company for supply to their subsidiary while providing taxable services, upheld the contention that affixing of MRP on the goods and valuation in terms of Section 4A of the Central Excise Act is correct.
(vi) It is submitted that the provisions of rules relating to exemption from declaration of retail sale price were not applicable to the technical products prior to 14.1.2007 as sale to salons were retail sale as it is specifically mentioned on the packages and the literature thereunder for professional use only or not to be resold in public should not be mixed with declaration made under Rule 34 of the Rules. It is his submission that the said declaration on the professional technical products were specifically mentioned for the use by the professionals and they did not claim any exemption as they considered that salons were consumers and sale to such salon is retail sale. It is his submission that the declaration on the package merely restricted the class of retail buyers and should not be considered that the technical products were not indeed meant for retail sale, mixing the class of retail buyers. The declaration is made merely to identify who can use the technical products under the provisions of Rules. It is his submission that once conditions were satisfied i.e. the goods required to be affixed with MRP under the provisions of Rules as has been notified by the Central Government by notification issued under Section 4A of the Central Excise Act and for the purpose of excise duty, they had to be declared the MRP thereof. For the period post 14.1.2007, it is his submission that the said rule only talked about non-affixing or non-applicability of Chapter II to the goods cleared to institutional consumers or industrial consumers. It is his submission that the Hon'ble High Court of Bombay in the case of L&T Ltd. (supra) were specifically reading the very same rule and held that there was no independent role of the dispatcher and therefore, the purchase of technical products by salon should be treated as a product purchased from the manufacturer was an incorrect allegation.
(vii) Conclusion based on opinion received from the Legal Metrology Department on 9.3.2009 clearly states that the said products are covered under the Standards of Weight and Measures Act and Rule made thereunder. It is his further submission that CBE&C vide Circular No. 625/16/2002-CX dated 28.2.2002 had specifically clarified that dispute as to whether a particular commodity/ transaction, the assessee is exempted from declaring the retail price or not between the department and assessee, such clarification may be obtained from concerned department (generally the Metrology Deptt.) of the State Government. It is his submission that this Circular is squarely applicable in the case in hand and Revenue cannot argue against their own Circular.
(viii) It is his further submission that they may serve letter dated 9.3.2009 vide which the Legal Metrology Department had opined that the technical professional products are covered under rule but was later withdrawn on 23.5.2010 only on the insistence of the Department especially the DRI. It is his submission that it is left to imagination as how the Legal Metrology Departments letter dated 9.3.2009 stands to be withdrawn under pressure of DGCEI.
(ix) He would submit that the extended period cannot be invoked in this case as during the relevant period, the appellant had discharged the duty liability based upon the understanding of the law under the provisions of Section 4A of the Central Excise Act. It is his submission that if the Department had any reason to doubt the same, they should have checked up with the respondent earlier. It is his further submission that method or rule as adopted by the respondent was not suppressed as full co-operation was extended to the authority during investigation. Further the issue that respondent could have had a bona fide belief, supported by various judgments and clarifications.
(x) It is his further submission that the show-cause notice has not stated any reason as to why the authorities believed that the respondent had willfully contravened the provisions of Central Excise Act or rules made thereunder. It is his submission that if no tax is payable, interest and penalty is also not payable and further that no penalty is payable for the non-payment of tax, which was due to bona fide belief.
(xi) For the proposition that the respondent is consumer or is institutional consumer and whether the goods are required to be valued under the provisions of Section 4 or 4A of the Central Excise Act, he relies upon the following decisions: -
(a) Laxmi Engineering Works Vs. PSG Industrial Institute (1995) 3 SCC 583
(b) H & R Johnson (India) Pvt. Ltd. 2014 (306) ELT 645 (Tri-Mum)
(c) Larsen & Toubro Ltd. Vs. Union of India 2012 (275) ELT 153 (Bom)
(d) Jayanti Foods Processing Pvt. Ltd. 2007 (215) ELT 327 (SC)
(xii) He would also submit that the clarification issued by Dy. Controller of Metrology is binding on the Revenue in view of the case of-
(a) Alpa Resins & Paints Ltd. 2006 (196) ELT 91 (Tri-Mum)
(b) Castrol India Ltd. 2008 (223) ELT 638 (Tri- Ahmd)
(xiii) He would submit that the impugned order be upheld as correct and legal.
