By Charanya Lakshmikumaran
Importation of goods into India attracts customs duty which usually consists of BCD, CVD and SAD along with education cess and secondary and higher education cess. CVD is levied in order to countervail the excise duty on like articles that are domestically manufactured. In cases where the domestic goods are valued on MRP less abatement, the same principle would be followed for calculating CVD as well.
It is settled law that for levy of excise duty or CVD on MRP basis, two conditions have to be simultaneously fulfilled. First, there must be a requirement under the Legal Metrology Act, 2009 or any rules made thereunder or any other law for the time being in force to affix MRP on the said goods and second the goods must be specified in the notification issued under Section 4A of the Central Excise Act, 1944.
The Apex Court in its landmark decision in Jayanti Food Processing (P) Ltd. v. Commissioner [2007 (215) E.L.T. 327 (S.C.)] while elaborating the scope of Section 4A of the Central Excise Act, 1944 laid down certain conditions that are to be fulfilled for assessment based on MRP for excise duty purpose. The same principles would be applicable in cases involving CVD on goods covered under MRP-based assessment since proviso to Section 3(2) of Customs Tariff Act, 1975 is in pari materia with Section 4A of Central Excise Act.
The Legal Metrology (Packaged Commodity) Rules, 2011 [‘PC Rules, 2011’] provide for cases where it is required to declare MRP and other labels on any packaged commodity. Several exceptions have been carved out, such as when the packaged commodities sold to industrial or institutional buyers etc., where there would be no requirement to affix MRP. Naturally in such cases, CVD or excise duty assessment would not be on the basis of MRP. Similarly, Rule 26 of the PC Rules, 2011 grants exemption from the application of those rules to packages containing a commodity if the net weight or measure of the commodity is ten grams or ten millilitre or less, if sold by weight or measure.
The Fourth Schedule of the PC Rules, 2011 provides a list of declarations as to weight, measure, volume, length or number that is to be provided for different commodities. It provides that cosmetics including creams, shampoo, lotions and perfumes are to be sold in terms of weight or measure and therefore, it is clear that such goods are not to be sold not in terms of number.
In a recent decision, CESTAT, Mumbai in the case of Hindustan Unilever Ltd. v. Commissioner [2011-TIOL-1040-CESTAT-MUM], has held that lipsticks cannot be extended the exemption under Rule 26 of PC Rules, 2011 since they are sold on per piece basis and not by weight or measure. Relying on this decision CVD has been sought to be levied based on MRP in respect of several consignments of cosmetics and similar articles. However, this decision has since been set aside by the Hon'ble High Court at Bombay and the matter has been remanded back for de-novo adjudication by CESTAT.
But it is interesting to note that despite the Tribunal's decision having been set aside by the Hon'ble High Court, the Department has been insisting that CVD be paid on MRP basis. This stand may not be sustainable because there are several decisions with regard to an identical rule in the erstwhile Standards of Weights and Measures (Packaged Commodity) Rules, 1977. In Commissioner v. Kraftech Products [2008 (224) E.L.T. 504 (S.C.)] the issue was regarding valuation of multi-piece hair-dyes, lip smootheners and shampoos. The Supreme Court held that exemption under Rule 34 would be applicable to all these products, even though they were part of multi-piece package since each individual piece weighed or measured less than 10 gm or 10 ml. An identical issue was decided in Bharat Cosmetics v. Commissioner [2007 (211) E.L.T. 449] by the Tribunal and affirmed by the Supreme Court in 2010 (255) E.L.T. A14 (S.C.).
Therefore, following the law laid down in Kraftech and Bharat Cosmetics rulings, clearance of subject goods should be allowed without insisting on CVD on MRP basis. May be, the position will become clear if de novo order of the Tribunal in Hindustan Lever Ltd., adopts the ratio in the cited precedents.
[The author is a Senior Associate at Lakshmikumaran & Sridharan, New Delhi]
Importation of goods into India attracts customs duty which usually consists of BCD, CVD and SAD along with education cess and secondary and higher education cess. CVD is levied in order to countervail the excise duty on like articles that are domestically manufactured. In cases where the domestic goods are valued on MRP less abatement, the same principle would be followed for calculating CVD as well.
It is settled law that for levy of excise duty or CVD on MRP basis, two conditions have to be simultaneously fulfilled. First, there must be a requirement under the Legal Metrology Act, 2009 or any rules made thereunder or any other law for the time being in force to affix MRP on the said goods and second the goods must be specified in the notification issued under Section 4A of the Central Excise Act, 1944.
The Apex Court in its landmark decision in Jayanti Food Processing (P) Ltd. v. Commissioner [2007 (215) E.L.T. 327 (S.C.)] while elaborating the scope of Section 4A of the Central Excise Act, 1944 laid down certain conditions that are to be fulfilled for assessment based on MRP for excise duty purpose. The same principles would be applicable in cases involving CVD on goods covered under MRP-based assessment since proviso to Section 3(2) of Customs Tariff Act, 1975 is in pari materia with Section 4A of Central Excise Act.
The Legal Metrology (Packaged Commodity) Rules, 2011 [‘PC Rules, 2011’] provide for cases where it is required to declare MRP and other labels on any packaged commodity. Several exceptions have been carved out, such as when the packaged commodities sold to industrial or institutional buyers etc., where there would be no requirement to affix MRP. Naturally in such cases, CVD or excise duty assessment would not be on the basis of MRP. Similarly, Rule 26 of the PC Rules, 2011 grants exemption from the application of those rules to packages containing a commodity if the net weight or measure of the commodity is ten grams or ten millilitre or less, if sold by weight or measure.
The Fourth Schedule of the PC Rules, 2011 provides a list of declarations as to weight, measure, volume, length or number that is to be provided for different commodities. It provides that cosmetics including creams, shampoo, lotions and perfumes are to be sold in terms of weight or measure and therefore, it is clear that such goods are not to be sold not in terms of number.
In a recent decision, CESTAT, Mumbai in the case of Hindustan Unilever Ltd. v. Commissioner [2011-TIOL-1040-CESTAT-MUM], has held that lipsticks cannot be extended the exemption under Rule 26 of PC Rules, 2011 since they are sold on per piece basis and not by weight or measure. Relying on this decision CVD has been sought to be levied based on MRP in respect of several consignments of cosmetics and similar articles. However, this decision has since been set aside by the Hon'ble High Court at Bombay and the matter has been remanded back for de-novo adjudication by CESTAT.
But it is interesting to note that despite the Tribunal's decision having been set aside by the Hon'ble High Court, the Department has been insisting that CVD be paid on MRP basis. This stand may not be sustainable because there are several decisions with regard to an identical rule in the erstwhile Standards of Weights and Measures (Packaged Commodity) Rules, 1977. In Commissioner v. Kraftech Products [2008 (224) E.L.T. 504 (S.C.)] the issue was regarding valuation of multi-piece hair-dyes, lip smootheners and shampoos. The Supreme Court held that exemption under Rule 34 would be applicable to all these products, even though they were part of multi-piece package since each individual piece weighed or measured less than 10 gm or 10 ml. An identical issue was decided in Bharat Cosmetics v. Commissioner [2007 (211) E.L.T. 449] by the Tribunal and affirmed by the Supreme Court in 2010 (255) E.L.T. A14 (S.C.).
Therefore, following the law laid down in Kraftech and Bharat Cosmetics rulings, clearance of subject goods should be allowed without insisting on CVD on MRP basis. May be, the position will become clear if de novo order of the Tribunal in Hindustan Lever Ltd., adopts the ratio in the cited precedents.
[The author is a Senior Associate at Lakshmikumaran & Sridharan, New Delhi]