2015 (315) E.L.T. 53 (Tri.

Case:- HEIDELBERG CEMENT (INDIA) LTD. VERSUS COMMR. OF C. EX., NAGPUR & RAIGAD

Citation:-2015 (315) E.L.T. 53 (Tri. - Mumbai)

Issue :- Whether sale of cement to builders/ RMC manufacturers consideredas sale to institutionalconsumers ?

Brief facts:-There were three appeals directed against Orders-in-Original No. PVR/185-186/NGP/2013, dated 20-3-2013; No. 64-71/MAK(64-71)/COMMR/RGD/13/1-4, dated 30-4-2013 & 187/MAK(187)COMMR/RGD/13-14, dated 10-3-2013, passed by the Commissioner of Central Excise, Nagpur and Commissioner of Central Excise, Raigad respectively. Vide the impugned orders, a duty demand of Rs. 36,30,32,815/- had been confirmed against M/s. Heidelberg Cement (India) Ltd. for the period May, 2007 to September, 2012 and duty demand of Rs. 11,35,12,755/- had been confirmed against M/s. Ultra Tech Cement Ltd. for the period April, 2007 to January, 2013. As the issues involved in these appeals were common, they were taken up together for consideration and disposal. The appellants were manufacturers of cement. There was a statutory requirement to affix MRP on packages sold to dealers for further sale to consumers in retail under the Legal Metrology (Packaged Commodities) Rules, 2011 (PC Rules in short). The appellants had complied the provisions of these Rules. The appellants had also cleared cement in 50 kg bags to various bulk consumers like, builders/developers/industrial users, who used the cement for construction purpose or as raw material. Such buyers were covered by the definition of ‘industrial consumer’ or ‘institutional consumer’ under explanation to Rule 2A of PC Rules, 1977 and Rule 3(ii) of PC Rules, 2011. As per these provisions, commodity meant for industrial consumer or institutional consumers were not required to be affixed with MRP. Accordingly, the appellants had not declared the MRP on the cement bags and specifically had declared on the packages as “Not for Retail Sale - meant for industrial consumer/institutional consumer/RMC consumption.” They had discharged excise duty liability on such cement bags availing the benefit of Sr. No. 1C of Notification No. 4/2006-C.E., dated 1-3-2006 as amended from time to time during the period May, 2007 to 16-3-2012 and under Sr. No. 52 of Notification No. 12/2012-C.E., dated 17-9-2012 for the period from 17-3-2012 onwards. As per these entries in the notifications, cement bags of 50 kg cleared to industrial or institutional consumers, which is not subject to fixation of MRP, is eligible for concessional rate of duty as provided therein. However, the department was of the view that the appellants were not eligible for the aforesaid exemption benefit inasmuch as the sale to buyers like, builders/developers etc. cannot be considered as sale to ‘industrial/institutional consumer’ and, therefore, the appellants were liable to discharge excise duty at the tariff rate. Consequently, differential duty liability had arisen and the duty demands were confirmed along with interest and also by imposing penalties.

Appellant’s contention:- The learned Counsel for the appellants submitted that the appellants had sold cement in 50 kg bags to buyers who were builders/developers/ industrial consumers. Such buyers satisfy the definition provided for under Rule 2A(b) of the PC Rules, 1977 or Rule 3(ii) of the PC Rules, 2011. Therefore, declaration of RSP was not required in respect of such sales. Since construction activity is a service, the supply made to them ought to be construed as supplies made to service industry. Similarly, when cement was sold for manufacture of ready mix concrete, such buyers have to be construed as industrial consumer. Since in respect of these supplies, declaration of MRP was not envisaged under the law, the appellants were eligible for the benefit of concessional rate of duty prescribed under Sr. No. 1C of Notification No. 4/2006 or Sr. No. 2 of Notification No. 12/2012.

