By TIOL News Service

MUMBAI, JULY01, 2014: THE applicants imported cosmetic products.

It is the case of the Revenue that applicants are affixing retail sale price on the imported cosmetic products and this activity amounts to manufacture in terms of section 2(f)(iii) of the CEA, 1944 w.e.f. 01.03.2003 and, therefore, the applicants are liable to pay Central Excise duty.

The CCE, Thane-I did not bat an eyelid while confirming the duty demand of Rs.58.34 Crores on the applicant and imposed an equal penalty and also interest.

In appeal, the CESTAT while granting Stay held (See 2012-TIOL-1117-CESTAT-MUM) -

"7. We find that there is no evidence on record to show that applicants undertaking any activity which amounts to manufacture as applicants were not labelling or relabeling of packages nor affixing any retails sale price after the clearance from the customs. The retails sale price is affixed before the clearance of the goods from the customs area as per the requirement by the Notification no. 44(RE-2000)/1997-2002 dt. 24.11.2000 and paid the CVD duty as per the retail price fixed on the goods. In view of this, we find that the applicants had made out a strong case in their favour. The pre-deposit of dues are waived and recovery of the same is stayed during the pendency of the appeal."

Unhappy with this Stay order, the CCE, Thane-I filed an application for Modification of the Stay order, the ground - that the importer-appellant affixed the sale price on the goods imported and affixing of retail sale price amounts to manufacture as per Chapter Note 33 of the Central Excise Tariff.

The Bench observed -

"2. We find that the retail sale price was affixed before the clearance of the goods from the Customs and appropriate CVD duty has been paid. In these circumstances, we find no ground to modify the stay order dated 14.06.2012. Further, we find that the revenue involved in this case is more than Rs.58 crores, therefore, the Registry is directed to list this appeal for regular hearing on 7.2.2013."

We reported this order as 2013-TIOL-49-CESTAT-MUM.

In the meantime, three more orders found their way into the maze of things, one attributable to the SCN by DGCEI [amount Rs.3.20 Crores] and the other two emanating from the Commissionerate itself and totaling a duty demand of Rs.16.02 crores.

Appeals against all these orders along with the one which is referred at the outset were heard by the Bench in the month of April, 2014 and the orders were passed recently.

The Revenue had requisitioned the services of a Special Consultant being a high profile case.

The Bench after hearing both sides referred to the Notification No. No. 44(RE)-2000/1997-2002 dated 24/11/2000, the Public Notice No. 24/2000 dated 26/02/2010&observed -

++ There is no dispute that the appellant obtained private bond warehousing licence with effect from 26/02/2010 and had undertaken the activity prior to clearance of the goods into DTA. For the period prior to 26/02/2010, the appellant was taking out the goods for labeling, affixing of MRPs, etc. into private warehouses/godowns by executing a bond and bank guarantee with the Customs and after affixing the labels, the bond was discharged and the goods were cleared into DTA. Therefore, even for the period prior to 26/02/2010, the activity of affixing labels/declaring MRPs was undertaken when the goods were under the Customs control and before they were released into DTA.

On the question as to whether the activity of labeling, re-labelling, affixing of MRP, etc. undertaken on imported goods, in respect of which there is a statutory requirement, would amount to ‘manufacture', when the goods are still under Customs control, the Bench after adverting to the case laws of Garden Silk Mills Ltd. Vs. UOI - 2002-TIOL-19-SC-CUS & Sneh Enterprises Vs. CC, New Delhi - 2006-TIOL-114-SC-AD held thus -

++ A plain reading of the above decisions make it clear that so long as the goods remain the Customs control, they cannot be said to have been imported into India. In the present case both after and prior to 26/02/2010, when the appellant was undertaking the activity of labelling in the Customs bonded warehouse or in a private warehouse on execution of bond and bank guarantee with the Customs, control of the goods remained with the Customs and importation of goods could not said to have been completed. Therefore, the question of ‘manufacture' attracting excise duty liability would not arise at all before the goods are cleared for home consumption.

++ In this view of the matter, the impugned duty demands are clearly unsustainable in law in respect of goods where there was a statutory requirement of affixing the labels. We further observe that as far as the goods contained in packages of more than 10 grams or 10 ml, the CVD duty liability (equivalent to the excise duty) has been discharged on the MRP declared on the packages which is the same both before clearance by the Customs as well as after clearance.

++ Thus, in respect of these goods no additional duty liability would accrue as the basis of valuation and rate of duty remain in the same for both customs duty and excise duty. Therefore, demand of excise duty on goods contained in packages more than 10 grams or 10 ml is only an exercise in futility as the entire exercise is revenue neutral. Therefore, demand of excise duty on these goods are clearly and unequivocally unsustainable in law and merits to be set aside.

In respect of the goods contained in packages of 10 grams or 10 ml, or less, the Bench observed that there is no statutory requirement of affixing MRP or labeling, both under the Packaged Commodity Rules, 1977 [Rule 34 refers] or the Drugs and Cosmetics Rules, 1945 [Rule 148 refers] and, therefore, in respect of such goods, the labeling/re-labelling etc. or adoption of any other treatment to render the goods marketable to the consumer in India would amount to manufacture and therefore, excise duty liability would be attracted, even if they are undertaken in a bonded warehouse, as there is no statutory requirement of undertaking such activities before import is complete and clearance for home consumption is permitted.

Nonetheless the Bench noted that the appellant would be eligible to take CENVAT credit of the CVD paid on such goods while discharging excise duty liability.

However, since the appellant had declared all their activities to the Customs authorities at the time of importation and the activities have been undertaken with the knowledge and permission of the customs authorities, it cannot be said that the appellant indulged in suppression of facts and resultantly the duty demand would sustain only for the normal period of limitation, the Bench observed.

For re-computation of the demand, the matter is required to be remanded to the adjudicating authority, the Bench held.

Penalty is not imposable as the matter relates to interpretation of law relating to ‘manufacture' and valuation, the Bench added.

The appeal was allowed by way of remand.

Round Two begins…

(See 2014-TIOL-1170-CESTAT-MUM)