2012 (11) TMI 596 - HC - Central Excise

MRP Valuation - Settlement Commission - MRP was being worked out was from 19-4-2007 to 15-2-2008 - At the relevant point of time, the Central Excise Rules, 2008 were not in existence. But at the same time, instead of going as per the provisions of the law the notional price revision of 10% for subsequent period, for arriving at MRP for the relevant period, and in the name of practical approach for the subsequent period, has made reduction in the weighted average MRP by the factor of 10% - Held that - Policy adopted by the Settlement Commission is neither legal nor in any manner conducive to the object of the Act and as the same is challenged by both the sides and as fallacy of reasoning had been well made out - entire basis cannot be sustained matter remanded to Settlement Commission

Summary

Issues Involved:
1. Challenge to the order of the Settlement Commission dated 18-1-2011.
2. Alleged large-scale evasion of Central Excise Duty by the petitioner.
3. Methodology of determining the Maximum Retail Price (MRP) and assessable value.
4. Validity of the Settlement Commission's approach and calculations.
5. Legal provisions and their application.

Detailed Analysis:

1. Challenge to the Order of the Settlement Commission:
The present petitions were filed against the Settlement Commission's order dated 18-1-2011. Both petitioners challenged the order on different grounds but aimed at the same impugned order. The court decided to address the petitions through a common judgment due to the similarity in the underlying issues.

2. Alleged Large-Scale Evasion of Central Excise Duty:
The petitioner, engaged in manufacturing ceramic tiles, was accused of large-scale evasion of Central Excise Duty. The Directorate General of Central Excise Intelligence (DGCEI) gathered intelligence and conducted searches, revealing that manufacturers, including the petitioner, were declaring only a part of the actual MRP, leading to lower assessable values. This resulted in a show cause notice demanding Rs. 19,43,037/- as differential duty for the period from 1-4-2007 to 15-2-2008.

3. Methodology of Determining MRP and Assessable Value:
The petitioner argued that the Settlement Commission disregarded the provisions of Section 4A of the Central Excise Act, which mandates excise duty based on the declared Retail Sale Price (RSP) minus 45% abatement. The petitioner claimed that they had sold goods at the declared retail price and paid excise duty accordingly. They contended that the Settlement Commission arbitrarily adopted an ad-hoc retail sale price and allowed a 10% notional reduction, which was not acceptable to the petitioner.

4. Validity of the Settlement Commission's Approach and Calculations:
The Settlement Commission's method of reducing the weighted average MRP by 10% was challenged by both sides. The petitioner argued that the Commission should have verified the correctness of their declaration and not adopted an ad-hoc approach. The Revenue contended that the reduction of 10% per year would lead to absurd results and was not sustainable. The court found that the Settlement Commission's approach was foreign to the existing law and unsustainable.

5. Legal Provisions and Their Application:
The court examined Section 4A of the Central Excise Act and the Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008. It noted that the provisions require the retail sale price to be declared on the package and include all taxes and charges. In cases of clandestine removal, the retail sale price needs to be ascertained as per the rules. The court found that the Settlement Commission's approach of notional price revision was not in accordance with the law.

Conclusion:
The court quashed the Settlement Commission's order dated 19-1-2011, directing both parties to approach the Settlement Commission within eight weeks. The petitioner was instructed to produce actual details of MRP for subsequent years. The Settlement Commission was to work out the MRP as per Rule 4A of the Central Excise Rules, 2008, and determine the differential duty, interest, fine, and penalty accordingly. The court clarified that the immunity from prosecution would not be available due to the challenge and directed the Settlement Commission to adjudicate the issue independently. Both petitions were disposed of with parties bearing their respective costs.