2025 (8) TMI 265 - AT - Customs

Differential Duty on Imported Industrial Spares Based on MRP Not Applicable Under Rule 6 of Packaged Commodity Rules

The CESTAT Chennai held that the demand of differential duty based on MRP for imported spares/components intended for industrial use was unsustainable, as ... Valuation - Demand of differential duty confirmed on the MRP basis - Import of spares/components - Pre-packaged commodity - sufficient material for the Revenue to allege suppression or not - extended period of limitation - HELD THAT:- Rule 3 of the Standards of Weights & Measures (Packaged Commodity) Rules, 1977 mandates that the provisions of Chapter II shall apply to packages intended for retail sales; Chapter II supra provides that the provisions contained therein including Rule 6 would be applicable to packages intended for retail sales; the necessary implication therefore is that the requirement of affixing MRP provided under the Rule 6 supra would be applicable only to packages intended for retail sales. Further, Rule 2(p) defines “Retail Package” to mean that which is intended for retail sales to the ultimate consumer for the purpose of consumption, which includes imported packages as well and “ultimate consumer” as defined under the said statute excludes ‘industrial or institutional consumers’ - By means of an Exclusion Clause under Rule 34, the application of Rule 6 has been specifically excluded insofar as a package containing a commodity indicating the specific packaging for the exclusive use of any industry as raw material or for the purpose of servicing any industry, mine or query is concerned. There is no dispute that the Appellant affixes on all the packages the stamp ‘for industrial use only’. Reliance in this regard is also placed on Commissioner of Customs, Chennai Vs M/s.Acer India Pvt. Ltd. [2023 (8) TMI 266 - CESTAT CHENNAI]. The Tribunal dealt with a similar issue wherein the imported goods were sold to institutional consumers. The issue to be decided was whether the imported goods are to be assessed under Section 4 or Section 4A of the Central Excise Act for payment of CVD. The Tribunal held that the sale is not to an ultimate consumer and is only to the institutional consumer and hence, the assessment has to be made under normal transaction value under Section 4 of the Central Excise Act. Rule 2A(3) of the PC Rules provides for an exception from affixation of MRP in respect of packages & commodities containing quantity of more than 25 kgs. In this case there is no denial that all the packages imported were of more than 25 kgs. The demand on account of non-affixation of MRP has been raised on packages of imported goods containing quantity of more than 25 Kgs is therefore not sustainable. Extended period of limitation - HELD THAT:- The demand of duty confirmed in the impugned order by invoking the extended period of limitation cannot sustain as it is clear a case of interpretation - The larger period of limitation is not invokable in the instant case inasmuch as the Appellant has not suppressed or mis-declared any facts much less with an intention to evade payment of duty. Bonafide / good faith by a Government PSU cannot be doubted, especially when there was lis although on a different issue. The other beneficial finding is also available in the Final Order of CESTAT wherein it has been held that for the very same period, there cannot be any duty liability other than for the normal period - the Revenue has not made out a prima facie case for fastening the duty liability by invoking the extended period of limitation and hence, the duty liability if at all, is justified only for the normal period. There are no merit in the impugned order insofar as the duty liability fastened by invoking the extended period of limitation - appeal allowed. ISSUES: Whether the demand of differential duty on imported spares/components on the basis of Maximum Retail Price (MRP) is sustainable under the Customs Tariff Act and related statutes.Whether the imported packages were required to have Retail Sale Price (RSP)/MRP labels under the Standards of Weights and Measures (Packaged Commodity) Rules, 1977, and the Legal Metrology Act, 2009.Whether the activity of packing and repacking of imported goods amounts to 'manufacture' for the purpose of excise and customs duty assessment.Whether the extended period of limitation for demand of duty can be invoked on the ground of suppression, fraud, or misstatement by the importer. RULINGS / HOLDINGS: The demand confirmed on the MRP basis in the impugned order is not sustainable because the imported packages were not intended for retail sales to ultimate consumers, but rather for industrial or institutional consumers, and thus the requirement of affixing MRP under Rule 6 of the Standards of Weights & Measures (Packaged Commodity) Rules, 1977, does not apply.The imported goods were exempt from the requirement of RSP/MRP labeling under the Legal Metrology Act, 2009, as the packages were not intended for retail sales, did not contain quantities less than 25 kgs or litres, and were marked 'for industrial use only,' consistent with the exclusion clause under Rule 34.The activity of packing and repacking post-importation amounts to 'manufacture' under excise law, and since excise duty was discharged on the repacked goods, additional customs duty on MRP basis is not sustainable.The extended period of limitation under the proviso to Section 28 of the Customs Act cannot be invoked as there was no 'fraud, collusion or any willful misstatement or suppression of facts' by the importer; the Department was aware of the activities and had previously adjudicated related demands. RATIONALE: The Court applied Rule 3, Rule 6, Rule 34, and Rule 2(p) of the Standards of Weights & Measures (Packaged Commodity) Rules, 1977, which restrict the requirement of MRP labeling to packages intended for retail sales to ultimate consumers, excluding industrial or institutional consumers.The Legal Metrology Act, 2009, as a consumer protection legislation, was interpreted in line with judicial precedent to apply only to individual consumers or groups of individuals purchasing retail packaged goods, excluding industrial/institutional consumers.Precedents including EWAC Alloys Ltd. v. Union of India and Commissioner of Customs, Chennai Vs M/s. Acer India Pvt. Ltd. were relied upon to support the principle that sales to industrial consumers do not attract MRP-based assessment under customs or excise law.The Court noted that the packages imported contained quantities exceeding 25 kgs, invoking Rule 2A(3) of the Packaged Commodity Rules, which exempts such packages from MRP labeling requirements.The extended limitation period under Section 28 of the Customs Act requires proof of fraud, collusion, willful misstatement, or suppression of facts, which was not established; the importer acted in good faith and had prior adjudications on related issues.The Court recognized that the issue was primarily one of statutory interpretation and that the Revenue's invocation of extended limitation was not justified in the absence of new evidence or suppression.