Custom, Excise & Service Tax Tribunal
L Oreal India Pvt. Ltd vs Commissioner Of Central Excise on 3 April, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.E/1109 & 1110/11, E/1816 & 1817/12, E/1830 & 1831/12, E/85419/13, E/85380 & 85381/14 (Arising out of Order-in-Original No.80-81/MAK(80-81)/Commr/RGD/13-14 dated 14/10/2013, 11/AT (11)/Commr/ RGD/12-13 dated 29/08/2012 & 15/BR-15/Th-I/2011 dated 31/03/2011 passed by Commissioner of Central Excise, Raigad/Thane) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) Honble Mr. Anil Choudhary, Member (Judicial) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
LOreal India Pvt. Ltd., Appellant Shri P.L.Mishra Vs. Commissioner of Central Excise, Respondent Raigad/Thane Appearance: Shri.V.S. Nankani, Advocate Aqeel Sheerazi, Advocate and J.H.Motwani Advocate for appellants Shri.K.M.Mondal, Spl. Consultant, for respondent CORAM: Honble Mr. P.R.Chandrasekharan, Member (Technical) Honble Mr.Anil Choudhary, Member (Judicial) Date of Hearing : 03/04/2014 Date of Decision : /2014 ORDER NO Per: P.R.Chandrasekharan
1. There are nine appeals arising out of Orders-in-Original No.80-81/MAK(80-81)/Commr/RGD/13-14 dated 14/10/2013, 11/AT (11)/Commr/ RGD/12-13 dated 29/08/2012 & 15/BR-15/Th-I/2011 dated 31/03/2011 passed by Commissioner of Central Excise, Raigad Commissionerate.
2. Vide the impugned orders duty demands of Rs.58,34,11,854/-, Rs.3,19,98,347/- and Rs.16,02,45,220/- have been confirmed against the appellants, M/s.LOreal India Pvt. Ltd. along with interest thereon. Further penalties have been imposed on the appellant equivalent to duty demands confirmed and also on Shri P.L.Mishra, Legal Head of the appellant firm. Aggrieved of the same, the appellants are before us.
3. The show-cause notices, the period of demand, orders-in-original No. and dates and the duty demands confirmed are detailed in the table below:
S.No. SCN No. & Date Period of demands Order-in-original No. & Date Duty Demand confirmed Appeal No.
1.
V/Adj(SCN)/15-188/RGD/12-13/11827 dt. 30/11/2012 & V/Adj(SCN)15-369/RGD/12-13/4707 dt. 19/04/2013 Oct 2011 to 16/03/12 & 17/03/12 to 30/06/12 80-81/MAK (80-81)/ Commr/RGD/13-14 dated 14/10/13 15,64,22,270 38,22,950 16,02,45,220 E/85380/14 & E/85381/14
2. DECEI/MZU/I &IS C/30-43/10/7051 /1869 dated 06/12/10 01/03/09 to 31/01/10 11/AT(11)/Commr/RGD/12-13 dated 29/08/12 3,19,98,347 E/85419/13, E/1816 & 1817/12 E/1830& 1831/12 3 V/Adj/SCN/15-134/Loreal/DGCEI/I/Th-I/2010 dated 4/11/10 1/10/2005 to 31/01/09 15/BR-15/Th-I/2011 dt. 31/03/11 58,34,11,854 E/1109 & 1110/11
4. The issue involved in all these appeals is common and therefore, they are taken up together for consideration and disposal.
5. The appellant, M/s.LOreal India Pvt. Ltd., is a manufacturer of cosmetics and toilet products. They also import these materials from abroad and market the same in India. Before undertaking the marketing in India, the appellant undertakes the process of affixing labels and MRPs on the individual packages. The department is of the view that the activity of affixing labels and declaring MRPs amounts to manufacture as the products are notified under the 3rd Schedule to the Central Excise Tariff Act and therefore, the activity of labelling and affixing MRP amounts to manufacture under Section 2 (f) (iii) of the Central Excise Act, 1944. Hence, the appellants are required to discharge excise duty liability of these goods.
