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Mysore Cements Ltd. v. Commissioner Of C. Ex., Bangalore-Ii
Factual and Procedural Background
These two appeals challenge Orders-in-Original No. 17/2008 (dated 21-7-2008) and No. 20/2008 (dated 22-8-2008). The appellants are cement manufacturers who cleared cement during the relevant period after paying excise duty at a concessional rate of Rs. 400 per metric tonne along with the Higher Education Cess, relying on Notification No. 4/2006-C.E., dated 1-3-2006 as amended by Notification No. 4/2007-C.E., dated 1-3-2007.
The revenue contended that the appellants did not adhere to conditions of the Notification and therefore were liable to pay differential duty. The Adjudicating Authority concluded that clearances in unit packages of 50 kg would not qualify for the concessional rate of Rs. 400 per MT, denied the concession, and confirmed differential duty while also imposing penalty and interest. The appellants appealed to the Tribunal against those orders.
Legal Issues Presented
- Whether the appellants are eligible to avail the concessional rate of excise duty of Rs. 400 per metric tonne under Notification No. 4/2006-C.E., dated 1-3-2006 (as amended), specifically under Serial No. 1C of the Notification, for cement cleared in packaged form (including 50 kg. bags) to institutional consumers such as construction companies.
Arguments of the Parties
Appellant's Arguments
- The appellants sought benefit under Sl. No. 1C of Notification No. 4/2006-C.E. (as amended) for the concessional duty of Rs. 400 per tonne.
- They relied on the decision of a coordinate Bench in Grasim Industries Ltd. v. CCE (Tri.-Del.) and subsequent Tribunal authority in M/s. Chettinad Cement Corporation Ltd. v. CCE, Trichy (2009-TIOL-139-CESTAT-MAD) as directly covering and supporting their position.
- They also pointed to an instance where the Commissioner of Central Excise and Customs, Belgaum, allowed the Notification benefit to another assessee (M/s. Vasavadatta Cement), indicating administrative acceptance in an identical issue.
- In the reproduced Grasim ratio, reliance was placed on Rule 34 of the Packaged Commodities Rules and on a CBEC Circular (No. 625/16/2002 dated 28-2-2002) which clarified that goods sold in bulk at contracted prices are to be assessed under Section 4; Grasim held that goods specially packed for builders were not for retail sale and therefore excluded from the Packaged Commodities Rules requirement.
- The appellants contended that clearances were to institutional consumers (construction companies/builders) and not retail sales to ultimate consumers; packaging or marking such as "Not for retail sale" and the nature of the transaction (bulk/contracted) supported exclusion from retail-package based duty determination under the Notification.
Revenue's / Respondent's Arguments (including learned JCDR and Adjudicating Authority)
- The revenue asserted the appellants failed to observe conditions of the Notification and therefore were liable for differential duty, penalty and interest.
- The Adjudicating Authority held that clearances in unit packages of 50 kg did not qualify for the concessional rate of Rs. 400 per MT and denied the concession.
- The learned JCDR reiterated the Adjudicating Authority's findings and submitted that the Standards of Weights and Measures Act and the rules thereunder (Packaged Commodities Rules) apply to the cement cleared by the appellant; she submitted there is a retail sale requirement and that retail sale price must be affixed.
