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PJ/Case Laws/2012-13/1465

MRP based valuation not possible in case of bulk packages.


Case:-HERO MOTORCORP LTD. V/S COMMISSIONER OF CENTRAL EXCISE, DELHI-III
 
Citation:- 2013(288) E.L.T. 82(Tri.-Del.)              

Brief Facts: - The appellants are engaged in the manufacture of Motorcycle and the parts thereof chargeable to Central Excise duty. They have spare parts division at Gurgaon, where they received the Motorcycle parts in bulk from Daruhera unit. The parts are cleared by Daruhera unit to SPD, Gurgaon on payment of duty on the value determined under Rule 9 read with Rule 8 of the Central Excise Valuation Rules, 2000 i.e., on 110% on the cost of production. The SPD after packaging parts for retail sale clears the same on payment of duty on the value determined u/s 4A, as packing or repacking of motor vehicle parts for retail sale amounts to manufacture under the provision of Section 2(f)(iii) of the Central Excise Act, 1944 and automobile parts are notified under Section 4A. The department is of the view that Daruhara unit should have paid duty on clearance of spare parts SPD Gurgaon on the value determined u/s 4A i.e. on MRP minus abatement. On this basis the department has alleged that the appellant have short paid the duty. Accordingly the show cause notice dated 17.7.09 was issued for demanding duty amounting to Rs. 25972130/- alongwith interest in respect of clearance of Motorcycle parts to SPD, Gurgaon during period from 1.6.2006 to 31.7.2008. This SCN was issued by invoking Proviso to Section 11A (1). Subsequently, another SCN dated 28.7.2010 was issued to the appellant for demand of allegedly short paid duty amounting to Rs. 11850423/- alongwith interest, in respect of clearances to SPD, Gurgaon during period from Aug. 2009 to March 2010 and also for imposition of penalty on the appellant under Rule 25 of the Central Excise Rules, 2002. The SCN dated 17.7.2009 was adjudicated by the commissioner vide OIO dated 23.8.2011 by which the Commissioner holding that in respect of clearances of the motorcycle parts by the appellant to SPD, Gurgaon for being sold as spare parts, the provisions of Section 4A are applicable, and hence the duty was required to be paid on MRP minus abatement. The commissioner accordingly confirmed the duty demand of Rs. 25972130/- alongwith interest and imposed penalty of equal amount on the appellant u/s 11AC of the Central Excise Act. The second SCN dated 28.7.2010 was adjudicated by the Commissioner vide OIO dated 15.7.2011 by which he confirmed the duty demand of Rs. 11850423/- along with interest and besides this, imposed penalty of Rs. 30 lakh on the appellant under Rule 25 of the Central Excise Rules, 2002. By aggrieving these two orders, the appellant filed these appeals.

Appellant’s Contention: - The Appellant contended that the motorcycle parts are cleared by Daruhera unit to their Gurgaon unit in bulk, that at that stage, the same have been packed for retail sale. The packing for retail sale is done at the spare parts division at Gurgaon when the MRP is affixed on packages, that the SPD, Gurgaon is registered as a manufacturer as the packing of motor vehicle parts for retail sale amounts to manufacture u/s 2(f)(iii) and the SPD, Gurgaon pays duty on the clearances of motor vehicle parts packed for retail sale on the value determined u/s 4A. The provision of Standards of Weights and Measures Act, 1976 (SWM Act) and the Standards of Weights and Measures Rules, 1977 (SWM Rules) are not applicable to the spare parts cleared in bulk in loose condition. The provisions of the SWM Rules become applicable only when a commodity has been packed for retail sale. The spare parts cleared in bulk by their unit at Daruhera are not commodity in packaged form and hence the provisions of SWM Rules are not applicable and there is no requirement to declare the MRP and for this reason the provisions of Section 4A would not be applicable. In this regard they rely upon the Tribunal’s decision in the case of Malhotra Shaving Products (P) Ltd. v. CCE, reported in 2010 (250) ELT 118. The same view have taken by the Tribunal in the case of M/s Sterling Tools Limited v. CCE, Delhi-IV [2012 (281) ELT 593 (Tribunal)]. Even if the department’s view is accepted and duty is held as payable by their unit at Daruhera on the value determined u/s 4A, this duty would be available as Cenvat Credit to the spare parts division at Gurgaon, whose operation of repacking for retail sale amounts to manufacture and duty payment by the Gurgaon unit would become nil, and that thus, this is a Revenue neutral situation. He further pleaded that in respect of SCN dated 17.7.2009, there was no justification for invoking extended period as there was no suppression of any fact or intention to evade the payment of duty on their part and for the same reason there is no justification of imposition of penalty u/s 11AC of the Act or Rule 25 of the Central Excise Rules, 2002.Therefore the impugned orders are not sustainable.    
 
Respondent’s Contention: - The respondent argued that the provisions of SWM Rules are applicable to the motor cycle parts cleared by the appellant unit at Daruhera to their SPD at Gurgaon, and therefore the duty in respect of the goods cleared should have been paid on the value determined u/s 4A of the Act.
 
Reasoning of Judgment: - The Hon’ble CESTAT held that there are undisputed facts that the goods, in respect of which the duty has been demanded, have been cleared by the appellant unit at Daruhera in bulk and in loose condition to their spare parts division at Gurgaon and repacking of the goods for retail sale is done in Gurgaon unit. There is no dispute about the fact that the Gurgaon unit is registered as a manufacturer and paying duty on the spare parts cleared in packaged condition for retail sale on the value determined u/s 4A. While the appellant have paid the duty on these goods on 110% of the cost of production in terms of provisions of Rule 9 read with Rule 8 of the Central Excise Rules, 2000, the department seeks to recover duty on the value determined under provision of Section 4A i.e. MRP minus abatement. In terms of the Apex Court’s decision in the case of Jayanti Food Processing (P) Ltd. v. CCE, Rajasthan, reported in 2007(215) ELT 327 (SC) for application of the provision of Section 4A in respect of any goods, there must be a requirement under SWM Act or Rules made there under to declare the MRP of the goods on their packages. In terms of the provisions of SWM Rules, the requirement to declare the MRP on the packages is only in respect of commodities packaged for retail sale. The goods cleared in loose condition to spare parts division for being packed for retail sale are not the packaged commodity and hence there would be no requirement to declare MRP and the provision of Section 4A would not have applicable. They find that the Tribunal in the case of Malhotra Shaving Products (P) Ltd. v. CCE, Hyderabad, reported in 2010 (250) ELT 118 where the facts and the issue involved are, similar has, relying upon the Apex Court’s decision in the case of Jayanti Food Processing (P) Ltd. (supra), held that safety razor blades and razors cleared in bulk to another unit for being repacking for retail sale would be liable to duty on value determined under Section 4 and not on value determined u/s 4A. The judgment of the Tribunal in the case of M/s Sterling Tools Limited v. CCE, Delhi IV, reported in 2012 (281) ELT 573 (Tri.-Del.) is not applicable to the facts of this case as in that case some of the parts were being cleared in packed condition retail sale while this is not so in this case. Therefore they held that the provisions of Section 4A are not attracted to goods cleared by their Daruhera unit to their spare parts division, Gurgaon and hence the orders confirming the duty demands against the appellant on this basis and imposing penalty are not sustainable.

Decision: - The appeal was allowed.

Comment:-The essence of this case is that the goods cleared in bulk, even if MRP is required to be declared on such goods, cannot be held to be assessable under MRP based valuation as MRP based valuation is applicable only in case of retail packings.

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