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Cus - Re-labelling of boxes of Vitrified & Glazed tiles with higher MRP after import - Sec 3(2) will not become ineffective in absence of Sec 4(A)(4) of CEA, 1944 for import made prior to 14.05.2003 - ABB decision does not apply - Differential CVD duty demand upheld: CESTAT by Majority

By TIOL News Service

MUMBAI, JULY 27, 2015: THIS is a very lengthy order - 113 pages to be precise and only in the days to come will one know whether it can weather the storm.

In the present case, the appellant had imported Vitrified Tiles and Glazed Tiles during the period March 2001 to April, 2004 and cleared the same under Bills of Entry on payment of duty and on the MRP values declared on "per square meter" basis.  After clearance of the goods on payment of duty as assessed, the appellant re-labelled the boxes with equivalent MRP printed thereon, but on "per box" basis.

A part of the total quantity of each of the above items was sold to dealers at a higher price than the MRP and certain quantities from each category were also sold at lower prices.  The rest of the consignments were sold to builders, hospitals etc. in like manner.

After examining the import documents, recording statements of functionaries of the appellant company and making allied enquiries, the department issued a show cause notice invoking the extended period of limitation under section 28(1) of the Customs Act for recovery of differential duty, confiscation of the goods, imposition of penalty etc.  This notice alleged inter alia that the assessee had mis-declared the MRP of the goods with intent to evade payment of duty due to the exchequer in terms of section 4A of the Central Excise Act.  For the record, the duty demand is a whopping Rs.3.9Crores.

In adjudication of the dispute, the Commissioner of Customs (Imports) passed the impugned order, wherein the assessable value has been determined on the basis of the actual price at which the goods were sold by the importer after clearance of the imported goods.  The Commissioner found that the goods in question had been sold at different MRPs and, therefore, the maximum thereof would determine the assessable value under section 4A read with section 3(2) of the Customs Tariff Act.

The matter reached the Tribunal in Stay application and although the appellant raised many legal issues, the representative for the Revenue cited the case of Media Industries - 2006-TIOL-2007-CESTAT-DEL and said that the Department had a watertight case.

In this case, the CESTAT has held that subsequent change in MRP amounts to mis-declaration at the time of import and differential duty confirmed on the said basis is liable to be upheld along with confiscation of the goods and imposition of penalty.

The Bench after considering the submissions viewed that the assessee had not made out a clear case for complete waiver of pre-deposit or stay of recovery and hence directed the appellant to make a pre-deposit of Rs.50,00,000/- and report compliance.

We reported this stay order as 2009-TIOL-1215-CESTAT-MUM.

The appeal was heard by a Division Bench in June 2014 and there was a difference in opinion.

The Member (J) extracted passages from the decision in ABB Ltd. - 2011-TIOL-792-CESTAT-BANG and where it is inter alia held that - When there are no statutory provisions available prior to 01.03.2008 to determine RSP in respect of goods manufactured and cleared without declaration of RSP on such goods and in absence of similar machinery provisions to determine RSP under CTA, demand of differential CVD invalid and not sustainable - Order demanding differential duty, interest and imposition of mandatory penalty set aside.

Holding that the decision is squarely applicable to the facts of the case on hand and following the same it is held that as CTA does not have similar provisions as contained in the Central Excise (Determination of Retails Sale Price of Excisable Goods) Rules, 2008, the impugned order adopted a method to determine the RSP without sanction of laws.

To the submission by the Special Counsel for the Revenue that an appeal has been filed before the Supreme Court against the decision in ABB Ltd. and, therefore, the same is in jeopardy and cannot be relied upon, the Member (J) adverted to the Bombay High Court decision in Criminal Application No. 4230 of 2006 wherein the Hon'ble High Court had observed that the precedent does not cease to be binding merely because the same is challenged in the Supreme Court and its operation stayed by the Supreme Court. Inasmuch as it was held that the judgement being stayed does not wipe it out unless and until it so wiped out, it continues to be binding on the lower and subordinate courts.