6. The learned Counsel for the appellant submits that the activity of affixing labels and declaring MRP on the imported goods are mandatory vide DGFT Notification No.44(RE)2000)/1997-2002 dated 24/11/2000 and these activities ought to be undertaken by every importer before effecting clearance for home consumption. Inasmuch as the activity has been undertaken before clearance for home consumption, the goods remain imported goods and there cannot be any question of manufacture so as to attract excise levy. He further submits that there are two types of goods imported by the appellant. The majority of the goods imported by the appellant are in packages of above 10 grams or 10 ml. and in respect of these goods, counter-vailing Duty (CVD) is leviable and is discharged on the basis of the MRP declared. The MRP remains the same when the goods are marketed in the Domestic Tariff Area (DTA) and the basis for levy of excise duty is also MRP. Therefore, in respect of the goods contained in packages of above 10 grams or 10 ml. the entire exercise is revenue neutral and there is no additional duty liability accruing and therefore, the demands in this regard are not sustainable in law at all. It is his further contention that with effect from 26/02/2010, the appellant had cleared the goods by filing an into a bond bill of entry and the activity of labelling, affixing MRP, etc. was done under Customs bond and after discharging the customs duty liability, the goods were cleared into domestic tariff area. Therefore, for the period on or after 26/02/2010, since the goods remained in Customs Control, no manufacture has taken place in India and hence, excise duty demand for the period after 26/02/2010 is clearly unsustainable in law. Prior to 26/02/2010, the appellant was clearing the goods into private godowns at Bhiwandi, Dronagiri, etc. and the activities of affixing labels/declaring MRPs, etc. were undertaken at these godowns and the Customs had granted permission to the appellant for the activities to be undertaken outside the Customs area on execution of bond and bank guarantee. For the period prior to 26/02/2010, since there was no procedure prescribed by the Customs authorities, they had cleared the goods on execution of bond and bank guarantee for undertaking the activities of re-packing and re-labelling, etc. and the customs duty (CVD) liabilities were discharged on the basis of the revised MRPs. Alternatively, it is pleaded that if excise duty is to be paid on the activity of labelling, declaration of MRP, etc. the appellant would be eligible for the Cenvat Credit of CVD paid on the goods which has not been granted to the appellant. Since the entire activity was undertaken with the knowledge of the department, invocation of extended period of time cannot be sustained in law. Accordingly, it is pleaded that the impugned demands are not sustainable and needs to be set aside.
7. The learned Special Consultant appearing for the Revenue on the other hand contends that affixing of label, stickering of MRP, etc. before clearance into DTA makes the product marketable to the consumer and such activity would amount to manufacture as the goods are covered by the Third Schedule to the Central Excise Act, 1944. However, he fairly concedes that in respect of the goods contained in packages of above 10 grams or 10 ml. the CV duty liability has been discharged on the basis of MRP and therefore, there will be no additional duty liability on account of levy of excise duty as the MRP remains the same both before as well as after imports. However, in respect of goods in packages of 10 ml. or 10 grams or below there is no statutory requirement of labeling/affixing MRPs either under the Packaged Commodity Rules or under the Drugs and Cosmetics Rules. Since customs duty liability has been discharged on such goods on the transaction value and there is an increase in the transaction value when the goods are cleared into DTA, additional excise duty liability would accrue. It is his contention that the position will not change even after 26/02/2010, when the activities were undertaken under Customs bond and therefore, it is his plea that duty demand in respect of the goods contained in packages less than 10 ml. or 10 grams would be clearly sustainable. Consequently, interest liability would accrue and penal consequences would ensue.
8. We have carefully considered the submissions made by both the sides.
8.1 We have perused the Notification No. No.44(RE)2000)/1997-2002 dated 24/11/2000 wherein restrictions have been laid on 131 items for retail sales subject to provisions of the Standards of Weights and Measures regulations. As per these regulations the following procedure has to be followed in respect of imported goods:
All such packaged products, which are subject to provisions of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 when produced/ packed/ sold in domestic market, shall be subject to compliance of all the provisions of the said rules, when imported into India. The compliance of these shall be ensured before the import consignment of such commodities is cleared by Customs for home consumption. All prepackaged commodities, imported into India, shall in particular carry the following declarations:
(a) Name and address of the importer;
(b) Generic or common name of the commodity packed;
c) Net quantity in terms of standard unit of weights and measures. If the net quantity in the imported package is given in any other unit, its equivalent in terms of standard units shall be declared by the importer;
(d) Month and year of packing in which the commodity is manufactured or packed or imported;
(e) Maximum retail sale price at which the commodity in packaged form may be sold to the ultimate consumer. This price shall include all taxes local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertising, delivery, packing, forwarding and the like, as the case may be.
8.2 There is no dispute that cosmetics and toiletries imported by the appellant which are in packages of more than 10ml. or 10 grams are covered under the provisions of Standards of Weights and Measures (Packaged Commodities) Rules, 1977. Therefore, there is a statutory requirement to affix labels and declare MRPs before the goods are cleared for home consumption. Prior to 26/02/2010 there was no procedure prescribed for compliance with RE-2000 dated 24/11/2000. Vide public notice No.24/2000 dated 26/02/2010, a procedure was prescribed for labelling of goods under bond prior to ex-bond clearance; thus, the following procedure was prescribed in respect of said activity.
Subject: Compliance of RE-44/2000 Labelling of goods in bond prior to Ex-bond clearance reg.
It has been observed that importers have been facing difficulty in labelling commodities which are of small size and which are sensitive to heat and dust in the CFSs prior to the clearance of the same under the provisions of DGFT Notification RE 44/2000 dated 24/11/2000. The problem is further compounded due to the shortage of space in the various CFSs.