5. In rejoinder, learned AR would submit that as regards the limitation aspect, the respondent never indicated in their documents that they are clearing the goods under the provision of Section 4A of the Central Excise Act. It is his submission that it was for the respondent to approach the department and get clarification as to whether the products cleared by them are covered under the provisions of Section 4A or Section 4 of the Central Excise Act. If not done so, the extended period is correctly invoked.
6. We have considered the submissions made at length by both the sides and perused the records.
6.1 The issue involved in this case is whether the action of the respondent in selling the technical professional products to salon are to be assessed under the provisions of Section 4A of the Central Excise Act (as done by the respondent) or under Section 4 of the Central Excise Act as sought by the Revenue.
6.2 Undisputed facts are that the respondents are manufacturer of various cosmetic products and one of the products is professional products, which is categorized into two streams technical products and retail products. The technical products are those which are sold to salons through dealers for their exclusive use and are indicating MRP/RSP on them, and the retail products are those which are sold to salons for resale to the customers. It is undisputed that the professional technical products bear the endorsement For use of Salon and by Salon of each of brand of the professional technical products and were cleared from the factory premises on discharge of Central Excise duty as per the provisions of Section 4A of the Central Excise Act under a belief that the products manufactured by the respondent and cleared to salon are covered under the MRP/RSP regime. It is also undisputed that the professional technical products, as a matter of policy, are only sold to salons and beauty parlors and are not allowed to be sold to retailers for direct sale to consumers. The products are purchased by the salon and beauty parlors through the dealers of the respondent.
6.3 On ground of such factual matrix, it is necessary to reproduce relevant provisions of rule 2 of said Rules which are as under: -
(o) "retail dealer" in relation to any commodity in packaged form means a dealer who directly sells such packages to the consumer and includes, in relation to such packages as are sold directly to the consumer, a wholesale dealer who makes such direct sale;
(p) "retail package" means a package containing any commodity which is produced, distributed, displayed, delivered or stored for sale through retail sales agencies or other instrumentalities for consumption by an individual or a group of individuals;
(q) "retail sale" in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales agencies or other instrumentalities for consumption by an individual or group of individuals or any other consumer;
(a) Institutional Consumer means those consumers who buy packaged commodities directly from the manufacturers/packers for service industry like, transportation (including airways, railways), hotel or any other similar service industry.
(b) Industrial Consumer means those consumers who buy packaged commodities directly from the manufacturers/packers for suing the product in their industry for production, etc. It can be seen from the above reproduced paragraph that the consumers, who buy package commodity from the manufacturers by the service industry and use of the industry for the privates are not required to affix RSP/MRP. Thus, consumers are either categorized as institutional consumers or industrial consumers.
6.4 We find that the adjudicating authority has correctly recorded that it is not specified as to ascertain who consumes the products ultimately and it is also very important to find out as to how the products are sourced, whether from manufacturer or from the dealers. After recording the above findings, the adjudicating authority considered the applicability of the said Rules as to the case in hand, which is in para 39. In the said paragraph, the adjudicating authority has correctly applied the law as to who is the consumer, either institutional or industrial by relying upon the judgment of Hon'ble Bombay High Court in the case of L&T Ltd. (supra). The said findings are reproduced herein as under: -
39. The exclusion from the purview of the requirements of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 will be applicable only if the products are sourced directly by the industry or institutions from the manufacturers of the goods. If the same institutions or industry procure them from dealers, the products would still be subject to the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 and the Maximum Retail Price (MRP) would still have to be printed on these goods, whether they are consumed by the industry, service sector or otherwise.
This interpretation is not only applicable with the introduction of Rule 2A with effect from 14/1/2007, but was also applicable in terms of Rule 34 as has been held by the Bombay High Court in the case of Larsen & Toubro Ltd., Petitioners Vs. The Union of India & Others, Respondents 2008 (XCI) GJX-811-BOm. In this case the company was supplying switch gears through their dealers to the customers. The issue was whether the switch gears which were mainly used by large residential complex, commercial buildings and industries and which could be installed by licensed electrical contractors only were meant for retail sale and whether the switch gear products were governed by the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 or whether they were assessable under Section 4. These products also bore the declaration as "specifically packed for the exclusive use of any industry as a raw material or for the purpose of servicing any industry, mine or quarry and not intended for retail sale." The period involved was both prior to 14.01.2007 and thereafter.