The Member (J) also added -

+ The rules to determine RSP under the Central Excise Act, 1944 came into force in 2008 to ascertain the RSP in a prescribed manner. During the period in question there was no rules to determine RSP. Therefore, the Rules framed in 2008 that too under Central Excise Act are not relevant in this case as per the decisions of Millennium Appliances India Ltd. (supra), Ravi Foods Pvt. Ltd., (supra) and ABB Ltd., (supra); decision in Schneider Electrical India (P) Ltd. (supra) pertains to excise matter and the decision has been stayed by Bombay High Court

+ The rules framed to determine the MRP under the Central Excise law are not applicable to Customs law.

+ It is not in dispute that the appellant has not declared/affixed RSP at the time of clearance of the goods from the Customs. Therefore, the price at which the goods have been sold to the consumer cannot be construed as RSP for demanding duty as per Section 3(2) of the Customs Tariff Act.

+ Explanation to proviso to Section 3(2) of the Customs Act is inapplicable to the present case as the package of the imported tiles were having only one of MRP declared and each category of tiles were sold under one invoice and only price has been charged by the appellant. The higher MRP can be determined only when more than one MRP is fixed on the same package and not other situation. In this case, only one RSP has been fixed on each package hence determining highest RSP is without any basis.

+ The duty has been demanded by invoking the extended period of limitation as the assessment were final for the period March 2001 to April 2002 and assessment were provisional to March 2003 to July 2004. The provisional assessment were finalized in August 2004 when the facts were known to the department during the investigation prior to finalization in (August 2004 itself) as the show-cause notice has been issued after six months of such finalization. Therefore, extended period of limitation is not invokable.

+ Confiscation under Section 111(d) of the Customs Act is not sustainable as Section 111(d) is applicable to the goods which are imported or attempted to be imported or brought into India for the purpose of being imported, contrary to any prohibition imposed in the Customs Act or under any other law for time being in force. In the present case, there is no prohibition imposed,therefore, confiscation under this Section is not warranted.

+ Consequently, the redemption fine and penalties imposed under Section 112(a) and 112(b) of the Customs Act is also not sustainable.

+ The appellant has paid duty on MRP declared as per the Section 3(2) of the Customs Tariff Act, 1975, therefore, the demands proposed in the show-cause notice and confirmed in the impugned order are not sustainable and confiscation of the impugned goods are not warranted. Consequently, penalties are not imposable.

+ The appeals are allowed with consequential relief.

The Member (T) had a differing view.

These are his observations and conclusions -

+ That the imported goods namely vitrified tiles/ceramic tiles being specified under notification No. 5/2001-C.E (NT) dt. 1.3.2002 issued under Section 4A(1) of the Central Excise Act, 1944, are leviable to CVD in terms of Section 3(2) of the Customs Tariff Act, 1975 (CTA) i.e. the CVD is chargeable on the basis of MRP of the imported goods package less abatement as notified, is not in dispute. The allegation of Revenue is that, after clearance from customs, the appellants sold the goods to dealers at prices which were higher than the MRP declared before customs clearance. This fact is admitted by the appellants.

+ I find that the proviso to Section 3(2) states that "provided that in case of an article imported into India, - (a) in relation to which it is required, under the provisions of the Standards of Weights and Measures Act,1976 (60 of 1976) or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retails sale price of such articles; and (b) where the like article produced or manufactured in India, or in case where such like article is not so produced or manufactured, then, the class or description of articles to which the imported article belongs, is the goods specified by notification in the Official Gazette under sub-section (1) of section 4A of the Central Excise Act, 1944 (1 of 1944) ....."

