2025 (5) TMI 1525 - AT - Central Excise

Short payment of Central Excise duty - method of valuation - goods supplied to institutional consumers without direct sale by the manufacturer - to be valued under Section 4 or Section 4A of the Central Excise Act 1944? - HELD THAT - The provisions of the Legal Metrology Act Rules provide that only those supplies which are made directly by the manufacturer/ packers or where it is endorsed that these are not for retail sale will be eligible for exemption from printing of MRP. Fact of the case show that there is neither a direct sale of PP medicines by the appellant to the institutional consumers nor he has endorsed not for retail sale on the said goods cleared to their distributors which he claims were meant for such supply. Also the appellant has printed MRP on the goods but did not assess the same under Section 4A of the Central Excise Act for excise duty payment. What has come out of the documents that MRP was printed on the PP medicines supplied by the appellant to their distributors. There was no endorsement to show that the goods are not meant for retail sale. Only mention of Government invoice on the covering Central Excise invoices does not fulfil the requirement of Legal Metrology Act and the Rules made thereunder. Reliance placed on the decision of CESTAT Delhi in M/s. Hanon Climate Systems India Ltd Vs. Commissioner (Appeals) CE CGST Jaipur 2024 (4) TMI 1267 - CESTAT NEW DELHI wherein it is held that if the goods are marked not for retail sale and sold to the manufacturers they qualify as sale to the industrial consumers and not otherwise. Extended period of limitation - HELD THAT - There is no dispute that the appellant have filed Central Excise Returns but the same nowhere show clearances made to their distributors separately. The assessable value has been determined in respect of all the clearances without showing as to which of the goods were assessed under Section 4 and under Section 4A of the Act. Non-disclosure of such vital information leads to conclude that the appellant has not disclosed full facts in the Central Excise returns and therefor extended period of limitation has rightly been invoked. Conclusion - i) If the goods are marked not for retail sale and sold to the manufacturers they qualify as sale to the industrial consumers and not otherwise. ii) Non-disclosure of vital information leads to conclude that the appellant has not disclosed full facts in the Central Excise returns and therefor extended period of limitation has rightly been invoked. The order of the lower authority confirming differential Central Excise Rs. 14, 65, 213/- alongwith interest and imposition of equal penalty on the appellant under Section 11AC of the Central Excise Act 1944 upheld - penalty on manager is not justified - appeal disposed off.

The core legal questions considered by the Tribunal revolve around the proper classification and assessment of excise duty on pharmaceutical products bearing Maximum Retail Price (MRP), specifically whether the goods supplied to institutional consumers without direct sale by the manufacturer are liable for duty under Section 4 or Section 4A of the Central Excise Act, 1944. Further issues include the applicability of Legal Metrology (Packaged Commodities) Rules, 2011 to such goods, the validity of invoking extended period of limitation for duty recovery, legality of confiscation and redemption fine imposed on the goods, and the correctness of penalty imposition on the company and its manager.

The first principal issue concerns whether the pharmaceutical products supplied by the appellant to institutional consumers such as hospitals and government institutions, either directly or through authorized distributors, fall within the ambit of "retail packages" requiring MRP declaration under the Legal Metrology Rules and thus attract excise duty assessment under Section 4A of the Central Excise Act. The appellant contended that these goods were not meant for retail sale but for institutional use, exempting them from MRP declaration requirements and thereby from Section 4A assessment. They relied on the definitions under the Legal Metrology Rules, 2011-specifically Rule 2(k) defining retail packages as those intended for retail sale to ultimate consumers excluding institutional consumers, and Rule 3(b) excluding packages meant for industrial or institutional consumers from MRP printing obligations. The appellant further cited Supreme Court precedents holding that even if goods are notified under Section 4A, absence of a statutory requirement to declare MRP precludes assessment under Section 4A.

