2023 (12) TMI 1469 - AT - Customs

Additional customs duty cannot be imposed using RSP/MRP; transaction value governs under Section 3(1) Customs Tariff Act

CESTAT MUMBAI - AT held that additional duty of customs (CVD) cannot be imposed on the imported hydraulic rock breaker on the basis of RSP/MRP under ... Liability to additional duty of Customs (CVD) on the basis of Retail Sale Price (RSP/MRP) under Section 3(1) of the Customs Tariff Act, 1975 - import of Hydraulic Rock Braker - re-determination of MRP/RSP of the imported goods on the basis of market survey report - demand of differential additional duty of customs - HELD THAT:- The Additional Duty of Customs (CVD) is leviable on any imported goods under Section 3 of the Customs Tariff Act, 1975. The value for the purpose of determining CVD is provided under sub-section (2) of Section 3 ibid, is the transaction value or the tariff value, as determined under Section 14 of the Customs Act, 1962. In terms of the proviso to Section 3(2) ibid, the value of the imported goods shall be determined on the basis of RSP/MRP declared on the package thereof, if such imported goods fulfill both the following two legal requirements. These are, firstly (i) there shall be a requirement under the Legal Metrology Act, 2009 or the rules made thereunder, for declaration of RSP/MRP on the packages thereof; and secondly (ii) the excise duty on like article produced or manufactured in India, to that of the imported goods, are subjected to RSP/ MRP based levy under Section 4A of the Central Excise Act, 1944. On careful perusal of the facts on record, and the entry appearing in Sl. No. 109 of Notification No.49/2008-C.E. (N.T.) dated 24.12.2008 as amended by Notification No.19/2010-C.E. (N.T.), dated 29.04.2010, it transpires that the imported goods falling under ‘any chapter’ of the First Schedule to the Central Excise Tariff, and covered by the description viz., “Parts, components and assemblies” of goods falling under tariff item 8426 41 00, headings 8427, 8429 and sub-heading 8430 10, are liable to be pay CVD/Central Excise duty on the basis of RSP/MRP, in terms of the above notification. The imported ‘Hydraulic Rock Breaker’ being parts, components and assemblies of Excavators classifiable under tariff item 8429 4030, are rightly covered under the scope of the entry under the above notification. Thus, the second legal requirement is fulfilled in the present case. As regards the first legal requirement, it is found that the scope of the coverage of Legal Metrology Act and Rules made thereunder, has specifically provide for declaration of mandatory details including the RSP/MRP only in respect of 'pre-packaged commodity' under Rule 6 ibid. The phrase, prepacked commodity has also been defined to mean a commodity which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a pre-determined quantity. The Circular No. WM/10(5)/2016 dated 16.12.2016 issued by Line Ministry dealing with the Legal Metrology (Packaged Commodities) Rules have clearly spelt out mandatory declaration on the packages thereof, including RSP/MRP is applicable only to the goods sold to the consumer in pre-packed form and this will not apply for those goods sold in loose form. Thus, it follows that when the competent authority in the line Ministry dealing with the parent statue administered by them, have clarified the correct legal position, the same is required to be followed by the other governmental authorities, including Customs field formations, for the purpose of uniformity in implementation of the law - the Hydraulic Rock Brakers imported by the appellants as subjected to RSP/MRP based levy of additional duty of customs is not legally sustainable. It is found that on a similar set of facts, in the case of King Kaveri Trading Co. [2018 (11) TMI 1768 - CESTAT MUMBAI], the Co-ordinate Bench of the Tribunal has dealt with the similar issue of levy of additional duty of customs on RSP/MRP basis in respect of import of trailer parts and have held that on account of the fact that the parts are of heavy weight, these are excluded from the scope of coverage of Packaged Commodity Rules and that the adoption of another price by the customs officer does not constitute proper assessment of duty. It is further found that the Hon’ble Supreme Court in the case of Jayanthi Food Processing (P) Ltd., [2007 (8) TMI 3 - SUPREME COURT] have held that if the appellant is successful in showing that there is no requirement under the Standards of Weights and Measures Act or the Rules made thereunder for declaration of MRP on the package, then there is no question of application of Section 4A(1)&(2) of the Act for MRP/RSP based levy. The imported ‘Hydraulic Rock Braker’ is not leviable to additional duty of Customs (CVD) on the basis of Retail Sale Price (RSP/MRP) under Section 3(1) of the Customs Tariff Act, 1975, but on the basis of transaction value as determined under the Customs Act, 1962 - the impugned order passed by the learned Principal Commissioner of Customs in confirmation of the adjudged demands cannot be sustained on merits. