2012 (1) TMI 236 - HC - Central Excise

Summary

Issues Involved:

1. Validity of the Settlement Commission's order dated 8.4.2011.
2. Methodology adopted by the Settlement Commission for determining MRP.
3. Immunity from prosecution under the Central Excise Act.

Summary:

1. Validity of the Settlement Commission's Order:
The Revenue challenged the final order of the Settlement Commission dated 8.4.2011, which involved an alleged artificial increase of 10% in price for the next year and a reduction of the weighted average MRP by 10% to arrive at MRP for 2007-08. The petitioner argued that the Settlement Commission's methodology was unscientific and hypothetical. The High Court deemed it necessary to examine the order's legality, referencing the Apex Court's decisions in Paul Industries (India) vs. Union of India and Union of India vs. Ind-Swift Laboratories Ltd., which emphasized the High Court's obligation to ensure the Settlement Commission's order complies with the law.

2. Methodology Adopted by the Settlement Commission:
The Settlement Commission settled the differential duty at Rs. 32,61,792/- and granted immunity from penalties and prosecution. The Revenue contended that the Commission's reduction of 10% per year in MRP would lead to an absurd reduction over time, potentially resulting in a negative sum. The High Court noted that the Commission's approach was not in line with the principles of valuation under Section 4A of the Central Excise Act and the Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008. The Court found the Settlement Commission's methodology unsustainable and directed it to re-adjudicate the issue using a more scientifically sound approach.

3. Immunity from Prosecution:
The High Court highlighted that the respondent did not challenge the Settlement Commission's order independently nor contest the present petition. Consequently, the immunity from prosecution granted by the Settlement Commission under Section 32K(1) of the Act would continue to be available to the respondent. The Court clarified that the Settlement Commission should adjudicate the issue independently and pass necessary orders regarding fines if deemed fit.

Conclusion:
The High Court quashed the Settlement Commission's order dated 8.4.2011 and directed both parties to approach the Settlement Commission within 8 weeks. The Commission was instructed to use actual MRP details or similar quality MRP if actuals were unavailable, and to calculate differential duty, interest, and fines accordingly. The immunity from prosecution granted to the respondent remained intact.