"In our opinion, the rules required the MRP to be shown only if it is a pre-packed commodity. A mere declaration under Rule 34(a) since deleted, that it is not meant for consumption by an individual by itself cannot result in holding that it is not a retail package. Stress however, was sought to be placed on the 3rd type of definition in the judgment of the Supreme Court which was "A statement of required conduct by a third party". The, declaration made by the petitioners it was submitted is of the 3rd type and the Supreme Court has held in such a case that the assessing officer cannot question the basis of the said declaration. This argument could have been considered if rule 34(a) was in force in the matter of declaration but the same has been omitted w.e.f. 13/1/2007. Apart from that what the rule will mean is that the package as a pre-packed package is meant for use by industrial consumer as explained in Rule 2A explanation or for purpose of servicing any industry mine or quarry. The proviso also sets out to whom the rule will not apply and that includes any package containing a commodity to be sold by number or length as defined for sale at the retail output. The rule before its deletion did not create any other class of consumer to whom the rule will not apply. The rule considering explanation to Rule 2A exempted the package from the provisions of the rule if there was a declaration. That declaration, if the package was found in the hands of the industrial or service consumer would result in the presumption that it was meant for such consumer. That would be the scope of the declaration.
What runs through all these definitions is the ultimate consumer. Proviso to Rule2(p) excludes only industrial or institutional consumers. Industrial or institutional consumer is not defined but explained only in Rule 2A. Rule 2A excludes packages of commodities containing quantity of more than 25Kg. or 25 litre excluding cement and fertilizer sold in bag~ of up to 50 Kgs. And packaged commodities meant for industrial consumers !or institutional consumers who purchases directly from manufacturers or packers, If the contentions of the petitioner are accepted then firstly it would have to be read that chapter II speaks of two kinds of industrial on institutional: consumers. One covered by the explanation to Rule2A to whom the chapter would not apply and the second category covered by the proviso to rule 2(p) to whom also the chapter would not apply. Such a construction would defeat Rule 2A(b). The explanation only excludes a class of consumers who in the absence of the explanation or Rule 2A would be consumers. The industrial or institutional consumers for the purpose of Rule 2(p), As an illustration. If the packaged c6mmodity purchased cannot be directly installed by the Co-operative Housing S9ciety on the ground that such user is prohibited by the Electricity Rules, that\however, would only mean that a person qualified under the rules can Install the; same for the consumer who may hove purchased the package. There is, therefore, no prohibition on such society purchasing the product and installing it through a licensed person. They are the ultimate consumers. Similarly another consumer who is qualified may purchase the commodity and install the commodity directly. Such a consumer will not cease to be a consumer because the retell package IS not consumed by such purchaser but supplied to some other consumer. The act of purchase and use also make such purchaser the ultimate consumer. Yet another person may purchase the retail package and use it in combination with other goods, as an illustration to make a switch board. Such a consumer cannot be said not to be the ultimate consumer. Such a consumer also consumes the commodity. Such consumer may market or sell it as another commodity thereby loosing its original distinct character. All such consumers whether they be institutional or industrial will also be covered by chapter-II. Even the ordinary dictionary mea' g makes a purchaser a 'consumer'. We, therefore, hold that while construing: rule, who are excluded are only the institutional or industrial consumers as explained in Rule 2A and that the industrial or institutional consumers in terms of the proviso to rule 2(p) for the purpose of chapter-II are the same."
It is clear therefore that whether under Rule 34 up to 13.01.2007 or whether under 2A from 14.01.2007, the scope of institutional or industrial consumer would be the same. It can be seen that the adjudicating authority has correctly applied the said law. The facts in case in hand is that the respondent herein, as a policy, does not sell professional technical products to any other persons, other than the salons and beauty parlors and it is undisputed that the respondent has strict control over the dealers and distributors for this by way of an agreement with them.