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the imported hydraulic rock breaker is liable to additional duty of customs (CVD) calculated on the basis of retail sale price/maximum retail price (RSP/MRP) under Section 3(1)-(2) of the Customs Tariff Act, 1975. 2. Whether redetermination of RSP/MRP by Customs (via market survey or other exercise) and consequent demand of differential CVD is legally sustainable where statutory requirements for RSP/MRP based valuation are not fulfilled. 3. Whether mandatory declaration of RSP/MRP under the Legal Metrology Act, 2009 and the Legal Metrology (Packaged Commodities) Rules, 2011 applies to the imported goods in question (i.e., whether goods are 'pre-packaged' or otherwise excluded, including by weight or sale to industrial/institutional consumers). 4. Whether interest under Section 28AA and penalty under Section 112 of the Customs Act are sustainable in respect of a CVD demand determined on an RSP/MRP basis when the legal foundation for RSP/MRP valuation is absent. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability to CVD on RSP/MRP basis Legal framework: Section 3(1)-(2) of the Customs Tariff Act, 1975 levies CVD equal to excise duty; Section 3(2) provides that for percentage-of-value duties the value shall be transaction (or tariff) value determined under Section 14 of the Customs Act, subject to a proviso deeming value to be the RSP declared on the package where (a) declaration of RSP on the package is required under the Legal Metrology Act or rules and (b) the like article in India is subject to RSP-based valuation under Section 4A of the Central Excise Act as notified. Precedent treatment: The Tribunal and the Supreme Court decisions cited establish that Section 4A/notifications can make RSP the deemed value only where there is a statutory requirement to declare RSP on the package (Jayanthi Food Processing and subsequent tribunal decisions followed). Interpretation and reasoning: Both conditions of the proviso must be satisfied. The imported goods here fall within the Notification entry prescribing RSP-based valuation for specified parts/components (i.e., Section 4A notification applies to the like article), satisfying the second condition. However, the first condition requires that the imported article be one for which the Legal Metrology Act or Rules require declaration of RSP on the package (i.e., the goods must be pre-packaged and within Chapter II applicability of the Packaged Commodities Rules). Ratio vs. Obiter: Ratio - where either limb of the proviso is not satisfied the deeming to RSP cannot be applied; the Court treats precedent holding the same as binding ratio. Observations about policy or ministry circulars are supportive reasoning (obiter on administrative guidance consistency) but not the primary statutory ratio. Conclusion: The notification under Section 4A covers the goods, but the RSP deeming under Section 3 cannot be applied because the imported goods do not meet the Legal Metrology pre-packaged requirement; therefore CVD must be assessed on transaction value under the Customs Act rather than on RSP/MRP. Issue 2 - Validity of Customs' re-determination of RSP/MRP and demand of differential CVD Legal framework: Section 3(2) sets transaction value as default; the proviso makes RSP the deemed value only where Legal Metrology requirements are met. No provision in Section 3 or Section 14 of the Customs Act empowers Customs to determine RSP by market survey or multiplication of CIF where RSP declaration is not statutorily required. Precedent treatment: Tribunal decisions (e.g., King Kaveri Trading Co. reasoning) hold that in absence of statutory requirement to declare RSP, adoption by Customs of an alternative price is not a permissible assessment method; Supreme Court authority (Jayanthi) supports that voluntary declaration of MRP does not invoke Section 4A if no statutory requirement exists. Interpretation and reasoning: The order reasons that Customs lacks statutory power to fix or re-determine RSP by market survey when the Legal Metrology predicate is absent; the Customs officer cannot substitute a self-declared or statutory RSP where the first statutory limb is not fulfilled. The adoption of another price by the proper