- The learned Commissioner interpreted "institutional consumers" restrictively (to airways, railways, etc.) and excluded construction companies from that category; the Tribunal declined to accept that narrow interpretation.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Grasim Industries Ltd. v. CCE (coordinate Bench) (Tri.-Del.) | Held that goods specially packed for builders (intended for a particular industry) are excluded under Rule 34 of the Packaged Commodities Rules; supported that such clearances in bulk at contracted price are assessable under Section 4 and not subject to retail-package price conditions. | The Tribunal relied on this ratio as directly covering the present issue in favour of the appellants and reproduced the Grasim reasoning to support applicability of Sl. No. 1C of the Notification to the appellants' clearances to construction industry consumers. |
| M/s. Chettinad Cement Corporation Ltd. v. CCE, Trichy (2009-TIOL-139-CESTAT-MAD) | Referred to as a following decision by the Tribunal on an analogous issue (as described in the opinion). | Presented by the appellants as subsequent Tribunal authority following the Grasim view; the Court noted it was followed and treated it as supporting material for the appellants' position. |
| M/s. Vasavadatta Cement — decision of Commissioner of Central Excise and Customs, Belgaum (administrative order) | Administrative decision granting benefit of the Notification in an identical issue for another assessee. | Referred to by the appellants as an instance where the Notification benefit was granted by the Commissioner; used as corroborative administrative support for allowing the concession. |
| Bharti Systel Ltd. v. CCE [reported in Tribunal records cited within Grasim] | Relied upon in Grasim as Tribunal precedent on treatment of goods not intended for retail sale and applicability of Packaged Commodities Rules. | Grasim relied on it; the Tribunal here accepted Grasim's reliance and therefore implicitly accepted Bharti Systel Ltd.'s relevance as part of the supporting precedent chain. |
| CCE v. Trishul Research Lab. Pvt. Ltd. [cited in Grasim] | Referenced in Grasim as supportive Tribunal authority concerning exceptions to packaged commodity requirements. | Included within the chain of authorities relied upon by Grasim; the Tribunal treated Grasim (with its cited authorities) as covering the issue. |
| Goa Bottling Co. Ltd. v. CCE [cited in Grasim] | Referenced in Grasim among decisions relevant to the exclusion of specially packed/industry-bound goods from retail-package rules. | Part of the authorities on which Grasim relied; the Tribunal accepted Grasim's synthesis of those authorities in favour of the appellants. |
| H & R Johnson (India) Ltd. v. CBEC [cited in Grasim] | Another decision relied upon in Grasim as supporting authority on the point of packaged goods intended for industry. | Considered by Grasim and thus included in the precedent chain relied upon by the Tribunal to allow the appellants' claim. |
| CBEC Circular No. 625/16/2002 dated 28-2-2002 | Clarified that goods sold in bulk at contracted price are to be assessed under Section 4 (administrative clarification relied upon in Grasim). | The Tribunal noted Grasim's reliance on this Circular and accepted that the Circular supports treating bulk/contract sales to industry as outside the packaged-commodity retail-price requirement, aiding the appellants' claim. |
Court's Reasoning and Analysis
The Tribunal's analysis proceeded in these main steps, as reflected in the opinion:
- Identification of the sole issue: whether the appellants were eligible for the concessional rate of Rs. 400 per MT under Notification No. 4/2006-C.E. (as amended), specifically under Serial No. 1C.
- Reproduction and careful perusal of the Notification and its annexed definitions (including the definitions of "mini cement plant" and "retail sale price") to determine the qualifying conditions for Sl. No. 1C.
- Recognition that the appellants claimed benefit under Sl. No. 1C and that the clearances in question were made to institutional consumers (an admitted fact).
- Consideration of the learned Commissioner’s narrow interpretation of "institutional consumers" (excluding construction companies) and of the learned JCDR’s submission that the Standards of Weights and Measures/Packaged Commodities Rules applied and required affixation of retail sale price.
- Rejection of the narrow interpretation: the Tribunal held that construction activity is a service industry — a conclusion supported by the Finance Ministry's imposition of service tax on construction services and by the Foreign Trade Policy (Appendix-10) which lists construction and related engineering services. On that basis the Tribunal found construction companies fall within the concept of industry/service and thus can be institutional consumers for the purposes of the Notification.
- Adoption of the ratio in Grasim Industries Ltd. v. CCE (reproduced in the opinion): Grasim held that goods specially packed for builders were intended for a particular industry and thus excluded under Rule 34 of the Packaged Commodities Rules; Grasim also relied on the CBEC Circular clarifying that bulk contracted sales are assessable under Section 4. The Tribunal found this reasoning applicable and persuasive.
- Application to facts: because the clearances were to institutional consumers in the construction industry and the principles in Grasim (and related authorities) squarely covered the situation, the Tribunal concluded that the appellants were entitled to the concessional rate under Sl. No. 1C.
- Consequent relief: the Tribunal allowed the appeal and set aside the impugned order, granting consequential relief as may be applicable.
Holding and Implications
Holding: The Tribunal allowed the appeals and set aside the impugned Orders-in-Original (No. 17/2008 and No. 20/2008), thereby allowing the appellants the benefit of Sl. No. 1C of Notification No. 4/2006-C.E. (as amended) — i.e., the concessional rate of Rs. 400 per metric tonne — for the clearances in question.
Implications:
- The direct effect is that the differential duty, penalty and interest confirmed by the Adjudicating Authority are set aside for the appellants with consequential relief as appropriate.
- The Tribunal based its decision on existing authority (Grasim and related decisions) and administrative clarification (CBEC Circular). The opinion does not indicate the creation of a new legal precedent beyond applying and following those authorities; it treats Grasim as covering the issue in favour of the appellants. No novel legal principle beyond the cited authorities was pronounced.