The learned Counsel also submitted that an identical issue came up for consideration before this Tribunal in the case of Grasim Industries Ltd.v. Commissioner of Central Excise, Trichy - 2009 (238)E.L.T.655 and this Tribunal held that the appellant would be eligible for the benefit of concessional duty under Sr. No. 1C of Notification No. 4/2006. The Hon’ble High Court of Karnataka also had considered an identical issue in the case of Mysore Cements Ltd.- 2010 (259)E.L.T.30 (Kar.),wherein also it was held that the concessional rate of duty under Sr. No. 1C of Notification No. 4/2006 was available in respect of cement cleared in 50 kg bags to construction companies, industrial/institutional consumers. It was further submitted that in other Central Excise Commissionerates such as Bhavnagar, Jaipur and Belgaum, in respect of the present appellants as also in respect of other similarly placed manufacturers such as Shree Cement Ltd., Beawar, M/s. J.K. Cement Ltd., Mangrol, M/s. Rajashree Cement, Malkhed, M/s. Vasavdatta Cement, Selam and Aditya Cement (a unit of Grasim Industries Ltd.), Shambhurpura, the jurisdictional Commissioners had decided the matter in favour of the appellant and dropped the duty demands by extending the benefit of Notification No. 4/2006. These orders have also been accepted in review by the Committee of Chief Commissioners. In these circumstances, it was prayed that the appeals be allowed.

Respondent’s contention:- The learned Commissioner (AR) and Addl. Commissioner (AR) appearing for the Revenue, on the other hand, submitted that the decision of the Tribunal in the case of Grasim Industries Ltd. had been taken up in appeal before the Hon’ble Supreme Court and the appeals have been admitted. Since the appeals had been admitted, the decision was in jeopardy and, therefore, no reliance can be placed on the said decision. It was further argued that the Tribunal had not decided the applicability of Rule 2A of the PC Rules, 1977 to the cement sold in 50 kg bags to industrial/institutional consumers especially in the context of clause (b) of Rule 2A had to be read together and not in isolation. If they are read together, then it can be seen that the cement sold in 50 kg bags to industrial/institutional consumers were not exempted from declaration of RSP. Accordingly, it was prayed that the impugned demands were sustainable in law and, therefore, the appeals be dismissed.

Reasoning of judgment:- Tribunal carefully considered the submissions made by both the sides.
Rule 2A of the PC Rules, 1977 reads as follows:-
“2A. Applicability of the Chapter.- The provisions of this chapter shall not apply to,-
(a)        packages of commodities containing quantity of more than 25 kg or 25 litre excluding cement and fertilizer sold in bags up to 50 kg; and
(b)        packaged commodities meant for industrial consumers or institutional consumers.

Explanation :-For the purpose of this rule,-
(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 using the product in their industry for production, etc.”

Rule 3 of the PC Rules, 2011 reads as follows :-
“3. Applicability of the Chapter. - The provisions of this Chapter shall not apply to,-
(a) packages of commodities containing quantity of more than 25 kg or 25 litre excluding cement and fertilizer sold in bags up to 50 kg; and
(b) packaged commodities meant for industrial consumers or institutional consumers.

Explanation:- For the purpose of this rule,-
(i)         “Institutional consumer” means the institutional consumer like transportation, Airways, Railways, Hotels, Hospitals or any other service institutions who buy packaged commodities directly from the manufacturer for use by that institution.
(ii)        “Industrial Consumer” means the industrial consumer who buys packaged commodities directly from the manufacturer for use by that industry.”

