Post-Clearance MRP Alteration by Distributor Does Not Attract Differential Customs Duty: CESTAT Quashes Penalty on Celkon Impex Pvt Ltd [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench, has set aside a demand for differential Countervailing Duty (CVD) and penalties imposed on mobile phone importer M/s Celkon Impex Pvt Ltd and its distributor, M/s Big C Mobiles Pvt Ltd. The Tribunal held that an importer cannot be held liable for the alleged alteration of the Maximum RetailPrice (MRP) by a distributor, nor can the "corporate veil" be pierced based merely on common directorship or cross-shareholdings.

The appellant, M/s Celkon Impex Pvt Ltd, is engaged in the import of cellular phones under the ‘Celkon’ brand, which are distributed to various dealers, including M/s Big C Mobiles Pvt Ltd. The dispute arose from a market survey conducted by the Department, which alleged that the appellants were evading Customs duty by declaring an MRP of less than Rs. 2,000 at the time of import to pay a lower CVD (1% instead of 6%). The Department claimed that after customs clearance, the MRP labels on the phones were altered to reflect a higher price, above Rs. 2,000 at the premises of M/s Big C.

The Adjudicating Authority confirmed the demand for differential duty, confiscated the goods, and imposed penalties on the importer, the distributor, and their respective directors. The authorities relied on photographs of labels, statements of employees, and the presence of common directors to treat the importer and distributor as "related persons" who had conspired to evade duty.

Shri T. Satya Murthy, Advocate for the appellants, argued that M/s Big C was merely a distributor and a separate legal entity. He contended that there was no evidence of any "flow back" of funds or control from the distributor to the importer to justify piercing the corporate veil. He further submitted that the alteration of labels, if any, was done by the distributor independently for promotional offers (such as a "1+1 Jodi offer") and could not be attributed to the importer. Citing the Supreme Court’s decision in ITC Ltd Vs CCE, he argued that without a flow back, the importer could not be held liable for the acts of the distributor.

The Division Bench of A.K. Jyotishi (Member Technical) and Angad Prasad (Member Judicial) observed that the alteration of MRP, if any, took place at the premises of the distributor, who is an independent entity. The Tribunal noted that the Department's theory of a conspiracy was based on presumptions drawn from common directors and an annual report, rather than concrete evidence of the importer's involvement in the relabeling process.

The Tribunal held that this is not a case where the corporate veil can be pierced merely because of cross-shareholdings. There was no evidence to suggest that the importer was engaged in the day-to-day operations of the distributor or that there was a flow back of funds.

Regarding the legal demand, the Tribunal relied on recent precedents, including Reach Infocom Tech Pvt Ltd Vs CC, to hold that there is no machinery provision under the Customs Act for the re-determination of MRP for CVD purposes once goods have been cleared. It noted that post-importation labelling or relabeling may amount to "manufacture" under the Central Excise Act, potentially attracting Excise duty from the person performing the relabeling (the distributor), but it does not justify a demand for differential CVD from the importer under Section 28 of the Customs Act.

The Tribunal concluded that the evidence on record was insufficient to establish that the importer intentionally misdeclared the RSP. Consequently, the demand for differential CVD and the accompanying penalties and confiscation orders were set aside as legally unsustainable.

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