(Operative portion of this Order was pronounced in open court on conclusion of hearing, as recorded in the opinion.)
[Order per : M.V. Ravindran, Member (J)]. - These two appeals are directed against Orders-in-Original No. 17/2008, dated 21-7-2008 and No. 20/2008, dated 22-8-2008.
2. The relevant fact that arise for consideration are the appellants herein are manufacturers of cement and during the relevant period cleared certain quantities of cement by paying duty at the concessional rate of Rs. 400/- per MT along with applicable Higher Education Cess in terms of Notification No. 4/2006-C.E., dated 1-3-2006 as amended by Notification No. 4/2007-C.E., dated 1-3-2007. It is the contention of the revenue that the conditions stipulated in the said Notification for availment of the said concessional rate of duty of Rs. 400/- per MT, is not adhered to by the appellant and hence, they are liable to pay the differential duty. The Adjudicating Authority after considering oral and written submissions made by the appellant before him came to the conclusion that the clearance of cement in unit packages of 50 kg. in this case will not get the benefit of concessional rate of duty of Rs. 400/- per MT. Coming to such a conclusion, he confirmed the differential duty by denying the concessional rate of duty, sought to impose penalty and interest.
3. The learned counsel appearing on behalf of the appellant submits that the issue is now squarely settled by the decision of the coordinate Bench of the Tribunal in the case of Grasim Industries Ltd. v. CCE, Jaipur-II as reported at (Tri.-Del.). It is his submission that the said decision was followed by the Tribunal in the case of M/s. Chettinad Cement Corporation Ltd. v. CCE, Trichy as reported at 2009-TIOL-139- CESTAT-MAD. He would also submit that in an identical issue, the Adjudicating Authority i.e. the Commissioner of Central Excise and Customs, Belgaum in respect of another assessee i.e. M/s. Vasavadatta Cement, District Gulbarga has given the benefit of the Notification.
4. The learned JCDR would reiterate the findings of the Adjudicating Authority and also submit that the provisions of Standards of Weights and Measures Act and the rules made thereunder are applicable to the cement of the kind which are cleared by the appellant. It is also her submission that there is a retail sale and they are required to affix the retail sale price.
5. We have considered the submissions made at length by both sides. The only issue that arises for the decision before us is whether the appellant is eligible for availing the benefit of concessional rate of duty of Rs. 400/- per MT in terms of Notification No. 4/2006-C.E., dated 1-3-2006 as amended.
5.1 The said Notification which falls for consideration is reproduced below.
“In exercise of the powers conferred by sub-section (1) of Section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in Column (3) of the Table below read with the relevant List appended hereto, as the case may be, and falling within the Chapter heading or sub-heading or tariff item of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), as are given in the corresponding e in column (2) of the said Table, from so much of the duty of excise specified thereon under the First Schedule to the Central Excise Tariff Act, as is in excess of the amount calculated at the specified in the corresponding entry in column (4) of the said Table and subject to the relevant conditions specified in the Annexure to this Notification, and the condition number of which is referred to in the corresponding entry in column (5) of the Table aforesaid”.
| S. No. | Chapter or heading or sub-heading or tariff item of the First Schedule | Description of excisable goods | Rate | Condition No. |
| (1) | (2) | (3) | (4) | (5) |
| 1 | 2523.29 | All goods, manufactured in a mini cement plant and cleared in packaged form - | ||
| (i) of retail sale price not exceeding Rs. 190 per 50 kg. bag or of per tonne equivalent retail sale price not exceeding Rs. 3800; | Rs. 220 per tonne | 1 | ||
| (ii) of retail sale price exceeding Rs. 190 per 50 kg. bag or of per tonne equivalent retail sale exceeding Rs. 3800; | Rs. 370 per tonne | 1 | ||
| 1A | 2523.29 | All goods, whether or not manufactured in a mini cement plant, not covered in S. No. 1 and cleared in packaged form of retail sale price not exceeding Rs. 190 per 50 kg. or of per tonne equivalent retail sale price not exceeding Rs. 3800; | Rs. 350 per tonne | - |
| 1B | 2523.29 | All goods, manufactured in a mini cement plant, other than those cleared in packaged form; | Rs. 250 per tonne | 1 |
| 1C | 2523.29 | All goods, whether or not manufactured in a mini cement plant, not covered in S. No. 1B, other than those cleared in packaged form; | Rs. 400 per tonne | - |
Explanation. - For the purposes of S. Nos. 1, 1A, 1B and 1C-
1. ‘mini cement plant’ means -
(i) a factory using vertical shaft kiln, with installed capacity not exceeding 300 tonnes per day or 99,000 tonnes per annum and the total clearances of cement product by the factory, in a financial year, shall not exceed 1,09,500 tonnes; or
(ii) a factory using rotary kiln, with installed capacity not exceeding 900 tonnes per day or 2,97,000 tonnes per annum and the total clearances of cement produced by the factory, in a financial year, shall not exceed 3,00,000 tonnes;
2. ‘retail sale price’ means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding and the like, as the case may be and the price so printed is the sole consideration for the sale :
Provided that if the goods are cleared in wholesale packages containing a number of standard packages with retail sale price declared on them, then, such declared retail sale price shall be taken into consideration for determining the rate of duty under respective S. Nos. referred to above:
Provided further that if the declared sale price on wholesale package and on the standard packages is different in terms of per tonne equivalent sale price, then, the per tonne equivalent sale price of the wholesale package or per tonne equivalent retail sale price of the standard packages, whichever is higher, shall be taken into consideration for determining the rate of duty :
Provided also that where the retail sale price of the goods are not required to be declared under the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, and thus not declared, the duty shall be determined as is in the case of goods cleared in other than packaged form.”