6.5 We also find that it is correctly recorded by the adjudicating authority that it is admitted in the show-cause notice that all professional technical products are sold by the respondent to dealers who earned the commission on the sale of these products and such dealers are also not an individual consumers of the product. Hence, it is correctly recorded by the learned adjudicating authority that professional technical products are sourced by the salons directly from the respondent through the wholesalers and dealers.
6.6 We find that the adjudicating authority in paragraph 42 has referred to the clarification given by the Dy. Controller of Legal Metrology as to whether the products in question i.e. professional technical products were required to be affixed by any MRP/RSP. The said clarification received by Department clearly states that that the Standards of Weight & Measures Act, 1976 as well as the rules do not recognize professional products separately and since the commodities are sold through the dealers, the provisions are applicable. We find that the learned adjudicating authority in paragraph 43 has correctly analyzed the full impact of the clarification given by the Legal Metrology Department by recording that all the information as required was given by the respondent to the authorities i.e. Dy. Controller of Legal Metrology. We also find it so. It is surprising to note that the Revenue authorities are arguing against their own circular dated 28.2.2002 wherein Board has specifically clarified as regards to the dispute that may arise whether the product is covered under the provisions of RSP/MRP or otherwise. In paragraph 7 of the said Circular, CBE&C has clarified as under: -
7. The Standards of Weights & Measures Act, 1976, and the rules made there under, are administered by the State Governments. Instances of dispute could arise between the deptt. and the assessee as to whether, in respect of a particular commodity/transaction, the assessee is exempted from declaring the retail price or not. In case of such doubt a clarification may be obtained from the concerned Deptt. (generally the Metrology Deptt.) of the State Government. It can be seen from the above reproduced clarification given by the Board that letter of the Dy. Controller of Legal Metrology cannot be brushed away as being got by suppressing any facts. Learned AR has sought to assail the said clarification by stating that Legal Metrology Department has withdrawn the said letter. We find from the records that the clarification issued by the Dy. Controller, Legal Metrology was withdrawn on 9.3.2010 while the adjudicating authority has passed the order on 5.3.2010. We are unable to understand the logic of the Revenue as to how the withdrawal of the clarification subsequent to adjudication of the case needs to be considered for setting aside the impugned order.
6.7 The reliance placed by the learned AR as well as the grounds of appeal by the Revenue on the ratio of the Apex Court by the judgment in the case of Jayanti Foods Processing (supra) seems to be mis-placed as the Revenue authorities are relying upon only paras 9 to 18 to canvass their case. On reading paragraphs 9 to 18, it is very clear in these paragraphs as their Lordships have specifically recorded as to the applicability of the Standards of Weight & Measures Act and the rules made thereunder. It is not in dispute at all products manufactured by the respondent in this case are covered under the said Act and Rules. The judgment has recorded the issue on ice-creams package of 4 kgs pack, which are not considered to the retail package and held that the same cannot be considered as sale to an individual or group of individuals. The Apex Court arrived at a conclusion that ice-cream package of 4 Kg pack was a wholesale package and provisions of Rule 34 were attracted. In the case in hand, the learned adjudicating authority has correctly addressed the issue in hand and applicability of the judgment of the Apex Court as has been demonstrated by the Revenue in the show-cause notice, in paragraph 46, which we reproduce: -
46. In this case, there is no allegation that the items manufactured by the assessee are wholesale packages. There is only an allegation that in terms of Rule 34, the goods are meant for servicing of industry, i.e. the fashion industry. I find that even though the product is clearly labeled as 'to be sold only to professionals', there 'cannot be a conclusion that all professionals are not consumers. In fact, some of the products are authorized be sold by the salons to their customers. Therefore, there can-be no doubt in the case of these products that there is a retail sale. Merely because the products are sold with a qualification does not mean that there is no retail sale. Thus, the allegations in the show-cause notice in respect of the retail products sold by the salon to their clients clearly fail. There is a retail sale and the provisions of Section 4A are squarely applicable to these, products. In fact the decision of the Supreme Court in the same case in respect of the sale of mineral water in packs of 12 bottles is more 'applicable in this case. The Supreme Court held in the context of Rule 34, PC Rules prior to 14.01.2007, that 38 Jet Airways supplied the said bottles to their passengers and thus there is no further sale by the Jet Airways of these bottles. Therefore, it is obvious that after the first sale bottles go directly to the ultimate consumers. In our considered view the above said findings are correct from the facts of the case and the judgment of apex Court in the case of Jayanti Foods Processing (supra) squarely applies.
