MAY 26, 2015

By Neethu James

THE definition of the term 'industrial consumer' under Rule 2(bb) of Legal Metrology (Packaged Commodities) Rules, 2011 has been substituted by Legal Metrology (Packaged Commodities) (Amendment) Rules, 2015. The amended provision,according to the notification dated 14-5-2015 issued by the Ministry of Consumer Affairs, Food & Public Distribution, reads as under:

"(bb) 'industrial consumer' means the consumer who buys packaged commodities directly from the manufacturer or from an importer or from wholesale dealer for use by that industry and the package shall have declaration 'not for retail sale';"

Prior to the above amendment, a consumer procuring goods directly from the manufacturer for use in their industry alone was considered as 'industrial consumer'. This led to valuation disputes in the following cases:

(1) Manufactured goods when sold through distributors to consumers for use in their industry

(2) Imported goods when sold by the importer directly to consumers for use in their industry

(3) Imported goods when imported in packaged form by the importer for use in their own industry

In all the cases, the Department contended that the goods are not procured by the consumer directly from the manufacturer for use in their industry; that the goods are, therefore, not meant for industrial consumer as defined in the Legal Metrology (Packaged Commodities) Rules, warranting exclusion from affixation of retail sale price (RSP). This resulted in the goods meant for industrial use being valued on the basis of RSP, for payment of excise duty / CVD.

With the present amendment, consumers who procure goods from the importer and wholesale packer for use in their industry are brought at par with consumers who procure goods directly from the manufacturer. Thus goods procured for industrial use whether from manufacturer, importer or wholesale dealer, are not subject to RSP based assessment.

The amendment is of utmost significance as there are conflicting decisions on the meaning of 'industrial consumer'. The Bombay High Court in the case of Larsen & Toubro Limited v. The Union of India - 2008-TIOL-141-HC-MUM-CX held that consumers who purchase goods not directly from the manufacturer or packer are not industrial consumers (resulting in RSP based assessment of such goods). However, Karnataka High Court in the case of EWAC Alloys Ltd. v. Union of India - 2011-TIOL-924-HC-KAR-CX held that the objective of the Legal Metrology Act was to protect consumers using the products for their personal use and not to extend any protection to a reseller of goods for commercial purpose, directly from the manufacturer or otherwise. Thus consumers procuring goods for use in their industry, but not directly from the manufacturer were also held to be industrial consumers. The present amendment has rendered statutory recognition to the principle laid down in EWAC Alloys v. Union of India.

The amendment is relevant even in respect of past disputes as it is brought by way of 'substitution' of Rule 2(bb). Although retrospective application of amendments by way of substitution has been a contentious issue, Karnataka High Court in CCE v. Fosroc Chemicals (India) Pvt. Ltd. - 2014-TIOL-1609-HC-KAR-CX, has held that amendments by way of substitution are to be given retrospective effect. Difficulties could arise only in past disputes where the packages do not bear declaration 'not for retail sale'.

A similar amendment has been made to the definition of term 'institutional consumer' under Rule 2(bc) of Legal Metrology (Packaged Commodities) Rules, 2011:

"(bc) 'institutional consumer' means the institution who hires or avails of the facilities or services in connection with transport, hotel, hospital or other organization which buy packaged commodities directly from the manufacturer or from an importer or from wholesale dealer for use by that institution and the package shall have declaration 'not for retail sale';"

The amended Rule has omitted the word 'such' appearing before the expression 'other organization'. Thus packaged commodities procured by all service institutions for use by that institution while rendering facilities or services are excluded from being a retail package. This is in conformity with the law laid down by the Tribunal in Heidelberg Cement (India) Limited v. Commissioner of Central Excise, Nagpur - 2014-TIOL-1433-CESTAT-MUM which held that transportation, hotels and hospitals do not form any particular class so as to apply the principle of ejusdem generis.

The definition of the term 'institutional consumer' has thus been brought at par with that of 'industrial consumer' to cover packaged commodities procured directly from the manufacturer or from an importer or from wholesale dealer.

Let us hope that the present amendment re-defining 'industrial consumer' and 'institutional consumer' will finally settle the issues on RSP based assessment.

[The author is a Principal Associate, Lakshmikumaran & Sridharan, Bangalore and the views expressed in this article are personal]