By TIOL News Service

MUMBAI, FEB 05, 2016: THIS is a Revenue appeal filed in the year 2010.

The   facts are that the respondent-assessee is engaged in manufacture and sale of various cosmetics products such as hair dye, shampoo, colourants, skin care etc. falling under Ch. 33 of the CETA, 1985. These goods are assessed to duty in terms of section 4A of the CEA, 1944.

During the course of investigation by the DGCEI officers, it was noticed that the assessee had categorized their products under four divisions namely:-

i) Consumer Products Division;

ii) Luxury Products Division;

iii) Active Cosmetic Products Division;

iv) Professional Products Division.

The products belonging to all the four divisions are affixed with MRP and are sold to dealers (for onward sale to consumers) except the products of Professional Product Division. As per the company policy, the products of the Professional Product Division are sold by the dealers to the salons and beauty parlours only.

The products of Professional Product Division are again sub-divided into two categories namely:

i) Technical Products, which are sold only to salon for their exclusive internal in-salon use;

ii) Retail Products, which are sold to salons for resale by salons to ultimate consumers.

During the course of investigation, the officers also found that the Technical Professional Products and their packing contained a remark "product not to be resold to public/for professional use only". Further, the packages carrying this product contained a leaflet wherein it is printed - "this product is not for retail sale, for professional use only". The officers also found that all the products including products under Professional Product Division were assessed to duty by the respondents under section 4A of the CEA, 1944.

The DGCEI took a view that that the provisions of SWAM (Packaged Commodities) Rules, 1977 regarding affixation of MRP are not applicable to the Technical Professional Products of the assessee-company and hence these products are liable to be assessed to duty u/s 4 instead of Section 4A of the CEA, 1944.

A SCN dt. 19.06.2009 demanding differential CE duty of Rs. 2.26 Crores was issued to the respondent-assessee covering the period from 01.06.2004 to 30.04.2009.

The CCE, Pune-I found the demand to be unsustainable. Aggrieved with this order, the Revenue went in appeal before the CESTAT.

The CESTAT in its order dated 21.04.2012 observed -

"12…., we have found sufficient reasons to hold that it is a fit case for remand to the Commissioner for de novo adjudication both on merits as well as on limitation. Therefore, we do not wish to express our views on the merits of the case. We find that the products under Professional product Division have been divided by the respondent-assessee into two categories, namely (i) Technical Products, (ii) Retail Products. The dispute as seen from the show cause notice relates only to Technical Products. However, the Commissioner has proceeded on the wrong footing that the dispute relates to both the products and accordingly Commissioner has arrived at the conclusion. In these circumstances, we set aside the impugned order and send the matter back to Commissioner with the direction that the Commissioner shall give specific findings only with respect to Technical Professional Products having regard to the provisions of Standards of Weights and Measures (Packaged Commodities) Rules, 1977 both pre and post 13.01.2007. The Commissioner shall also give finding on limitation in case it is found that demand is sustainable either wholly or partly. The Commissioner shall pass a speaking order only on the above points…"

We reported this order as 2012-TIOL-722-CESTAT-MUM.

The assessee was not happy with this remand order and took the matter to the High Court.

Vide an order dated 21.8.2012, the High Court set aside the Tribunal order with a direction to decide the appeal only with reference to valuation of technical products.

After more than three years, the matter was listed before the CESTAT.

After considering the elaborate submissions made by both sides, the Bench inter alia observed -

+ Professional products are categorized into two streams - technical products and retail products. The technical products are those which are sold to salons through dealers for their exclusive use and are indicating MRP/RSP on them, and the retail products are those which are sold to salons for resale to the customers.It is undisputed that the professional technical products, as a matter of policy, are only sold to salons and beauty parlors and are not allowed to be sold to retailers for direct sale to customers. The products are purchased by the salon and beauty parlors through the dealers of the respondent.

After reproducing the relevant provisions of rule 2 of PC Rules, the Bench further observed -

++ It can be seen that the consumers who buy package commodity from the manufacturers by the service industry and use of the industry for the privates are not required to affix RSP/MRP. Thus, consumers are either categorized as institutional consumers or industrial consumers.

++ We find that the adjudicating authority has correctly recorded that "it is not specified as to ascertain who consumes the products ultimately and it is also very important to find out as to how the products are sourced, whether from manufacturer or from the dealers". After recording the above findings, the adjudicating authority considered the applicability of the said Rules as to the case in hand, which is in para 39. In the said paragraph, the adjudicating authority has correctly applied the law as to who is the consumer, either institutional or industrial by relying upon the judgment of Hon'ble Bombay High Court in the case of L&T - 2008-TIOL-141-HC-MUM-CX.

++ It can be seen that the adjudicating authority has correctly applied the said law. The facts in case in hand is that the respondent herein, as a policy, does not sell professional technical products to any other persons, other than the salons and beauty parlors and it is undisputed that the respondent has strict control over the dealers and distributors for this by way of an agreement with them.

++ We also find that it is correctly recorded by the adjudicating authority that it is admitted in the show cause notice that all professional technical products are sold by the respondent to dealers who earned the commission on the sale of these products and such dealers are also not an industrial consumer of the product. Hence, it is correctly recorded by the learned adjudicating authority that professional technical products are sourced by the salons directly from the respondent through the wholesalers and dealers.

++ We find that the adjudicating authority in paragraph 42 has referred to the clarification given by the Dy. Controller of Legal metrology as to whether the products in question i.e. professional technical products were required to be affixed by any MRP/RSP. The said clarification received by Department clearly states that that the Standards of Weight & Measures Act, 1976 as well as the rules do not recognize professional products separately and since the commodities are sold through the dealers, the provisions are applicable.

++ It is surprising to note that the Revenue authorities are arguing against their own circular dated 28.2.2002 wherein Board has specifically clarified (in paragraph 7) as regards to the dispute that may arise whether the product is covered under the provisions of RSP/MSP or otherwise.

++ It can be seen from the clarification given by the Board that letter of the Dy. Controller of Legal Metrology cannot be brushed away as being got by suppressing any facts. AR has sought to assail the said clarification by stating that Legal Metrology Department has withdrawn the said letter. We find from the records that the clarification issued by the Dy. Controller, Legal Metrology was withdrawn on 9.3.2010 while the adjudicating authority has passed the order on 5.3.2010. We are unable to understand the logic of the Revenue as to how the withdrawal of the clarification subsequent to adjudication of the case needs to be considered for setting aside the impugned order.

Taking a view that the grounds of appeal taken by the AR and the case laws cited are misplaced and that the issue as to whether the consumption of product by the salons would amount to consumption by consumer has been answered by the Supreme Court in the case of Laxmi Engineering Works vs. P.S.G. Industrial Institute((1995) 3 SCC 583), by concluding that a person who buys goods and used them himself, exclusively for the purpose of earning his livelihood, by means of self-employment is within the definition of the expression 'consumer' and, therefore, the finding of the adjudicating authority that all consumption of professional products by salons run by individuals for the purpose of earning his/her livelihood would continue to be consumer, is apt and contextually correct, the CESTAT held.

The Bench also adverted to the case of Liberty Shoes Ltd. - 2007-TIOL-1178-CESTAT-DEL wherein in a similar set of facts, the Tribunal had held that the discharge of duty by assessee as per provisions of s.4A was correct in law, and which decision was upheld by the Apex Court by its order dated 19.11.2015, on appeal by Revenue.

In fine, the order of CCE, Pune-I was held to be correct and legal and not suffering from any infirmity.

The Revenue appeal was rejected as being devoid of merits.

(See 2016-TIOL-343-CESTAT-MUM)