+ To me it is clear that once the goods are specified under Section 4A(1) of the Central Excise Act, necessarily the CVD is to be charged on MRP basis. The proviso to Section 3(2) of Customs Tariff Act unambiguously states that in the case of such goods, the retail sale price has to be declared on the package as required under the Standards of Weights and Measures Act, (SWM). The critical words are "required" and "declared" in the case of imported goods which are specified under Section 4(A)(1) of the Central Excise Act. The question which arises is - what is the retail sale price that is required to be declared. For this we have to revert to the provisions of Standards of Weights and Measures Act, 1976 and the Rules made thereunder. These Rules called the Standards of Weights and Measures (Package Commodities) Rules 1977 define retail price (RSP) under Rule 2(r) as

2(r) - "retail sale price" means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer and where such price is mentioned on the package, there shall be printed on the packages, the words "Maximum or Max, retail price inclusive of all taxes or in the form MRP Rs..........inclusive of all taxes.

+ It may be safely concluded from this definition that the retail price which the appellant was required to declare on the goods packages in the maximum price at which they may be sold to the ultimate consumer and which is termed as maximum retail price (MRP).

+ In the present case, we have a situation where the appellants sold the goods at prices which are more than the MRP declared on the packages at the time of clearance from Customs. Once, there exists a defacto situation whereby the appellants sold goods at prices higher than the MRP declared at the time of customs clearance, then these higher prices will, under law, become the true maximum retail selling price (RSP) at which CVD is to be paid. The appellant is left with no option but to pay CVD on the basis of such higher prices which are the MRP required to be declared under Section 3(2). The law does not recognize the fact in some cases the goods may have been sold below the maximum price at which goods of the same kind were sold. If this argument of the Counsel was to be accepted it would nullify the whole scheme of MRP based levy.

+ Once a true MRP exists by law, there is no escape from the levy of duty on all goods of the same kind (size in this case) on that MRP.

+ The argument that entire provisions of Section 4A of the Central Excise Act are not applicable and Section 4A has limited application as far as Section 3(2) of CTA is concerned, is, to my mind superfluous.

+ I find that the facts in the case of ABB are different. It is my considered view that even if there are no machinery provisions laid down in Section 3(2) of the CTA and Section 4A(4) of the Central Excise Act, it cannot be concluded that Section 3(2) of the Customs Tariff Act will become ineffective and the law rendered otiose.

+ The judgments [Rupani Spinning Mills Pvt. Ltd vs. Union of India 1992 (60) ELT 77 (Guj Shipping Corporation of India vs. Collr. Of Cus. Madras reported in 1998 (98) ELT 78 (Mad.) Mahim Patram Private Ltd. vs. Union of India 2007 (7) STR 110 (S.C) J. Srinivasa Rao v. Govt. of Andhra Pradesh & Another - 2006 (13) SCALE 27 M/s. Ispat Industries Ltd. vs. Commissioner of Customs, Mumbai [JT 2006 (12) SC 379 2006 (9) SCALE 652 Sudhir Chandra Nawn vs. Wealth Tax Officer 1969 (1) SCR 108] convey beyond doubt that the absence of Rules or machinery provisions cannot make the law inoperative. The statute has to be seen in proper perspective as workable. Even otherwise in the circumstances of the present case as discussed in para 17 above, it is has been shown that Rules may not be necessary to determine the correct MRP. There is only one MRP which is to be considered and that MRP is well defined within the parameters of Section 3(2) of CTA. The correct MRP is fixed under the Standards of Weight and Measures Act read with Section 3(2) of the Customs Tariff Act. These two Acts clearly define what MRP is and what is the MRP on which CVD is required to be paid under Section 3(2) of the Customs Tariff Act. And this is precisely what Revenue has done, to demand duty on correct MRP.

