2012 (12) TMI 348 - AT - Central Excise

Tribunal clarifies Section 4A for spare parts, directs deposit pending appeal

The Tribunal upheld the applicability of Section 4A for clearances to spare parts divisions of automobile manufacturers where MRP was affixed, while ... MRP - provisions of Rule 4A - sales to dealers – Held that:- Period of demand is from 1-6-2006 to 31-10-2010, Rule 17 and Rule 2(j) of SWM Rules were deleted w.e.f. 31-1-2007 by GSR 425(E) - for the period w.e.f. 31-1-2007, the Commissioner’s findings that the goods sold to the dealers being multi-piece packages, there were requirement to affix MRP on the packages, would not be correct - period prior to 31-1-2007 when Rule 17 read with Rule 2(j) of the SWM Rules were there, the goods being cleared do not appear to be covered by the definition of ‘multi-piece packages’, as it is not the department’s case that each piece was individually packed in retail sale - no evidence that these boxes containing 100 pieces were meant for retail sale, there is no evidence that pieces of fasteners were individually packaged or labelled for retail sale - even prior to 31-1-2000, there was no requirement to affix MRP on the packages in which the goods were being sold to dealers and hence, the provisions of Rule 4A were not applicable - provisions of Rule 4A would not have been applicable if each individual piece was individually packed for retail sale and two or more of such individually pieces were further packaged in bigger boxes, which were also intended for retail sale – in favor of assessee In respect of the clearances to Spare Parts Division of Automobile manufacturers – Held that:- Provisions of Rule 4A would be applicable and the duty would be liable to be paid on the assessable value determined on the basis of MRP declared under the Provisions of Section 4A and in respect of these clearances, the dispute is only on the point as to whether in respect of such clearances of Spare Parts Division of Automobile manufacturers, the duty has been paid on the value determined under Section 4A - Appellant directed to make pre-deposit Issues Involved:1. Dispute over duty assessment under Section 4A for automobile parts cleared to spare parts divisions and wholesale dealers.2. Requirement of printing MRP on packages under SWM Rules.3. Applicability of extended limitation period under proviso to Section 11A(1).4. Imposition of penalties under Section 11AC and Rule 26 of Central Excise Rules, 2002.Issue-wise Detailed Analysis:1. Dispute over duty assessment under Section 4A for automobile parts cleared to spare parts divisions and wholesale dealers:The appellant company, engaged in manufacturing nuts, bolts, and screws for automobiles, cleared goods in three categories: (a) to automobile manufacturers as original equipment parts (OE parts), (b) to spare parts divisions of automobile manufacturers in retail packs with MRP labels, and (c) to wholesale dealers in boxes of 100 pieces each. The central dispute revolves around the duty assessment for categories (b) and (c). The department contended that the goods cleared to both spare parts divisions and wholesale dealers should have been assessed under Section 4A based on the MRP, as per Notification No. 11/2006-C.E. (N.T.).2. Requirement of printing MRP on packages under SWM Rules:The appellant argued that the duty was correctly paid on the transaction value under Section 4 for goods cleared to wholesale dealers in bulk packages, as there was no requirement to affix MRP on these packages under SWM Rules. The Commissioner, however, treated these wholesale packages as multi-piece packages meant for retail sale, thereby necessitating MRP declaration under Rule 17(1) of SWM Rules. The Tribunal noted that the concept of multi-piece packages was deleted from SWM Rules effective 31-1-2007. Therefore, for the period after 31-1-2007, the Commissioner's finding was incorrect. Even for the period before 31-1-2007, the goods did not meet the definition of multi-piece packages since individual pieces were not packaged or labeled for retail sale.3. Applicability of extended limitation period under proviso to Section 11A(1):The appellant contended that the bulk of the duty demand was time-barred as the extended limitation period under proviso to Section 11A(1) was not applicable. They argued that their ER-I Returns clearly declared that duty on goods cleared to wholesale dealers was paid on the transaction value under Section 4. The Tribunal did not provide a detailed ruling on this issue within the stay application context but acknowledged the appellant's argument.4. Imposition of penalties under Section 11AC and Rule 26 of Central Excise Rules, 2002:The Commissioner imposed penalties of Rs. 14,80,01,338/- on the appellant company under Section 11AC and Rs. 2 crores on the director under Rule 26 of Central Excise Rules, 2002. The appellant sought waiver of these penalties, arguing that they had a strong prima facie case and that the duty demands were not justified. The Tribunal, while considering the stay application, directed the appellant to deposit Rs. 20 lakhs and waived the requirement for pre-deposit of the balance amount of duty demand, interest, and penalties during the pendency of the appeal.Conclusion:The Tribunal acknowledged the appellant's arguments regarding the non-applicability of Section 4A for bulk clearances to wholesale dealers post-31-1-2007 and the lack of requirement to affix MRP on such packages. However, it upheld the applicability of Section 4A for clearances to the spare parts divisions of automobile manufacturers where MRP was affixed. The Tribunal directed the appellant to make a partial deposit and stayed the recovery of the remaining amounts pending the appeal's outcome.