By TIOL News Service

MUMBAI, MAR 04, 2014: THIS is going to hurt!

The appellants are manufacturers of goods falling under chapter heading 85.36 of the CETA, 1985 which are notified for assessment based on the Retail Sale Price in terms of notification 13/2002-CE(NT) dated 01/03/2002 issued u/s 4A of the CEA, 1944.

None of the manufacturers affixed MRP on their products which were sold to their dealers/distributors from their factory or depots and the reasoning given was that their products were not covered by P.C. Rules inasmuch as the goods were not a pre-packed commodity and were not sold by weight, measure or number. The appellants were also making the following declaration on the packing ‘ Specially packed for the exclusive use of any industry as a raw material or for the purpose of servicing of any industry, mine or quarry. For industrial use only and not intended to be displayed for sale at a retail outlet  '.

The appellants are also having printed price list which is called as List Price for all the products sold by them to their dealers. The List Price forms the basis for arriving at the sale price between the appellants and their dealers; the appellants offered  discount from the list price to arrive at the basic sale price which is inclusive of excise duty and central sales tax, wherever applicable.  The dealers sell the goods to their customer and charge Sales Tax/VAT, as applicable. The appellants determined the assessable value of goods on the basic sale price at which goods were sold to the dealers, in terms of Section 4 of the Central Excise Act.

The department alleged that the products manufactured by the appellants are pre-packed commodity under Rule 2(l) of the Packaged Commodity Rules; that as the products are sold by the dealers in retail there is a statutory requirement to affix the MRP under the PC Rules and the excise duty has to be discharged in terms of section 4A of the CEA, 1944. Therefore, the show cause notice proceeded to determine the MRP as equal to the List Price + VAT + Octroi as no MRP was affixed on the products. The assessable value was arrived at after granting abatement of 40% from such MRP.

The Member (Judicial) took the following view -

+ As the decision of the High Court of Bombay in the case of Larsen & Toubro Ltd. has not been set aside by the Apex court, therefore in the light of the judgment in the case of  Shri Chamundi Mopeds Ltd.  AIR 1992 Supreme Court 1439, the judgment is a Law of land as on today and, therefore, the appellants are required to affix MRP on the impugned goods.

+ demands for the period prior to 1.3.2008 are not sustainable as there is no machinery provisions to determine the MRP of the product in the absence of MRP affixed on the product.

+ In the absence of fact that at which price the goods were finally sold in retail, the mere presumption that the retailer might have sold the goods on the basis of list price is not the conclusive evidence to ascertain the MRP. As the Revenue has failed to produce the evidence of retail sale price, therefore, the value adopted by Revenue as retail sale price is not sustainable. Accordingly, the demands confirmed in the impugned order are not sustainable for the period post 1.3.2008.

+ The issue (of affixation of MRP) was settled by the Bombay High Court on Writ Petition filed by the appellants', therefore, the extended period of limitation is not invokable.

So, the Member (Judicial) allowed the appeals.

The Member (Technical) had a different view on some issues and hence he recorded the following separate order.

+ Retail Sale Price can be determined based upon the reasonable/best judgment of the assessing officer, consistent with the provisions of Section 4A. There can be no prohibition to the assessing officer to keep in mind the Rules notified on 1.3.2008 if assessment is being done after 1.3.2008 and is for period prior to 1.3.2008. A view that assessing officer cannot adopt any reasonable/best judgment method to ascertain MRP, in the interim period, can lead to absurd situations. Further, there can be no bar using the guidance provided by new Rules.

+ It is interesting to note that even after the present issue cropped up, appellants continued to clear the goods without declaring MRP but assessing the goods under Section 4A i.e. MRP basis and MRP  is arrived at based upon List Price,  VAT and Local Taxes. When the appellants themselves now use list price as the basis for determining MRP, there is no reason, not to use the same for past period.

+ In case of appellant Siemens Ltd., in one notice extended period is invoked. It is seen that they had approached Director, Legal Metrology to exempt goods under Rule 34(a) on 20.3.2002 which was rejected on 30.4.2002. However, they took the matter to the Hon'ble Bombay High Court after 6 years i.e. in 2008, which upheld the orders of Director, Legal Metrology. Similarly Larsen & Toubro Writ Petition was also filed in 2007, when they were given a clarification by Director, Legal Metrology in 2002 itself. The delay of five years speaks about their willful intentions.  These products were notified  under Section 4A(1) of the Central Excise Act  in 2002,  after that there was no reason for the appellants to pay duty under Section 4. Even if they had any delusional assumption, they should have approached the excise department for clarification and should have resorted to provisional assessment in the meantime. The conduct of the appellants in approaching  authorities other than excise authorities for excise duty only support willful intention to somehow evade excise duty.

In view of the difference in opinion, the matter was referred to the Third Member. We reported this order as - (2013-TIOL-1502-CESTAT-MUM).

After hearing the matter on five occasions, the third Member (Technical) recently held as below -

++ Once the goods are specified under Section 4A(1) and there is a statutory requirement to declare RSP on the retail sale packages of the goods, the question of application of Section 4 would not arise at all. If that be so, it cannot be contended that the valuation of the goods have to be done under Section 4 of the Act and not under Section 4A. Thus, there is a contradiction in the findings and conclusions drawn by the learned Member (Judicial) that prior to 01/03/2008 the goods were liable to be assessed for excise duty purpose under Section 4 of the Act and not under Section 4A.