6.8 We also find that the issue as to whether the consumption of product by the salons would amount to consumption by consumer has been answered by the Hon'ble Supreme Court in the case of Laxmi Engineering Works Vs. P.S.G. Industrial Institute (supra), wherein their Lordships were considering the definition of word consumer as mandated in Consumer Protection Act. Though the issue in that case was in respect of definition of the consumer as per the Consumer Protection Act, the ratio laid down by their Lordships helps us to decide as to who can be the consumer. The adjudicating authority has correctly recorded the finding in paragraphs 48 & 49, which we reproduce: -
48. The show-cause notice relies on the definition of the consumer contained. in Section 2(d)(i) of the Consumer Protection Act, 1986 which specifically excludes from Its purview "a person who obtains goods for resale or for any commercial purpose". However, in the Act, "consumer" is defined as any person who, -
(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes and user of such goods other than the person who buys such goods for consideration paid or promised to partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or Explanation - For the purpose of sub-clause (i) "commercial purpose" does not include use by a consumer of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment."
49. The Supreme Court therefore held that person who buys goods and uses them himself, exclusively for the purpose of earning his livelihood, by means of self-employment is within the definition of the expression 'consumer'. Thus, all consumption of professional products by salons run by individuals for the purpose of earning his/her livelihood would continue to be consumers. There cannot be any second view when show-cause notice relied on definition of consumer in Consumer Protection Act, and findings of adjudicating authority on the judgement of apex Court is apt and contextually correct.
6.9 We find that the adjudicating authority was correct in coming to the conclusion in paragraph 51 that it is irrelevant as to who consumes the product. The only issue that is relevant whether they are sold in retail or consumed by industrial consumers. The findings recorded in para 51 are reproduced herein below: -
51. Further, as already stated earlier, the Standards of Weights and Measures Act has only two categories of products; either those which are sold in retail or those which are consumed by the industrial and institutional consumers. Thus all the products which do not fall within the purview of Rule 2A of The Standards of Weights and Measures (Packaged Commodities) Rules, 1977 would automatically fall in the category of retail products to which Section 4A applies. It is irrelevant as to who consumes them. Thus the attempt to identify whether the consumer is a service industry or, an ultimate consumer does not help the case of the department. As is already stated, since these products are sold through dealers for consumption by the salons and in some cases to their customers and provided none of them are directly sourced from the manufacturers, none of these products would fall under the category institutional consumers or industrial consumers as defined under Rule 2A. 6.10 In our considered view and in the facts and circumstances of the case, it is clear from the records that the products professional technical products are sold by the appellant through the dealers and wholesalers to the salons and beauty parlors for their consumption, the fact which is not disputed in the appeal. If that be so, we find that the learned adjudicating authority was correct in holding that the respondent was not in error in discharging the duty liability on the clearance made by them of these products to salons and beauty parlors under the provisions of Section 4A of the Central Excise Act, 1944.
6.11 In a similar set of facts in respect of sale of shoes to institutional buyers, Revenue wanted to charge duty under the provisions of Section 4 of the Central Excise Act, 1944, in the case of Liberty Shoes Ltd. In the said case, this Tribunal held that, the discharge of duty by assessee as per provisions of Section 4A, was correct. Revenue preferred an appeal to the apex Court and their lordships by judgment and order dated 19.11.2015 as reported at 2015 (326) ELT 422 (SC) and following judgment of Jayanti Foods Processing (supra) held in favour of the assessee. Respectfully, we reproduce the entire judgment and order: -
The respondent herein is engaged in the manufacture of footwear under the brand name of 'Liberty' falling under Chapter 64 of the First Schedule to the Central Excise Tariff Act, 1985. They are selling their final product, i.e., footwear to various buyers in retail as well as to various institutional buyers in bulk on contractual price, but are paying Central Excise duty on the basis of MRP after availing abatement of 40 as provided under Section 4A of the Central Excise Act, 1944 (hereinafter referred to as 'Act') on both type of transactions irrespective of the fact whether the goods are sold to retail buyers or to institutional buyers on contract price.
