2014 (12) TMI 822 - AT - Central Excise

Appeals Dismissed, Directors Penalized, Biscuit Supply Ruled Non-Eligible

The tribunal dismissed the appeals, upholding the demand for duty, penalties on the directors, and the decision that the biscuits supplied to MCD were not ... Assessment under Section 4A versus Section 4 - retail sale price / maximum retail price (MRP) declaration - institutional supply and exemption from MRP requirement under SWM (PC) Rules - non-conformity with packaging standards under SWM (PC) Rules - suppression of facts and mens rea for evasion of duty - personal liability of directors for abetment - confiscation and demand of differential dutyAssessment under Section 4A versus Section 4 - institutional supply and exemption from MRP requirement under SWM (PC) Rules - retail sale price / maximum retail price (MRP) declaration - Whether clearances of biscuits to MCD qualified for assessment under Section 4A on the basis of MRP printed on packages or were assessable under Section 4 as institutional supplies exempt from MRP requirements. - HELD THAT: - The Tribunal found that supplies were made under contract to the Municipal Corporation of Delhi for distribution under a public nutrition scheme and thus constituted sales to an institutional buyer within the meaning of the SWM (PC) Rules explanation of institutional consumer. Chapter 2 of the SWM (PC) Rules does not apply to packaged commodities sold to institutional buyers and therefore printing of MRP is not required for such supplies. Further, the printed Rs.2 figure on the packages could not be treated as MRP in law: many pack sizes (63 gms., 71 gms.) did not conform to prescribed pack sizes in Schedule 2 of the Rules; the contract price reflected the fact that MCD supplied wheat free of cost so the price was negotiated and not a maximum retail price inclusive of all components as defined under the Rules; and supplies were not at arm's length. Reliance upon precedents where proper MRP existed (e.g., Jayanti Foods) was inapposite. Consequently the Tribunal held the supplies were not eligible for assessment under Section 4A and were correctly assessed under Section 4. [Paras 5]Supplies to MCD were institutional sales not requiring MRP declaration; assessment under Section 4A was not available and assessment under Section 4 (differential duty) was sustainable.Non-conformity with packaging standards under SWM (PC) Rules - retail sale price / maximum retail price (MRP) declaration - Whether the price printed on the packages was legally an MRP. - HELD THAT: - The Tribunal observed that the same printed figure was used across differing pack sizes and that certain pack sizes did not conform to the statutory pack sizes in Schedule 2, indicating the printed figure was a contractual price label rather than a legally-compliant MRP. The contractual arrangement (free wheat supplied by MCD) meant the printed price did not include components required by the definition of retail sale price and therefore could not be treated as MRP under the SWM (PC) Rules. Thus the appellants' contention that MRP was printed and therefore Section 4A applied was rejected. [Paras 5]The printed figure on the packages was not a legally valid MRP and could not support assessment under Section 4A.Suppression of facts and mens rea for evasion of duty - personal liability of directors for abetment - confiscation and demand of differential duty - Whether there was suppression of facts with intent to evade duty and whether personal penalties on the directors were justified. - HELD THAT: - The Tribunal found that the appellants failed to disclose the material fact that MCD supplied wheat free of cost and nonetheless represented the printed Rs.2 as MRP across varying pack sizes, thereby misleading revenue and claiming assessment under Section 4A. This conduct was held to demonstrate deliberate suppression and intent to evade duty. By virtue of their positions, the managing director and director knew of and permitted the practice, thereby abetting the evasion. The Tribunal concluded that mens rea was established and that the adjudicating authority rightly imposed demand, confiscation consequences and personal penalties on the responsible directors. [Paras 7, 9]Suppression and intent to evade duty established; demand and penalties, including personal penalties on the directors, upheld.Final Conclusion: The appeals are dismissed; the adjudicating authority's order confirming the differential duty demand and imposing mandatory and personal penalties is upheld. Issues:Assessment under Section 4A for supplies to MCD, Interpretation of MRP requirement, Allegation of suppression of facts, Imposition of penalties on directors.Assessment under Section 4A for supplies to MCD:The case involved the confirmation of a demand for duty on clearances of biscuits made to MCD under a contract. The appellants contended that the clearances fell under Section 4A due to the MRP printed on packages. They cited judgments and interpretations to support their position. However, the tribunal found that the supplies did not conform to the SWM (PC) Rules as the package weights were not in line with the specified quantities. Previous judgments highlighted that supplies to institutional buyers do not require MRP printing. The tribunal concluded that the biscuits were not eligible for assessment under Section 4A.Interpretation of MRP requirement:The appellants argued that the MRP printed on packages was valid as per their contract with MCD. However, the tribunal determined that the printed price was not a true MRP as it did not comply with SWM (PC) Rules. The tribunal emphasized that the price was negotiated considering the free supply of wheat by MCD, making the printed figure misleading. The tribunal rejected the appellants' attempt to distinguish their case from previous judgments and upheld that the printed price was not MRP.Allegation of suppression of facts:The tribunal found evidence of suppression of facts as the appellants did not disclose the free supply of wheat from MCD, which influenced the pricing. The deliberate attempt to claim the printed price as MRP for duty assessment indicated an intent to evade duty. The tribunal held that the appellants, including the directors, were aware of and allowed this practice, leading to penalties and confiscation of goods for duty evasion.Imposition of penalties on directors:The tribunal upheld the penalties imposed on the directors for their involvement in the suppression of facts and evasion of duty. The directors' knowledge and facilitation of the misleading pricing scheme demonstrated their culpability in the evasion, leading to the affirmation of penalties by the tribunal.In conclusion, the tribunal dismissed the appeals, upholding the demand for duty, penalties on the directors, and the decision that the biscuits supplied to MCD were not eligible for assessment under Section 4A. The judgment emphasized the importance of compliance with SWM (PC) Rules and transparency in pricing to prevent duty evasion.