2025 (6) TMI 1605 - AT - Customs

Calculation of Customs Duty - lubricants and lubrication preparations imported by the appellant when specifically mentioned in the Bills of Entry as Not for retail sale and meant for industrial consumers - assessment to additional duty of customs (CVD) following the MRP based assessment prescribed under Section 4A of the CEA 1944 read with relevant notification - HELD THAT - The undisputed facts are that the appellant at the time of import itself has categorically mentioned in the Bill of Entry that the goods are not for retail sale. On the packages also it has been clearly mentioned that the goods are meant for industrial use only; not for retail sale. In such circumstances even if the goods are sold by the importer to industrial consumers/ institutional consumers or through their distributors the provisions of MRP based assessment is not applicable. This issue is no more res integra and considered by this Tribunal in the case of Kluber Lubrication India Pvt. Ltd. Vs. CC 2025 (3) TMI 277 - CESTAT BANGALORE . Taking note of the principles of law on the subject and also the judgment of the Hon ble Karnataka High Court in the case of EWAC Alloys Ltd. 2011 (9) TMI 688 - KARNATAKA HIGH COURT this Tribunal observed that i t is clear from the evidences on record that all the goods were cleared/sold to industrial consumers directly or through their distributors/stockists by the appellant. Since all the imported goods in dispute were cleared to industrial consumers only revision of RSP declared at the time of import will also have no significance; hence the demand on this count cannot be sustained. Conclusion - i) The goods imported and declared as not for retail sale and sold exclusively to industrial consumers are not liable to additional duty of customs under Section 4A of the CEA 1944. ii) The Legal Metrology (Packaged Commodities) Rules 2011 do not mandate RSP declaration or MRP-based assessment on such goods. The impugned order confirming the demand of additional duty of customs is set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether lubricants and lubrication preparations imported and declared as "not for retail sale" and intended for industrial consumers are liable to be assessed to additional duty of customs (CVD) under the MRP-based assessment prescribed under Section 4A of the Central Excise Act, 1944 (CEA, 1944) read with relevant notifications.
• Whether the provisions of the Legal Metrology (Packaged Commodities) Rules, 2011, particularly Rule 6 requiring declaration of Retail Sale Price (RSP) on packages, apply to goods meant exclusively for industrial or institutional consumers.
• Whether the demand for additional duty of customs is barred by limitation where there is no suppression or mis-declaration with intent to evade duty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of MRP-based assessment under Section 4A of the CEA, 1944 to goods declared as "not for retail sale" and meant for industrial consumers

Relevant legal framework and precedents: Section 4A of the CEA, 1944 prescribes levy of additional duty of customs (CVD) on imported goods based on Maximum Retail Price (MRP) when goods are notified in the official gazette. Notification No.49/2008-CE governs the assessment procedure. The Standards of Weights and Measures Act, 1976 and the Legal Metrology Act, 2009, along with the Legal Metrology (Packaged Commodities) Rules, 2011, regulate declaration of Retail Sale Price (RSP) on pre-packed commodities intended for retail sale.

Judicial precedents include the Hon'ble Karnataka High Court judgment in EWAC Alloys Ltd. Vs. UOI, where it was held that goods meant for industrial consumers are not liable to MRP-based assessment. This Tribunal has consistently followed this principle, including in Kluber Lubrication India Pvt. Ltd. Vs. CC.

Court's interpretation and reasoning: The Tribunal noted that the appellant had clearly declared in the Bills of Entry that the goods were "not for retail sale" and packages bore the label "For industrial use only. Not for retail sale." The Tribunal emphasized that the MRP-based assessment applies only to goods intended for retail sale to ultimate consumers, not to industrial or institutional consumers.

The Tribunal analyzed the relevant provisions of the Legal Metrology (Packaged Commodities) Rules, 2011, particularly Rule 6, which mandates declaration of RSP only for packages intended for retail sale. It noted that the Rules exclude packages meant for industrial or institutional consumers, especially where the quantity exceeds 25 kg or 25 litres.

The Tribunal extensively examined the Hon'ble Karnataka High Court's interpretation of Rules 2-A and 2(p) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, which exclude industrial and institutional consumers from the scope of retail package rules. The Court rejected the Revenue's attempt to distinguish the EWAC Alloys Ltd. case on the ground that the appellant is an importer rather than a manufacturer, holding that the mode of sale through dealers or distributors does not convert industrial packages into retail packages.

Key evidence and findings: The appellant's employees' statements confirmed that the goods were sold only to industrial consumers, either directly or through distributors, and not to retail consumers. There was no allegation or evidence that the goods were sold in retail contrary to the declarations.

Application of law to facts: Since the goods were clearly meant for industrial use and not for retail sale, the MRP-based assessment under Section 4A of the CEA, 1944 was not applicable. The Tribunal held that the Legal Metrology Rules and the CEA provisions do not require RSP declaration or MRP-based duty on goods sold exclusively to industrial consumers.

Treatment of competing arguments: The Revenue argued that since the appellant was an importer and not an industrial consumer, the goods attracted the Legal Metrology Rules and MRP-based assessment. The Tribunal rejected this, clarifying that the Rules exclude industrial and institutional consumers regardless of whether the goods are imported or domestically manufactured. The Tribunal also disagreed with the Revenue's interpretation of the Karnataka High Court judgment and held that the legislative intent is to protect individual retail consumers, not industrial or institutional buyers.