The Tribunal examined the statutory framework, including the Central Excise Act, 1944, and the Legal Metrology (Packaged Commodities) Rules, 2011, as well as the evolving definition of "institutional consumer" over the relevant periods. The Rules exempt packages meant for institutional consumers from MRP declaration, provided the sale is direct from manufacturer to institution or the package is marked "not for retail sale." The Court noted that the appellant did not sell directly to institutional consumers in all cases but routed supplies through distributors without marking packages "not for retail sale." The mere printing of MRP on packages and issuance of invoices labeled "Government invoice" did not satisfy the exemption criteria under the Legal Metrology Rules. The Tribunal relied on authoritative decisions, including a recent CESTAT ruling, which held that exemption from MRP printing applies only when goods are sold directly to institutional consumers or bear the "not for retail sale" declaration.

Applying this legal framework to the facts, the Tribunal found that the appellant's supplies were not exempt from MRP declaration requirements since they were made through distributors without the requisite marking or direct sale to institutions. Consequently, the goods were liable for excise duty under Section 4A, and the appellant's assessment under Section 4 was incorrect. The Tribunal rejected the appellant's argument that the goods were not covered by the Legal Metrology Act or Rules simply because the ultimate consumers were institutions. The Court emphasized that the exemption is contingent on direct sale or appropriate package marking, neither of which was established.

The second issue addressed was the invocation of the extended period of limitation for recovery of duty. The appellant argued that since they filed Central Excise Returns, the extended period was not applicable absent any suppression or intent to evade duty. The Tribunal scrutinized the evidence and found that the appellant failed to disclose clearances to distributors separately and did not distinguish between goods assessed under Section 4 and Section 4A in their returns. This non-disclosure of vital facts constituted suppression, justifying invocation of the extended period. The Tribunal thus upheld the extended period demand for differential duty and interest.

The third issue pertained to the legality of confiscation of goods and imposition of redemption fine. The appellant contended that confiscation was unjustified as the goods were cleared under statutory documents and no seizure action was taken. The Tribunal, however, upheld the confiscation and redemption fine, reasoning that the goods were liable for differential duty and the confiscation was in accordance with Rule 25 of the Central Excise Rules, 2002, given the duty evasion detected.

Finally, the Tribunal examined the imposition of penalty on the appellant and its manager under Section 11AC of the Central Excise Act and Rules 25 and 26 of the Central Excise Rules, 2002. While the penalty on the appellant was upheld, the penalty on the manager was set aside. The Tribunal reasoned that the manager acted in the capacity of an employee without personal interest or benefit from the alleged contravention. This approach aligns with established principles that penalties on employees require proof of personal interest or involvement in the evasion.

In conclusion, the Tribunal affirmed the differential excise duty demand under Section 4A, interest, equal penalty on the appellant, confiscation of goods, and redemption fine. It rejected the appellant's contentions regarding exemption from MRP declaration and Section 4A assessment, holding that indirect sales through distributors without proper package marking do not qualify for exemption. The extended period for recovery was rightly invoked due to non-disclosure in returns. The penalty on the company's manager was quashed for lack of personal culpability.

Significant holdings include the Tribunal's clear statement that "only those supplies which are made directly by the manufacturer/ packers or where it is endorsed that these are 'not for retail sale', will be eligible for exemption from printing of MRP." It emphasized that "merely mention of 'Government invoice' on the covering Central Excise invoices does not fulfil the requirement of Legal Metrology Act and the Rules made thereunder." The Tribunal also held that "if the goods are marked 'not for retail sale' and sold to the manufacturers, they qualify as sale to the industrial consumers and not otherwise."

On limitation, the Tribunal held that "non-disclosure of such vital information leads to conclude that the appellant has not disclosed full facts in the Central Excise returns and therefore, extended period of limitation has rightly been invoked." Regarding penalty on employees, it reaffirmed that "penalty of employees was not liable unless it could be established that he had any personal interest in the affairs of the employer."

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