From the above, it could be seen that packages of commodities containing a quantity of more than 25 kg or 25 litre excluding cement and fertilizers sold in bags upto 50 kg and packaged commodity meant the industrial or institutional consumer are excluded from the provisions of the said Rules. In other words, the Rules exclude two categories - the first category is packaged commodity containing a quantity of more than 25 kg or 25 litre and cement and fertilizer bags containing more than 50 kg. The second category is packaged commodity meant for industrial or institutional consumer. As regards the second category there was no restriction with respect to the quantity of the goods contained in the package. There is a ‘semi colon’ between the two clauses. This clearly indicated that the word ‘and’ between the two clauses had to be read disjunctively and not conjunctively. In other words, in respect of both the above categories, the provisions of PC Rules would not apply.
Further, ‘institutional consumer’ was defined to mean consumers like transportation, Airways, Railways, Hotels, Hospitals or any other service institutions who buy packaged commodity directly from the manufacturer and ‘industrial consumer’ means those who purchase the packaged commodity for use by that industry.
There is no dispute that the goods were sold by the appellant directly to the builders/developers/Ready Mix Concrete (RMC) manufacturers. RMC was an excisable product and therefore, the sale of cement for manufacture of RMC would definitely come within the category of sale to industrial consumers. As regards builders/developers etc., construction activity was a service activity as is well understood and there was also a Service Tax levy on construction activity. Therefore, sale to such builders/developers would certainly qualify as sale to institutional consumers. The argument of the Revenue that since the sale was not to consumers like transportation, airways, railways, hotels, hospitals and any other service institution and since the builders/developers had not been specifically included and, therefore, such sale would not qualify as sale to institutional consumer is bereft of logic because only certain service providers have been specifically mentioned therein; others are covered by the expression ‘like’ and ‘any other service institution’ similar to those specifically mentioned. The institutional consumers mentioned are transportation, hotels and hospitals which do not form any particular class. Therefore, the principle of ejusdem generies could not apply. Any service institution would qualify as institutional consumers.
It was relevant at that juncture to peruse Notification No. 4/2006 as also Notification No. 12/2012. The relevant portions of the said Notifications were reproduced:-

Notification No. 4/2006-C.E., dated 1-3-2006

Sr. No.

Chapter or heading or subheading or tariff item of the First Schedule

Description of excisable goods

Rate

(1)

(2)

(3)

(4)

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,-

(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. 350 per tonne

(ii) of retail sale price exceeding Rs. 190 per 50 kg bag but not exceeding Rs. 250 per 50 kg bag or of per tonne equivalent retail sale price exceeding Rs. 3800 but not exceeding Rs. 5000;

12% of retail sale price

1B.

2523 29

All goods, manufactured in a mini cement plant, other than those cleared in packaged form;

Rs. 250 per tonne

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 produced 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 package, 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;

3. Where on the package, more than one retail sale price is declared, the maximum of such retail sale prices shall be deemed to be the retail sale price;

4 (i) “per tonne equivalent retail sale price” shall be calculated in the following manner, namely :-

If the package contains X kg of cement and the declared retail sale price is Rs. Y, then the per tonne equivalent retail sale price =

Y*1000

Example : If the package contains 25 kg and retail sale price is Rs. 180, the per tonne equivalent retail

sale price =	180*1000	= Rs. 7200
	25

(ii) ”per tone equivalent sale price” shall be calculated in a manner similar to that mentioned in (i) above.
Example : If the wholesale package contains 500 kg of cement and the declared price is Rs. 3200, the per tonne equivalent sale

price =	(3200*1000)	= Rs. 6400
	500

Notification No. 12/2012-C.E., dated 17-3-2012

Sr. No.

Chapter or heading or subheading or tariff item of the First Schedule

Description of excisable goods

Rate

(1)

(2)

(3)

(4)

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,-
(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. 230 per tonne
8% or retail sale price

(ii) of retail sale price exceeding Rs. 190 per 50 kg bag or of per tonne equivalent retail sale price exceeding Rs. 3800.

1B.

