MRP-Based CVD Inapplicable on Disinfectants Supplied to Government Hospitals: CESTAT Kolkata
Background and Context
CESTAT Kolkata, in the matter of Microgen Hygiene Private Limited Vs Commissioner of Customs, decided vide order dated 18.12.2024 in Customs Appeal No. 77844 of 2018, examined two critical questions arising from the import of disinfectant product "D-125-Lavender" through the Kolkata Air Cargo Complex during September–October 2008. The imported goods were destined for onward supply to the Government of Jharkhand for exclusive use in state-run hospitals.
The adjudicating authority, followed by the Commissioner (Appeals), had upheld demands raised through a Show Cause Notice dated 29.11.2012 issued by invoking the extended period of limitation. The Tribunal was called upon to examine whether these orders were legally tenable on facts, law, and limitation.
Nature of the Dispute
The Show Cause Notice raised two distinct allegations:
Valuation of imports: The Revenue contended that the price charged by the overseas foreign supplier represented an FOB value, and accordingly proposed addition of notional freight and insurance under
Rule 10(2)(i)andRule 10(2)(ii)of the Customs Valuation Rules, 2007.CVD on MRP basis: The Revenue alleged that the imported goods fell under Sl. No. 40 of Notification No. 14/2008-CE (NT) dated 01.03.2008 issued under
Section 4Aof the Central Excise Act, 1944, and were therefore liable to payment of Additional Duty of Customs (CVD) on the Retail Sale Price (RSP). Since no RSP was declared, the Revenue proposed to take the RSP as three times the import value.
Issue 1: CIF vs. FOB — The Valuation Controversy
The Assessee's Position
The assessee submitted that the unit price of USD 9 per litre charged by the foreign supplier was on CIF Calcutta basis. The following documentary evidence was relied upon:
- The Marine Insurance Policy was issued by ACE–USA, with Microgen USA as the named assured, and the premium had been paid by the exporter.
- The Airway Bill recorded the freight amount as "Agreed," indicating that freight was paid by the overseas party.
- The Bill of Lading expressly provided that freight was to be billed to Microgen Inc., USA.
- The supplier's invoices clearly recorded that the goods were for "Government of Jharkhand Supply."
The assessee further pointed out that the Revenue's reliance on a Supply and Distribution Agreement to allege FOB terms was misplaced. Paragraphs 3 and 5 of the said agreement applied to an active ingredient known as "Microgen Quat-80", which was to be shipped FOB Ex-Works Mijdrecht, the Netherlands. The goods actually imported — "D-125-Lavender" — were the finished product, shipped from the USA, and therefore outside the scope of the FOB clause cited by the Revenue.
Reliance was placed on the Supreme Court's ruling in Union of India v. Mohit Minerals Private Limited, 2022 (61) G.S.T.L. 257 (Supreme Court), which established that when freight and insurance are arranged and paid by the foreign exporter, the transaction is necessarily CIF in character.
Revenue's Counter-Arguments
The Revenue's Authorized Representative contended that:
- The foreign supplier's invoices did not expressly mention payment terms.
- Clause 3 of the agreement dated 17th June, 2006, stated that the product price excluded shipping costs.
- The Airway Bill named "Troy Chemicals" as the shipper rather than "Microgen Inc."
- The phrase "freight pre-paid by third party" in the Bill of Lading indicated that neither the shipper nor the consignee bore freight responsibility.
- The Insurance Policy was in the name of C.H. Robinson Worldwide Inc., the transport company.
On this basis, the Revenue maintained that the price was FOB and that the addition of freight and insurance to arrive at CIF value was justified.