Conclusion: The Tribunal concluded that the goods imported and declared as "not for retail sale" and sold exclusively to industrial consumers are not liable to additional duty of customs under Section 4A of the CEA, 1944, and the impugned demand was unsustainable.

Issue 2: Applicability of Legal Metrology (Packaged Commodities) Rules, 2011 to goods meant for industrial or institutional consumers

Relevant legal framework and precedents: Rule 6 of the Legal Metrology (Packaged Commodities) Rules, 2011 requires declaration of RSP on packages intended for retail sale. Rule 2-A excludes packages meant for industrial or institutional consumers from the applicability of these provisions. The explanation to Rule 2-A defines "industrial consumer" and "institutional consumer" as buyers who purchase directly from manufacturers/packers for use in industry or service sectors.

The Karnataka High Court's detailed analysis in EWAC Alloys Ltd. clarified that the Rules are intended to protect individual retail consumers and do not apply to industrial or institutional consumers, even if goods are sold through distributors or stockists.

Court's interpretation and reasoning: The Tribunal emphasized that the legislative intent behind the Legal Metrology Rules is to protect ultimate retail consumers and not industrial or institutional consumers. It held that the exclusion of industrial and institutional consumers from the scope of Rule 6 is explicit and must be respected. The Tribunal rejected the Revenue's contention that the meaning of "industrial consumer" in Rule 2-A should be limited to direct purchase from manufacturers only, observing that practical commercial realities necessitate the use of distributors for sales to industrial consumers.

Key evidence and findings: The appellant's consistent declaration that goods were for industrial use only and the absence of any evidence of retail sale supported the applicability of the exclusion under the Legal Metrology Rules.

Application of law to facts: The Tribunal applied the legal framework to hold that the Legal Metrology Rules do not mandate RSP declaration on packages meant for industrial consumers, and hence the MRP-based assessment cannot be invoked.

Treatment of competing arguments: The Revenue's reliance on a Bombay High Court judgment was critically examined and found unpersuasive, as it failed to appreciate the distinction between Rule 2-A and Rule 2(p) and the legislative intent behind the exclusions.

Conclusion: The Tribunal concluded that the Legal Metrology (Packaged Commodities) Rules, 2011 do not apply to goods imported and sold exclusively to industrial or institutional consumers, and therefore, the demand based on these Rules was untenable.

Issue 3: Limitation and absence of suppression or mis-declaration

Relevant legal framework and precedents: The appellant contended that part of the demand was barred by limitation as there was no suppression or mis-declaration with intent to evade duty. Precedents cited include judgments of the Supreme Court and this Tribunal, which establish that limitation bars demands where no fraud or suppression is found.

Court's interpretation and reasoning: Although this issue was raised, the Tribunal's primary focus was on the substantive applicability of the MRP-based assessment and Legal Metrology Rules. The absence of any allegation or evidence of suppression or mis-declaration was noted, reinforcing the appellant's position.

Key evidence and findings: The appellant's disclosure in the Bills of Entry and employees' statements negated any intent to evade duty.

Application of law to facts: Since no suppression was found, the limitation period would apply, barring any demand beyond the prescribed period.

Treatment of competing arguments: The Revenue did not dispute the absence of suppression but maintained the substantive demand. The Tribunal did not find it necessary to delve deeper into limitation given the primary finding on substantive law.

Conclusion: The Tribunal implicitly accepted that limitation would bar any demand where no suppression or mis-declaration is established.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the judgment:

"Therefore, a harmonious reading of these provisions, keeping in mind the object with which the Act is passed, it is reasonable to arrive at the conclusion that the meaning assigned to industrial consumer and institutional consumer in the explanation 2-A cannot be attributed to the meaning of those consumers in proviso to Rule 2(p). Rule 2(p) and Rule 2-A operate in distinct and separate fields. Therefore, the object is very clear. This Act is meant only for an individual consumer or a group of individuals who purchase packaged commodities from a retail dealer. To protect their interest, this Act and Rules are enacted and compliance of Rule 6 was made mandatory. The proviso contained in the definition of 'retail package' as per Rule 2(p) defines the ultimate consumer, which shall not include industrial or institutional consumers. Therefore, it is clear that the protection under this Act is confined only to individuals and persons who are eking out livelihood by self-employment and not to institutional and industrial consumers or consumers who purchase goods in large quantities. Therefore, requirement of Rule 6 is not required to be complied with by a manufacturer who sells his packaged goods to an industrial or institutional consumer through a stockist."

Core principles established include:

• The MRP-based assessment under Section 4A of the CEA, 1944 applies only to goods intended for retail sale to ultimate consumers and not to goods meant exclusively for industrial or institutional consumers.
• The Legal Metrology (Packaged Commodities) Rules, 2011, particularly Rule 6, requiring declaration of RSP, do not apply to packages meant for industrial or institutional consumers, even if sold through distributors or stockists.
• The legislative intent behind these provisions is to protect individual retail consumers, not industrial or institutional buyers.
• Declarations in Bills of Entry and on packages stating "not for retail sale" and "for industrial use only" are significant and must be respected unless contradicted by evidence.
• Where there is no suppression or mis-declaration with intent to evade duty, demands barred by limitation cannot be sustained.

Final determinations on each issue are:

• The goods imported and declared as "not for retail sale" and sold exclusively to industrial consumers are not liable to additional duty of customs under Section 4A of the CEA, 1944.
• The Legal Metrology (Packaged Commodities) Rules, 2011 do not mandate RSP declaration or MRP-based assessment on such goods.
• The impugned order confirming the demand of additional duty of customs is set aside and the appeal allowed.