By TIOL News Service

MUMBAI, FEB 04, 2014: THE respondents had imported 75 consignments of Aloe Vera Products viz. Aloe Vera Gel, Aloe Berry Nectar and Forever Freedom and cleared the same between May, 2003 and April, 2005. A dispute arose between Revenue and the respondent regarding the classification of the product.

While respondent sought classification of these products under Customs Tariff Heading 2009 as Fruit Juices & Vegetable Juices, Revenue decided the classification under Customs Tariff Heading 2106 as Food Preparation. The matter was finally decided by the Tribunal [2005-TIOL-964-CESTAT-MUM] in favour of the respondent.

Consequent to the said decision, the respondent filed a refund claim for differential amount of Customs duty paid to the extent of Rs.7,61,06,909/- The Deputy Commissioner vide his order dt. 14.11.2006 held that the said amount was required to be refunded. However, the refund claim was adjudicated to be hit by the bar of unjust enrichment and, therefore, adjudicating authority directed that the refund amount shall be credited to the Consumer Welfare Fund in terms of Section 27(2) of the Customs Act, 1962.

The respondents filed an appeal against the said order before Commissioner (Appeals)
and which was allowed by following the ratio of the Tribunal decision in Girish Foods & Beverages (P) Ltd. 2007-TIOL-437-CESTAT-MUM.

Therefore, Revenue is in appeal against the said order.

The Consultant for the appellant Revenue inter alia made the following submissions with the support of a catena of case laws -

+ the contention of the respondent that since the MRP of the impugned goods was not increased during the period of dispute the burden of duty could not have been passed on to the customers cannot be accepted for the reason that mere stability in price does not lead to the irresistible conclusion that burden of duty has not been passed on to customers & that the certificates issued by the Chartered Accountants cannot be considered as decisive;

+ the amount of duty which forms part of the price has not been indicated on the invoices in contravention of section 28C of the Customs Act, 1962 and, therefore, incidence of duty is deemed to have been passed to the customers u/s 28D of the Customs Act, 1962;

+ as per the Balance sheets for the years 2003-04, 2004-05 & 2005-06, the amount of duty has been shown as expenditure and not receivables and this indicates that the incidence of duty has been passed on to the customers;

The respondent assessee too cited a couple of case laws and submitted -

+ the case laws cited by the Revenue do not stipulate that in all the cases where the price of the goods had remained the same, no refund will be granted; that even in such cases assessee is entitled to prove that he has not passed on the duty burden to the buyer of the goods;

+ retail sale price of the goods is fixed by the overseas supplier and in support of which a certificate was produced;

+ u/s 28C stipulation regarding indication of duty in the sales invoice is only at the time of customs clearance which would be applicable only in cases where the price of the goods is ‘Duty delivered price' and which is not the case in the present dispute.

The Bench after considering the extensive submissions observed -

++ Both, price of goods supplied by the AVA, US and the price at which the goods are being sold in India are determined by supplier abroad. Respondent has to practically act in all spheres as per the direction of AVA, USA. This factor alone cannot lead to a conclusion that burden of duty has not been passedon to the final buyer of the goods.

++ We have carefully gone through the calculations produced by the learned Advocate for the appellant and explained during the arguments Learned Counsel has indicated cost of the goods with admitted duty and with higher duty (as deposited at the time of clearance). After addition of the duty element, in next column has indicated the wholesale price. The wholesale price again is not based upon any cost construction method but 30% less than the suggested retail price. Thus the earlier columns have no relevance and cost construction method fails. It is further claimed that on this Whole Sale Price, VAT/Sales tax, Surcharge, and Turnover Tax is added. After adding these, distributor price is arrived. We also note that as per the information supplied the distributors are not selling the goods at the suggested retail sale price but after adding earlier mentioned taxes. Thus the so called RSP does not even represent the correct selling price.

++ We are of the view that respondents have not been able to show from the said calculation that burden of duty has not been passed on the buyer of goods. During the arguments it was inquired what happens if the exchange rate changes. It was also noted that for calculation purpose, different exchanges rates have been taken by the respondent. The Advocate had admitted that any affect due to exchange rate etc. is borne by the respondent and is considered as part of the cost of the material. Thus from the above, it is clear that cost of import including the import duty etc. is being considered as the cost of material by the respondent. Revenue has also drawn our attention to the balance sheet as on 31st March 2003, 31st March 2004 and 31st March 2005 wherein in the expenditure side, respondent has shown the cost of goods sold. Further schedule No. 14 of the said Balance Sheet, details how the cost of goods sold is calculated. It is seen from the said calculation that CIF value, Customs duty, Clearing and another incidental charges are considered as cost of goods sold.

++ The inevitable conclusion from the above method of accounting is that the respondents have considered the disputed amount of Customs duty as the cost of material. The accounting system does not anticipate the said amount as receivable. The sales price of the goods is very high compared to disputed duty amount. The disputed duty amount is insignificant in the overall scheme of pricing. In fact, post-sale, respondent claims to pay 43% bonus to the distributors above certain level. It is perhaps for such reasons that wholesale prices were not changed and the disputed duty was considered as the cost of material sold. These goods are being sold as multilevel marketing. The dispute continued for more than three years and no prudent business man/organization would continue to bear incidence of higher duty without passing the same to the buyer of the goods. Respondents have failed to prove that incidence of duty disputed has not been passed on to the buyer of such goods.

++ Respondents have claimed that in the said Section indication of duty in the sale invoice is relevant only at the time of customs clearances which implies that it is applicable only in respect of duty delivered price. We do not find any such anticipation under Section 28C. Section 28C requires every person who is liable to pay duty on any goods to indicate in the sales invoices and other like documents the amount of such duty which will form part of the price at which such goods are to be sold. There is no anticipation of duty delivered prices. Such prices will be an arrangement between supplier and importer and has nothing to do with Section 28C. It is applicable in all situations. We have gone through some of the invoices produced in the appeal book and we find that though respondents are indicating Sales Tax/VAT amount, Octroi, Turnover Tax etc. however there is no indication of Customs duty paid in such cases, this is to for both Basic Customs Duty, Countervailing duty as also SAD.

++ We are in total agreement with the observation made in Skycell Communications Ltd., that since no separate duty has been indicated in the invoices it has to be assumed that total burden of Customs duty has been passed on to the buyer of goods.

++ All the case laws quoted by respondent are not at par with the present case and therefore distinguishable. In any case, whether the burden of duty has been passed to the buyer of goods is a matter to be examined in facts of each case, and observation in one case will be of little help in other cases until and unless all the facts are exactly same.

Holding that the respondent had not discharged the burden that they have not passed on the full incidence of duty to the buyer of such goods, it was concluded that the refund claim is hit by the bar of unjust enrichment and the Revenue appeals were allowed.

(See 2014-TIOL-174-CESTAT-MUM)