5.2 On the perusal of the above reproduced Notification, we find that the appellant is claiming the benefit of Sl. No. 1C of the Notification. We find, that there is no dispute as regards the said clearances are made to institutional consumers by the appellant. The only contention that has been raised by the learned Commissioner is that under such institutional consumers, construction companies would not fall under the service industry and it is his interpretation that institutional consumers would be merely airways, railways, etc. We are not inclined to accept this proposition of the learned Commissioner. Construction activity has been considered as a service industry by the Finance Ministry itself, which is obvious as there is imposition of Service Tax on the ‘Commercial or Industrial Construction Services’ and also on ‘Construction of Complex’. It is an admitted position that the Foreign Trade Policy of Government of India in the list of services as enumerated in Appendix-10 clearly indicated the following services as service industry.
“3. Construction and related Engineering Services
A. General Construction work for building
B. General Construction work for Civil Engineering
C. Installation and assembly work
D. Building completion and finishing work
E. Others”
5.3 We have no doubt in our mind that the construction industry is a service industry and the benefit claimed by the appellants of Sl. No. 1C will be applicable to the clearances made by them. We find strong force in the contentions raised by the learned counsel that the decision of the coordinate Bench in the case of M/s. Grasim Industries Ltd. (supra) will clearly cover the issue in their favour. We may reproduce the said ratio.
“3. The appellant’s contention is that goods sold for servicing an industry remain exempt from the requirement of Packaged Commodities Rules under Rule 34 of those Rules and that white cement consignments sold to builders were thus exempt. It is also emphasized that cement packets meant for builders were not for sale in retail. They have also relied on the fact that the packets in question were marked as goods “Not for retail sale”. The appellants have also relied on the clarification issued by the Central Board of Excise & Customs under Circular No. 625/16/2002, dated 28-2-2002 wherein it was clarified that goods sold in bulk at contracted price are to be assessed under Section 4. During the hearing of the case, learned Counsel for the appellants has also relied on several decisions of the Tribunal - Bharti Systel Ltd. v. CCE [ (T) = 2002 (51) RLT 649]. CCE v. Trishul Research Lab. Pvt. Ltd. [2002 (145) E.L.T. J204], Goa Bottling Co. Ltd. v. CCE [ (LB) and H & R Johnson (India) Ltd. v. CBEC [ (Kar.)].
4. We have perused the records and considered the submissions made by both sides. We find merit in the submissions made on behalf of the appellant. Marking on the goods prominently stated that the goods were “specially packed for builders”. Thus, the goods were intended for a particular industry and thus, remained excluded under Rule 34 of the Packaged Commodities Rules. The Commissioner (Appeals) has rejected this claim of the appellant on the ground that construction is not an industry. This view is not correct. Construction is treated as an industry under the various statutes and it, in fact, is one of the biggest industries in any country. Appellant’s case is also covered by the Circular of the Board, dated 28-2-2002 inasmuch as the clearances were in bulk at contracted prices. The issue also remains covered in favour of the appellant by the decision of this Tribunal in the case of Bharti Systel Ltd. v. CCE (supra). In these circumstances, the original duty payments were correctly made and no short levy remained to be recovered. Proceedings before the lower authorities which found to the contrary are not sustainable.”
5.4 Accordingly, in view of the foregoing reasons, we are allowing the appeal filed by the appellant and set aside the impugned order with consequential relief, if any.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)
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