2. According to the Revenue, respondent herein, by clearing the footwear (finished goods) to their institutional buyers by assessing their value under Section 4A of the Act, had tried to evade Central Excise duty inasmuch as the words and language of Section 4A unambiguously state that MRP is the basis of valuation under Section 4A whereas, in the case of sale of goods, on the basis of contract price, Section 4A will not apply. In case of sale of goods by manufacturer at the contract price, affixation of MRP has no legal significance so far as valuation of goods is concerned. The valuation of goods for levy of excise duty, in a case where goods are sold to an institutional buyer under a contracted price, shall be governed by Section 4 of the Act and not under Section 4A.
3. The Revenue further relied upon few provisions under the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 (hereinafter referred to as 'Rules') which, according to them, specifies that retail sale price has to be declared only in case the goods are intended for retail sale and not otherwise. The goods sold to institutional buyers at the contract price are not meant for retail sale. Such goods are sold to the institutional buyers and are not intended for sale directly to the consumers. The provisions of Section 4A, therefore, are not attracted as there is no requirement under the Rules to declare retail sale price on the packages meant for such sale. Thus, mere affixing MRP on packages supplied to institutional buyers does not constitute retail sale as MRP is required to be affixed only in the case of retail sale and not in the case of wholesale sale or bulk sale to the institutional buyers.
4. The Revenue also relied upon the CB.E. & C Circular dated 31-7-1998 wherein it was stated that in case a manufacturer voluntarily affixes MRP, which is not statutorily required, then the Central Excise duty on goods in such packages shall not be charged on the basis of Section 4A of the Act.
5. Revenue further relied upon another Board's Circular dated 28-8-2002 wherein it was stated that Section 4A of the Act is applicable in respect of those cases only where the manufacturer is legally obliged to print the MRP on the packages of the goods under the provisions of the Standards of Weights and Measures Act, 1976 or the Rules made thereunder or any other law for the time being in force.
6. In view of the above, the respondent herein was served with three show cause notices.
7. The Adjudicating Authority, vide its first Order-in-Original dated 30-12-2005, confirmed the duty of Rs.22,97,300/- and Rs. 4,71,349/- demanded under two show cause notices and vide second Order-in-Original dated 30-3-2006 confirmed a demand of Rs.32,39,857/- towards Excise duty paid and ordered for recovery of the balance amount of Rs.28,46,756/ - under Section 11A of the Act, along with interest" as applicable under Section 11AB of the Act. Penalty of equal amount was also imposed upon the respondent-assessee under Rule 25 of the Central Excise Rules, 2002, read with Section 11AC of the Act.
8. On appeal, learned Commissioner vide its Order-in-Appeal dated 29-11-2006 and 30-11-2006 set aside the demand proposed by the Adjudicating Authority.
9. Aggrieved, the Revenue filed an appeal before Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as 'CESTAT'), which vide its judgment and final order dated 20-6-2007 [2007 (216) E.L.T. 692 (Tri.-Del.)] dismissed the appeal and held that the order of the Commissioner (Appeals) is in conformity with the provisions of Section 4A of the Act.
10. A perusal of the order of the CESTAT shows that the Commissioner (Appeals), while allowing the appeal of the respondent-assessee, had recorded specific findings to the effect that the shoes in question which were supplied in packages to the aforesaid customers had MRP affixed on them. It was further found that clearances were not under Rule 34 of the Rules which exempts supplies of materials in bulk from the operation of Weights and Measures Act, meaning thereby it was obligatory and essential on the part of the respondent to affix MRP on the goods supplied.
11. It is also a matter of record that footwear is an item which is specified under Section 4A of the Act.
12. Once we find that the footwear is an item which is specified under Section 4A, which is covered by Weights and Measures Act and Rules, and MRP was affixed on the products supplied, which were not exempted under Rule 34of the Rules, the provision of Section 4A of the Act shall stand attracted.