2523 29

All goods, manufactured in a mini cement plant, other than those cleared in packaged form;

Rs. 170 per tonne

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;

8% or Rs. 230 per tonne, whichever is higher

Explanation- For the purposes of S. Nos. 1, 1A, 1B and 1C, -

1. “mini cement plant” means -

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 :

3. Where on the package, more than one retail sale price is declared, the maximum of such retail sale prices shall be deemed to be the retail sale price;

4 (i) “per tonne equivalent retail sale price” shall be calculated in the following manner, namely :-

If the package contains X kg of cement and the declared retail sale price is Rs. Y, then the per tonne equivalent retail sale price =

Y*1000

Example :If the package contains 25 kg and retail sale price is Rs. 180, the per tonne equivalent retail

sale price =	180*1000	= Rs. 7200
	25

(ii) “per tone equivalent sale price” shall be calculated in a manner similar to that mentioned in (i) above.
Example : If the wholesale package contains 500 kg of cement and the declared price is Rs. 3200, the per tonne equivalent sale

price =	3200*1000	= Rs. 6400
	500

From the reading of the Notifications, especially the third proviso to entry at Sl. No. 1C, it was clear that if the declaration of retail price was not required to be made in terms of PC Rules, then such goods were deemed as cleared in ‘other than packaged form’ and the rate of duty prescribed under Sl. No. 1C would apply. The position was the same in respect of Notification No. 12/2012 also.
In the Grasim Industriescase (supra), this issue was specifically examined by this Tribunal and it was held as follows :-
“As rightly pointed out by the learned Counsel, as the benefit offered under the Notification pertains to goods cleared to industrial/institutional consumers and as this aspect was overlooked by the Legal Metrology expert as also by the learned Commissioner, the impugned order is liable to be set aside. The Board’s clarification on the relevant question was wrongly by-passed by the adjudicating authority. We have found favour with the assessee’s case in view of the clarification issued by the C.B.E. & C., which is to the effect that no RSP requires to be printed on the goods sold to ‘industrial/institutional consumers as defined under the rules framed under the Standards of Weights and Measures Act and that such goods would be covered under SI. No. 1B or 1C of Notification No. 4/2006-C.E., by virtue of the Second Proviso to the Explanation to SI. No. 1C of the Notification as amended. The Board’s clarification squarely covers the case in favour of the assessee.”
Further, in the case of Mysore Cement Ltd.- 2010 (249)E.L.T.398, this Tribunal held that construction industry is a service industry and benefit claimed by the appellants under the aforesaid Notifications shall be admissible. The said decision was upheld by the Hon’ble High Court of Karnataka (supra). Again in the case of India Cement Ltd.- 2009-TIOL-1464-CESTAT-MAD = 2009 (235)E.L.T.145 (T), it was held that cement cleared to industrial/institutional consumers in 50 kg bags are eligible for the benefit of Notification No. 4/2006 under Sr. No. 1C. Thus it could be seen that the Tribunal as also the High Court had been consistently holding that institutional/industrial consumers were eligible for the benefit of Notification No. 4/2006 and Notification No. 12/2012.
In this view of the matter, they also considered view that the impugned demands were not sustainable in law. Accordingly, they set aside the same and allow the appeals with consequential relief, if any, in accordance with law.

Decision:- Appeal allowed.

Comment:- The gist of this case is that as construction activity is a service activity therefore the sale to builders, developers and manufacturers of RMC can be termed as sale to institutional consumer. One more important analogy drawn from this case is that the provisions of MRP based valuation do not apply to either of the following:-
(a) packages of commodities containing quantity of more than 25 kg or 25 litre excluding cement and fertilizer sold in bags up to 50 kg; and
(b) packaged commodities meant for industrial consumers or institutional consumers.

It was concluded that the use of word and does not signify that the two clauses are to be read together because they are separated by semi-colon thereby indicating that the two clauses are to be read separately. If any one of the condition is satisfied, the provisions of MRP will not be applicable. In the present case, since the sale was treated as sale to institutional consumers, the provisions of MRP were held to be inapplicable and hence the benefit of Notification No. 4/2006 under Sr. No. 1C was extended to assessee.

Prepared by:-Prayushi Jain

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