2025 (10) TMI 1139 - AT - Customs

Decision sets aside reassessment converting import transaction price to RSP; officer cannot revise valuation post-clearance under s.47 or s.28

Amco Batteries Limited, BN Balachandran Versus Commissioner of Customs City Commissionerate Bangalore

CESTAT held that the impugned reassessment of customs duty on imported pre-packaged goods to an RSP-based value was unsustainable and set aside the order, ... Recovery of differential duties of customs - competence of ‘proper officer of customs’ to take recourse to section 4A of Central Excise Act, 1944 in undertaking assessment under section 17 of Customs Act, 1962 - imported pre-packaged goods bearing maximum/retail sale price markings - reassessment to RSP-based valuation - HELD THAT:- The assessment, in default, is the applicable rate of duty applied to value deployed in the first instance and adjusted to the extent of duty levied under authority of section 12 of Customs Act, 1962. It may, therefore, be premised that the ‘equal to excise duty leviable on like articles manufactured in India’ is nothing but provisioning for such rate of duty to be applied to a value that has nothing to do with valuation of like goods for levy of excise duty. The competence to assess such value was not to be doubted for, but for merger of one duty element, the base valuation remained the same. All that altered with the incorporation [Finance Act, 1997 (Act 26 of 2007), section 82 with effect from 14th May 1997] of ‘MRP based’ valuation, as section 4A in Central Excise Act, 1944, for goods that were subject to the stipulations, re imprinting of essential information on packages containing goods, in Standards of Weights & Measures Act, 1975; a measure for conveniencing collection of duties of central excise as such marking of ‘retail sale price (RSP)’ would reflect the price that the final consumer would be prepared to pay and any alteration thereto between clearance and final transference to ultimate consumer would be subjected to duties of central excise as deemed manufacture for, thus, assuring the exchequer its rightful claim either at stage of clearance from factory of manufacture and, should circumstances dictate, at any subsequent stage. The substantive distinction between clearance effected by a manufacturer in the country, who, in the course of transfer of goods to another domestically, is subject to assessment of duties and effectively disowns responsibility for declaration on ‘pre-packaged commodity’ thereupon with easy amenability to fasten responsibility for subsequent change which is tantamount to ‘manufacture’ and liability to duty, and importer, who retains imported goods till subjected to further processing before clearance or trades only after assessment and clearance with liability to duties of central excise arising thus or by re-labelling on their own or by other entities, clearing for self does not warrant revision for levy of additional duty - There is no option but to assess to ‘additional duty of customs’ at the declared ‘retail sale price (RSP)’ and there is no legal, or logical, cause to provision empowerment to disturb such declaration. There is no scope too for doing so as the only transaction price available for imported goods at the time and place of importation is that deployed for assessment to ‘basic customs duty (BCD)’ and insistence on revision would amount to entrusting commercial oversight over pricing of goods to officers of customs. All that lies within the power of ‘proper officer of customs’ is to insist that the marking of ‘retail sale price (RSP)’ on the packing of ‘pre-packaged commodity’ reflects the declaration or vice-versa and, that too, till clearance is effected under section 47 of Customs Act, 1962; that empowerment after clearance is academic. In the present dispute, not only were the goods shown to be liable to be subjected to valuation in accordance with proviso in section 3(2) of Customs Tariff Act, 1975 but also, even if these were, the authority to revisit the assessment by recourse to section 28 of Customs Act, 1962 has not been established. The impugned order is set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a proper officer of customs is competent to apply Section 4A of the Central Excise Act, 1944 (MRP/RSP-based valuation) for assessment of 'additional duty of customs' under Section 3(1) of the Customs Tariff Act, 1975 read with Section 17 of the Customs Act, 1962, and thereby re-determine value for purposes of recovery under Section 28 of the Customs Act, 1962. 