officer therefore does not constitute proper assessment under Section 3(2). Ratio vs. Obiter: Ratio - Customs cannot lawfully re-determine RSP/MRP and levy CVD on RSP basis unless Legal Metrology obligations are present; the decision follows and applies earlier tribunal and Supreme Court ratios. Conclusion: The re-determination of MRP/RSP by Customs and consequent differential CVD demand is not legally sustainable in the absence of statutory requirement for RSP declaration on the imported goods; assessment must remain on transaction value. Issue 3 - Applicability of Legal Metrology / Packaged Commodities Rules to imported goods (pre-packaged, weight exclusion, industrial/institutional exclusion) Legal framework: Legal Metrology Act defines 'pre-packaged commodity'; Packaged Commodities Rules (Chapter II) apply to packages intended for retail sale and exclude packages >25 kg or goods meant for industrial/institutional consumers (Rule 2A/3). Rule 6 (and related provisions) prescribe mandatory declarations (including RSP) for pre-packaged commodities. Precedent treatment: Authorities and prior tribunal/Supreme Court rulings establish that the Rules apply only where the commodity is pre-packaged and intended for retail sale; goods supplied for industrial or institutional use or in loose/bulk form fall outside Chapter II application (Jayanthi, King Kaveri, and administrative circulars reinforced this interpretation). Interpretation and reasoning: Factual examination showed goods packed in wooden crates and spares in bulk, not individually packaged; weights ranged approx. 350 kg to 1850 kg per piece. These facts establish (i) absence of pre-packaging as contemplated by the Legal Metrology Act and (ii) weight-based exclusion (>25 kg). Further, the goods are supplied to industrial/institutional users (owners/operators of excavators/lessees), supporting the industrial/institutional exclusion. An administrative circular from the Legal Metrology Division confirms that labeling requirements apply only to pre-packaged commodities and not to goods sold in loose form; the Court references this for uniform administrative interpretation. Ratio vs. Obiter: Ratio - where goods are not pre-packaged or are excluded by weight or are for industrial/institutional consumers, Chapter II obligations (including RSP declaration) do not apply; the factual finding that goods fall within exclusions is outcome-determinative. Reference to the ministry circular is persuasive administrative guidance (supporting reasoning) rather than declaratory law. Conclusion: The imported hydraulic rock breaker does not qualify as a pre-packaged commodity subject to mandatory RSP declaration under the Legal Metrology Act/Rules; weight and industrial/institutional nature further exclude it; therefore the Legal Metrology predicate for RSP-based CVD is absent. Issue 4 - Sustainabilty of interest and penalty tied to RSP-based CVD demand Legal framework: Interest and penalty provisions under the Customs Act (Sections 28AA and 112) attach to confirmed demands and related contraventions; their applicability depends on the validity of the underlying duty demand. Interpretation and reasoning: Since the Tribunal concludes that the RSP-based CVD demand itself is unsustainable for lack of statutory foundation, consequential imposition of interest and penalty premised on that demand cannot be sustained. The appellants also challenged broader statutory competence for Customs to apply Section 28AA/Section 112 to a purported CVD demand where legal basis for CVD itself is absent; the Court found that absence of lawful CVD assessment undermines consequential levies. Ratio vs. Obiter: Ratio - ancillary monetary consequences (interest and penalty) cannot survive where the underlying demand is found without legal basis; thus they fall with the primary adjudication. Conclusion: Interest and penalty linked to the invalidated RSP-based CVD demand are not sustainable. Overall Conclusion The Tribunal concludes that although the like goods are covered by the Central Excise notification prescribing RSP-based valuation, the imported hydraulic rock breaker is not a pre-packaged commodity within the meaning of the Legal Metrology Act/Rules (and is excluded by weight and industrial/institutional use). Consequently, the proviso in Section 3(2) deeming value to be the RSP/MRP does not apply; Customs' re-determination of RSP and the differential CVD, with consequential interest and penalty, are legally unsustainable. The impugned adjudication confirming RSP-based CVD and consequential penalties is set aside; assessment is to remain on transaction value as determined under the Customs Act.