+ It has also been argued by the appellants that the highest MRP can be adopted only when more than one MRP is affixed on the same package in terms of Explanation to Section 3(2) of the Customs Tariff Act. No matter how attractive this argument may seem to be, we have to interpret the law in plain terms. First of all, we have to see the definition of retail sale price. The retail sale price has been defined, as mentioned in para 17.2 above. Therefore, the question is not as to what MRP i.e. max retail sale price has been declared by the appellants for payment of CVD; the question is whether the retail sale price has been declared as required under the Standards of Weights and Measures Act. And this is the essence of the proviso to Section 3(1) of the Customs Tariff Act, which uses the word "in relation to which it is required under the provisions of the Standards of Weights and Measures Act (SWM), 1976 or Rules made there under." The retail sale price has to be that which is required to be declared under the SWM Act. And no other price. I have explained in para 17 above as to which retail sale price should have been declared.

+ In view of the above analysis, I confirm the duty demanded in the impugned order on the basis of MRP determined as per law as held in foregoing paragraphs alongwith interest under Section 28AB of the Customs Act, 1962.

The Member (T) also held that the demand was not time barred and that the SCN correctly invoked the extended period of limitation. In the context of confiscation and penalties the Member (T) rejected the contention of the appellant that there is no provision u/s 3 of the CTA for confiscation and penalties by straightaway referring to Section 3(6) of the Customs Tariff Act, which states that "the provisions of the Customs Act 1962 and Rules and Regulations made thereunder, including those relating to drawbacks, refunds and exemption from duties shall, so far as may be they apply to the duty chargeable under this Section as they apply in relation to the duties leviable under that Act." The word ‘including' as underlined above clearly establishes that all the provisions of the Customs Act, will be applicable to the Customs Tariff Act.

In fine, the Member (T) upheld the order and rejected the appeal.

And so, in view of the difference in opinion the matter was referred to the third Member on eight crystallised issues. This order was pronounced on 21.11.2014.

The third Member on Reference, Member (Technical) heard the matter on 26.02.2015 and in a marathon order(44 pages) dated 19.05.2015 concluded that he agreed with the order of the Member (Technical) on all of the eight points of difference except point numbered 4 wherein it is held that the differential duty needs to be reworked by the Commissioner. As far as point 8 is concerned, the third Member on reference held that in the present facts and circumstances of the case, the confiscation, redemption fine and penalties under Section 112 imposed are not sustainable in view of the fact that it is not possible to precisely identify the offending goods. However, Penalty under Section 114A is upheld only to the extent of reworked duty.

And so the Majority decision pronounced on 03.07.2015 is as below -

1. Reference to Section 4A(1) and 4A(2) of the Central Excise Act is fully applicable to the Explanation to Section 3(2) of the Customs Tariff Act.

2. Provisions of Section 3(2) of the Customs Tariff Act, will not become ineffective in the absence of Section 4(A)(4) of Central Excise Act, 1944 for the import made prior to 14.05.2003.

3. CVD is to be paid on the basis of higher prices at which the goods of the same size were sold to the customers and which were required to be declared as MRP under Section 3(2) of the Customs Tariff Act, 1975.

4. FIFO method is the most reasonable method to arrive at the MRP in the absence of records to correlate Bills of Entry and invoices and in the absence of any other more judicious method. However, the differential duty needs to be reworked by the Commissioner as per para 38.13 above.

5. The decision in ABB Ltd's case does not apply to the facts of this case; on the contrary, Tribunal's decisions in the cases of Planet Sports Pvt. Ltd. and Media Industries Ltd. squarely apply to the facts of this case.

6. MRP can be redetermined on the basis of underlying law and spirit of Section 3(2) of the Customs Tariff Act, 1975, having regard to the judgements of the Hon'ble Gujarat High Court in the case of Rupani Spinning Mills Pvt. Ltd. and Hon'ble Madras High Court in the case of Shipping Corporation of India Ltd. and Hon'ble Apex Court in the case of Mahim Patram Pvt. Ltd.

7. Extended period of limitation can be invoked to confirm the duty demand.

8. Confiscation, redemption fine and penalties under Section 112 imposed are not sustainable in view of the fact that it is not possible to precisely identify the offending goods. Penalty under Section 114A is upheld only to the extent of duty reworked as per para 38.13.

(See 2015-TIOL-1544-CESTAT-MUM)


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