++ If one carefully goes through the provisions of Section 4A and the Rules 2008 cited above, it can be seen that there is no determination of RSP envisaged in the legal provisions. The declaration of RSP is mandated by the provisions of the Packaged Commodity Rules and the Standards of Weights and Measures Act.

++ Since the declaration of RSP is mandated by the Standards of Weights and Measures Act or the Rules made thereunder, Excise law cannot prescribe a method for determination of RSP since the declaration of RSP is not mandated by the Central Excise law.

++ This rule, by its very nature, applies and applies only to the assessing officer. It does not apply to the manufacturer or the packer. In other words, though it is called rules, the Rules 2008 is in effect and in fact a guideline for ascertaining the RSP in a situation where a manufacturer/packer does not declare the RSP or tampers with or obliterates the RSP already declared subsequent to the removal of the goods. In other words, it provides for ascertainment of RSP by using reasonable and fair means consistent with the provisions.

++ What RSP is,is clearly indicated in the Act and what the Rules purport to do is, how to ascertain the RSP. In other words, the ascertainment of RSP is purely procedural in nature and, therefore, it is retrospective in nature and can be applied to all proceedings which are pending or which arise after the rule has been introduced.

++ T he taxable event, the rate of tax, the measure of the tax and the person liable to pay tax are separately provided for in the various provisions of the Central Excise Act, 1944 and the Rules made thereunder. Rules 2008 apply only to a limited situation where the manufacturer fails to declare the RSP or tampers with or obliterates the RSP already declared. Therefore, the provisions are merely procedural and directory in nature and hence has retrospective operation.

++ The purpose of introduction of Section 4A was to enable assessment of certain class of goods to duty on the basis of retail sale price declared on the packages which was a statutory requirement under the Standards of Weights and Measures Act or the Rules made thereunder or under any other law. Thus the legislative intention is crystal clear. Merely because an errant/defiant manufacturer fails to declare the RSP in gross contravention of the law, it cannot be held that the executive is powerless to deal with the matter and has to be a helpless spectator.

++ Rules 2008 is a curative provision to deal with a situation where the RSP is not declared or tampered with. Therefore, it is retrospective in nature.

++ There is absolutely no doubt that the MRP of the product can be ascertained by the assessing officer using reasonable/best judgment means bases on the material available and consistent with the principles and the provisions of Section 4A of the Central Excise Act, 1944 even if rules for ascertainment of the same were not framed earlier and came about later.

++ In view of the above, the demand for the period prior to 01/03/2008 and after 14/05/2003 when the Government acquired the power to frame the Rules is sustainable as MRP of the product can be determined by using reasonable means.

In the matter as to whether the list price can be adopted for determination of MRP or not, the third Member (T) observed -

++ If the appellant wants to adopt a different rates of sales tax/octroi it was their bounden duty to lead evidence in this regard to prove that the additions made by the Revenue in the impugned order, is incorrect or not applicable universally. In the absence of any such evidence, the additions made by the Revenue to the list-price towards local taxes cannot be faulted at all so long as the reasonableness of the additions has not been rebutted by the appellants either before the adjudicating authority or before this Tribunal.

On limitation, the third Member on reference held -

++ From the facts available on record it is seen that the appellants were aware that they were required to declare RSP on the packages of the goods manufactured and sold by them. They were so advised by the Director of Legal Metrology as early as in 2002. However, in spite of being aware of their legal obligations, the appellants did not comply with the statutory directions. After a gap of five years they challenged the decision of the Director, Legal Metrology before the hon'ble Bombay High Court and the Bombay High Court directed the Director, Legal Metrology to pass a speaking order which the Director Legal Metrology has done in 2007. The said decision of the Director Legal Metrology was challenged unsuccessfully by the appellants before the hon'ble Bombay High Court and the hon'ble Bombay High Court upheld the decision of the Director, Legal Metrology and held on the products manufactured by the appellants were covered under the Standards of Weights and Measures Act and the Packaged Commodity Rules and the appellants were required to declare RSP on the packages. Thus, the appellants were fully aware of the legal requirements. In spite of such knowledge, the appellant chose not to comply with the law in complete defiance of the law. There was no reason for the appellant to entertain any reasonable belief that they were not required to declare the RSP on the packages. The question is when an appellant deliberately defies a statutory requirement, can they be allowed to get away with it and obtain the benefit under some other law.In these circumstances, the invocation of extended period of time is completely justified.

The reference was accordingly answered by the third Member (Technical) thus:-

# The demands for the period prior to 1.3.2008 are sustainable as MRP of the product can be determined by the assessing officer using reasonable/best judgment means based upon material available and consistent with principles and provisions of Section 4A of the Central Excise Act, 1944. Further the Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 have retrospective application as they are procedural and directory in nature.

# The list price (with suitable adjustments for VAT/local taxes etc.) of the manufacturer which is basis for all transactions between the manufacturer and distributor/stockist/retailer can be adopted as MRP of the product under the reasonable/best judgment method before 1.3.2008 and on and after 1.3.2008 under Section 4A read with Rule 6 of the Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008.

# Demand for the extended period is sustainable as the appellants have resorted to subterfuge and mis-declaration with an intent to evade excise duty.

And the Majority decision is that the appeals are dismissed.

(See 2014-TIOL-337-CESTAT-MUM)