2. DGFT Notification RE44/2000 provides for labelling of all goods imported into India which are covered by the provisions of Standards of Weights and Measures (Packaged Commodities) Rules, 1977. The compliance of this condition has to be ensured before the import consignment of such commodities is cleared by Customs for home consumption. Thus, the goods have to be suitably labeled before they are released for home consumption.
3. In view of the difficulties faced by the Importers in labeling the goods in CFSs in compliance of DGFT Notification RE44/2000, it has been decided that henceforth the importers will have the option of labelling such goods under bond.
4. The trade should ascertain that such marking/labelling facility, space, is available in the warehouse prior to exercising this option. In such cases the importer may file Warehousing Bills of Entry. The Assessing Group will give suitable directions to Docks staff to allow bonding of the goods without labelling and with endorsement on the warehousing Bill of Entry that verification of RE44/2000 markings to be done prior to de-bonding by Bond Superintendent. The goods will be labeled in the bonded premises and compliance of DGFT Notification RE44/2000 will be checked at the time of ex-bonding of the goods, by the bond officer, by randomly examining the goods again and endorsing the Examination Report on the ex-bond Bill of Entry, both on hard copy and in ED system.
5. The contents of this notice may please be brought to the notice of all the importers/representatives of the trade.
8.3 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 labelling, 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. The question is whether the activity of labelling, 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.
8.4 A somewhat similar issue came up for consideration before the Honble Apex Court in the case of Garden Silk Mills Ltd. Vs. UOI 1999 (113) ELT 358 (SC). One of the issues for consideration in that case was when does the activity of import get complete. The Honble Apex Court held that the import of goods into India would commence when they cross the territorial waters of India but is completed when it become part of the mass of the goods within the country; taxable event is reached when the goods reach the Customs barrier and bill of entry for home consumption is filed. The Honble Apex Court in the case of Sneh Enterprises Vs. CC, New Delhi 2006 (202) ELT 7 (SC) once again considered the question and held as follows:
Question as to when import of goods is complete would depend upon contract between the parties and/or statute governing the field. It is not a part of common law that the import of goods would be deemed to have been completed only when it passed Customs barrier.
Unless there exists a statutory interdict, common law principle would apply which would mean that import would be complete when goods enter territories of country.
The taxable event in terms of notification issued under Section 9A of Customs a Tariff Act, 1975 is on importation of goods and not when same passes customs barrier.
8.5 A plain reading of the above decisions make it clear that so long as the goods remain under 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 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.
8.6 As regards the goods contained in packages of 10 grams or 10 ml. or less, there is no statutory requirement of affixing MRP or labeling both under the Packaged Commodity Rules, 1977 or the Drugs and Cosmetics Rules, 1945. Under Rule 34 of the Packaged Commodities Rules, the provisions of the said Rules do not apply to any packages containing a commodity if the net weight or measure of the commodity is ten grams or ten ml. or less, if sold by weight or measure. Similarly exemption from certain labeling requirements is available in respect of cosmetics and toilet preparations in packages of 10 grams or 10 ml. or less under Rule 148 of the Drugs & Cosmetics Rules, 1945. 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. However, the appellant would be eligible to take cenvat credit of the CVD paid on such goods while discharging excise duty liability. Further, in the present case, we note that 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. In this factual scenario, the appellant could not be said to have indulged in suppression of facts and hence, the invocation of extended period of time for demand of duty is clearly not sustainable in law and the duty demand would sustain only for the normal period of limitation. Since in the impugned orders, these factors have not been considered, the matter has to go back to the adjudicating authority for re-computation of the demand. Since the matter relates to interpretation of law relating to manufacture and valuation, imposition of penalty is not at all called for.
9. To sum up, our findings and conclusions are as follows:-
(1) The excise duty demand on imported goods contained in packages of above 10 grams or 10 ml. is not sustainable in law as the activity of labeling/affixing MRP is a statutory requirement before goods are allowed to be cleared for home consumption and therefore, the import is complete only after these activities are undertaken. Further no additional excise duty liability accrues as the additional customs duty (CVD) liability has been discharged on the MRP affixed and the entire exercise is revenue neutral.
(2) As regards the goods contained in packages of 10 grams or 10 ml. or less, the activity of labeling/re-labelling would amount to manufacture as there is no statutory requirement of undertaking the said activity before their import can be allowed. However, the appellant would be eligible to take cenvat credit of the CVD paid on such goods. Further, as the entire activity was undertaken with the knowledge and permission of the Customs authorities, the allegation of suppression of facts does not sustain and the duty demand is sustainable only for the normal period of limitation. Since the issue relates to interpretation of law, there is no warrant for imposition of any penalties. Thus the matter is remanded back to the adjudicating authority only for the limited purpose of re-computation of duty demand for the normal period and allowing cenvat credit of the CVD paid on the imported goods, subject to the appellant producing the necessary documentary evidence in this regard.
Thus the appeal is allowed by way of remand.
(Pronounced in Court on ) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 2