13. The issue is no more res integra and has been elaborately dealt with by this Court in 'Jayanti Food Processing (P) Ltd. v. Commissioner of Central Excise, Rajasthan' [2007 (8) SCC 34 = 2007 (215) E.L.T. 327 (S.C)] in the following terms :-
"32. It is true that if the unamended section is to be made applicable, the ice cream pack of four litres would certainly be covered under Section 2-A.However, Rule 3 explains that provisions of Chapter II would apply to packages intended for "retail sale" and expression "package" wherever it occurs in the Chapter shall be construed accordingly. It is, therefore, clear that the "package" which was sold by the assessee could not be termed as "retail package" nor the sale thereof be termed as a "retail sale" and as such there was no requirement of mentioning the "retail sale price" on that package. All this has been completely missed in the order of the Tribunal.
33. On the other hand the package in question would certainly come within the definition of "wholesale package" as defined in Rule 2(x)(ii) as it contained the commodity (ice cream) and was sold to intermediary (hotel) for selling the same to the consumer in small quantities. Then Rule 29 would apply to such package which does not require the price to be displayed on the package. What is required to be stated in (a) name and address of the manufacturer, (b) identity of commodity, and (c) total number of retail packages or net quantity. Shri Ravinder Narain is quite justified in relying on Rule 2(x) and Rule 2(q) (sic 29). The Tribunal does not refer to these vital Rules.
34. There is one more substantial reason supporting the appellant. Shri Ravinder Narain invited our attention to Rule 34 in Chapter V of the SWM (PC) Rules which provides for exemptions. We have quoted Rule 34 earlier. The Rule has now been amended. However, under the unamended Rule there is a specific declaration that the SWM (PC) Rules shall not apply to any "package" containing a commodity if the marking on the package unambiguously indicates that it has been specially packed for the exclusive use of any industry as a raw material or for the purpose of "servicing any industry, mine or quarry". Learned counsel points out that the "package" which is sold by the assessee mentions that it is specially packed for the exclusive use of the catering industry.
35. Learned counsel further argues that such "package" was for the purposes of "servicing the hotel industry or catering industry" as the case may be. Learned counsel is undoubtedly right when he seeks to rely on Rule 34 which provides for exemption of the "packages" which are specially packed for the exclusive use of any industry for the purposes of "servicing that industry". Shri Subba Rao supported the view expressed by the Tribunal that the words "servicing any industry" could not cover the present case and he further suggested that ice cream cannot be a "raw material" for any industry. He is undoubtedly right that ice cream cannot be termed as "raw material" for any industry. However, the words "or for the purposes of servicing any industry" are broad enough to include the transaction in question i.e., the sale of a pack of ice cream to the hotel industry. Hotel does not manufacture the ice cream and is dependent entirely upon the sale of ice cream to it by the assessee for ultimately catering the commodity in the package i.e., ice cream to the ultimate consumer. In our view this can be squarely covered in the term "servicing any industry". The word "service"
is a noun of the verb "to serve". This Court in Coal Mines Provident Fund Commr. v. Ramesh Chander Jha in a different context, observed as under:
(SCC p.592, para 7)
"7. The word 'service' in Section 2(17)(h) must necessarily mean something more than being merely subject to the order of the Government or control of the Government. To serve means 'to perform function; do what is required for'."
14. We, thus, do not find any error in the judgment of the CESTAT. The instant appeals are accordingly, dismissed. It can be seen that the issue involved in this case is now squarely settled by the apex Court as reproduced hereinabove.
6.12 As the findings recorded hereinabove are on merits itself holding that impugned order is sustainable, we are not recording any findings on the various other submissions made by both sides and as also on limitation. The case laws as cited by both the sides being of academic nature and are not being discussed individually in this order, as we have relied upon the binding decisions of the Hon'ble Bombay High Court and the Apex Court.
7. In view of the foregoing, we hold that the impugned order is correct, legal and does not suffer from any infirmity. The appeal filed by the Revenue is devoid of merits and is rejected.
(Pronounced in Court on .)
(C.J. Mathew) (M.V. Ravindran)
Member (Technical) Member (Judicial)
Sinha
1
Appeal No. E/1068/10