MRP-based customs duty applies only to retail-sale goods; bulk import for repacking and industrial sale defeats the demand.

MRP-based additional customs duty applies only where packaged goods are intended for retail sale and the packaged commodities rules require a declared retail sale price. Goods imported for repacking, labelling and bulk sale to an industrial consumer did not attract MRP valuation, so the duty demand failed. The related confiscation, redemption fine and penalty were also unsustainable. Separately, the penalty under Section 112(a) of the Customs Act could not exceed the duty sought to be evaded or Rs. 5,000, whichever was greater; the original penalty was beyond that ceiling and reduction by the lower appellate authority was justified.

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Issues: (i) Whether the reduction of penalty by the lower appellate authority was justified under Section 112(a) of the Customs Act, 1962. (ii) Whether additional customs duty could be demanded on the basis of MRP and whether confiscation and penalty were sustainable where the goods were imported for repacking, labelling and bulk sale to an industrial consumer.

Issue (i): Whether the reduction of penalty by the lower appellate authority was justified under Section 112(a) of the Customs Act, 1962.

Analysis: The duty sought to be evaded was only Rs. 4.56 lakhs. Under Section 112(a), the penalty on goods liable to confiscation cannot exceed the duty sought to be evaded or Rs. 5,000, whichever is greater. The adjudicating authority's penalty of Rs. 10 lakhs was therefore beyond the statutory limit, and the lower appellate authority correctly reduced it.

Conclusion: The reduction of penalty was justified and the Revenue's challenge failed.

Issue (ii): Whether additional customs duty could be demanded on the basis of MRP and whether confiscation and penalty were sustainable where the goods were imported for repacking, labelling and bulk sale to an industrial consumer.

Analysis: MRP-based valuation applies only where the statutory metrology regime requires declaration of retail sale price on packages intended for retail sale. The goods were imported not for retail sale but for repacking, labelling and branding before bulk sale to Bajaj Electricals Ltd., which was treated as an industrial consumer. In that situation, Rule 3 of the Legal Metrology (Packaged Commodities) Rules, 2011 did not require MRP declaration. The goods were also covered by the Third Schedule to the Central Excise Act, 1944 and the appellant's activities amounted to manufacture under Section 2(f). The demand based on MRP was therefore unsustainable, and the consequential confiscation, redemption fine and penalty also failed.

Conclusion: The demand for additional customs duty, confiscation, redemption fine and penalty were not sustainable.

Final Conclusion: The appeal of the importer succeeded and the Revenue's appeal failed, resulting in setting aside of the impugned order with consequential relief.

Ratio Decidendi: MRP-based additional customs duty is leviable only when the goods are intended for retail sale and are required to bear a declared retail sale price under the applicable packaged commodities rules; where goods are imported for further processing, repacking and bulk sale to an industrial consumer, the MRP basis does not apply, and any penalty must remain within the statutory ceiling.

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