2. Whether imported pre-packaged goods bearing maximum/retail sale price markings, but claimed by the importer to be intended for industrial/captive use or further processing (thus falling within exclusions/exemptions under legal metrology rules), may be subjected to reassessment to RSP-based valuation absent statutory machinery or evidence that the goods were intended for retail sale. 3. Whether confiscation and penalties under Sections 111(d), 111(m), 112, 114A and 114AA of the Customs Act, 1962 are sustainable where differential duty is alleged on account of non-declaration or mis-declaration of RSP at import, in the absence of lawful re-assessment authority and proven mens rea/clear evidence of intent to evade duty. ISSUE-WISE DETAILED ANALYSIS Issue 1: Competence of proper officer of customs to apply Section 4A (RSP valuation) for additional duty of customs and to re-determine value under Section 28 Legal framework: The basic customs duty (BCD) is levied under Section 12 of the Customs Act, 1962 by reference to rates in the First Schedule to the Customs Tariff Act, 1975 applied to value determined under Section 14 of the Customs Act, 1962 for assessment under Section 17. 'Additional duty of customs' under Section 3(1) of the Customs Tariff Act, 1975 was enacted to be equal to excise duty on like goods; however Section 3(2) contains a proviso deeming value to be RSP where legal metrology rules and notifications under Section 4A of the Central Excise Act apply. Section 28 of the Customs Act enables recovery of differential duty as determined after reassessment where duty was short-paid. Precedent treatment: The Tribunal relied on prior larger-bench authority (Ocean Ceramics) which held that Section 4A's enablement to re-ascertain RSP required specific procedural/machinery rules (Central Excise Rules 2008) and that absence of such machinery precluded retrospective re-ascertainment for clearances prior to the rule's commencement. Charms Cosmetics was cited for the principle that applicability of MRP/RSP regime depends on intent to cater to retail market and on who pre-packages goods. Interpretation and reasoning: The Court reasoned that while the proviso in Section 3(2) imported RSP-based valuation into customs law for articles required by legal metrology statutes to bear RSP, it did not simultaneously confer on the proper officer of customs an unfettered power to substitute or re-determine RSP at the time of import beyond the declaration made by the importer. The statutory valuation machinery for BCD under Section 14 (and its revision) is distinct and does not extend to displacement by the proviso absent express procedure. Allowing customs officers to reassess declared RSP would amount to entrusting commercial pricing oversight to tax officials and exceed competence conferred by customs law. The judgment underscores that Section 4A and its implementing rules (and the Central Excise machinery to revisit RSP) are a fiscal overlay on a consumer-protection regime and required explicit enabling machinery to permit reassessment - which is absent for customs. Ratio vs. Obiter: Ratio - Proper officers of customs lack competence to independently determine or revise RSP for purposes of levying additional customs duty beyond the declared RSP absent statutory machinery authorizing such re-ascertainment; assessment to additional duty at import must ordinarily follow the declared RSP where proviso applies. Obiter - Observations on the policy differences between legal metrology and fiscal statutes and the impracticality of entrusting price oversight to customs officers. Conclusion: The adjudicating authority's use of Section 4A/Central Excise principles to re-determine value for recovery under Section 28 was legally unsustainable; re-assessment to RSP by customs without statutory enabling machinery must be set aside. Issue 2: Applicability of legal metrology (RSP/MRP) rules to imported pre-packaged goods claimed for industrial/captive use and consequences for valuation Legal framework: Legal Metrology (Packaged Commodities) Rules (1977/2011) prescribe when pre-packaged goods must carry RSP/MRP and also provide exclusions/exemptions - notably for goods meant for institutional/industrial consumers or goods assessable by the five senses (non-packaged). Section 4A of the Central Excise Act and the proviso to Section 3(2) of the Customs Tariff Act interlink these requirements with fiscal valuation for excise and additional customs duties. Precedent treatment: Charms Cosmetics clarified that affixing MRP is tied to intent to cater to retail customers and that a manufacturer/pre-packager may nonetheless evidence contrary intent (e.g., clearance for industrial use) so as to fall outside RSP valuation. Ocean Ceramics emphasised that enabling procedural rules are necessary for re-ascertainment. Interpretation and reasoning: The Court observed that legal metrology obligations are objective but not absolute - the rules contain exclusions/exemptions and hinge on the intention (and evident use) of goods. If importer shows credible, uncontested factual basis that imported pre-packaged goods were intended for further processing or captive/industrial consumption, then the RSP-based proviso should not be mechanically applied. The adjudicating authority failed to probe or verify the appellant's factual claim of intended industrial use; instead it inferred retail intent from package markings and similarity of suppliers without independent evidence showing retail sale or the absence of exclusion. The Court held that marking of MRP on packaging is not conclusive of retail sale intent, especially where exclusions apply and where the importer intends and can prove industrial/captive use. Ratio vs. Obiter: Ratio - Application of RSP valuation requires both statutory applicability under legal metrology rules and factual evidence of retail intent or absence of exclusion; mere presence of MRP marking is not determinative. Obiter - Discussion on practicalities of compliance and enforcement of legal metrology vis-à-vis fiscal collection. Conclusion: Where exclusions/exemptions under legal metrology rules plausibly apply and the importer's claim of industrial/captive use is not controverted by evidence, RSP-based valuation cannot be imposed without further proof. The impugned order failed to satisfy this requirement and was therefore unsustainable on this ground. Issue 3: Confiscation and imposition of penalties (Sections 111(d), 111(m), 112, 114A, 114AA) for alleged mis-declaration of RSP and short-levy Legal framework: Sections 111(d) and 111(m) attract confiscation for contravention of import policy/DGFT notifications or mis-declaration; Section 112 provides penalties on importers; Section 114A penalises short-levy due to willful misstatement/suppression/fraud (quantum equivalent to duty and interest); Section 114AA penalises officers. Section 28 prescribes recovery of differential duties and extended limitation where applicable. Precedent treatment: The adjudicating authority invoked mens rea (intentional mis-declaration) from the presence of markings and the fact that RSP was not declared in bills of entry; Tribunal relied on principles that penalties under 114A require proof of wilful misstatement, and that 114A and 112 interaction is governed by provisos (cannot impose both where 114A applies). Interpretation and reasoning: The Court found that the foundational premise for confiscation and penalties was a re-determination of RSP by customs - a power the authority did not lawfully possess. Absent lawful reassessment showing actual short-levy, there can be no safe foundation for confiscation or for imposing penalties predicated on duty evasion via mis-declaration. Further, the adjudicating authority's inference of mala fide from packaging and late assertion of industrial use was insufficient; proper adjudication required examination and evidence proving deliberate suppression or mis-declaration leading to short-levy. Even where the department asserted extended limitation under Section 28(4), such invocation presupposes lawful determination of short-levy which is absent here. Ratio vs. Obiter: Ratio - Confiscation and penalty orders based on an unlawful re-assessment to RSP cannot stand; penalties under Section 114A cannot be imposed where the underlying reassessment/differential duty claim is invalid for lack of statutory competence and/or evidence of deliberate evasion. Obiter - Notes on interplay of exports/import policy contraventions and evidentiary standards for mens rea. Conclusion: The confiscation and penalties premised on reassessed RSP valuation and alleged mis-declaration are unsustainable. Where reassessment to RSP by customs is invalid, consequential confiscation and penalties must be set aside; moreover where Section 114A is applied, Section 112 should not concurrently be imposed in view of statutory proviso. Overall Disposition The adjudicating authority's findings that imports should be re-valued to RSP under Section 4A/Central Excise provisions, and consequent recovery, confiscation and penalties under the Customs Act, are legally untenable because (a) proper officers of customs lack statutory machinery and competence to re-determine RSP for additional customs duty and recover differential duty under Section 28 on that basis; and (b) RSP/MRP markings do not, without more, establish intent for retail sale where legal metrology exclusions/exemptions and claims of industrial/captive use exist and were not adequately examined. The impugned order is therefore set aside.