Despite amendments, confusion persists on MRP-labelling for imported goods vis-a-vis taxation
India is emerging as one of the world’s fastest-growing consumer market. A number of laws have been formulated by the Indian legislative bodies for the protection of consumers’ interest. However, a robust consumer protection ecosystem still eludes the world’s largest democracy.
With a view to ensure correct and adequate disclosure of product-related information to the consumers, Legal Metrology (LM) Act, 2009 and Legal Metrology (Packaged Commodity) Rules, 2011 (LMPC Rules, hereafter) have been promulgated. These supersede what were earlier known as Standards of Weights and Measurement laws. Among other things, the legal metrology laws mandate that every packaged commodity meant for retail sale is required to bear a label containing the prescribed declarations, including the MRP. Duty consequences on certain products under the Indian excise and customs laws are tagged to this compliance requirement under these laws.
Indian excise law provides that excise duty shall be payable on the basis of MRP for certain notified products provided there is a requirement to mention MRP as per the LMPC Rules. As a consequence, importers are also required to pay countervailing duty (CVD) in lieu of excise duty on such notified imported products on MRP basis.
Further, pre-packaged commodities intended for retail sale in India and bearing the MRP in terms of the legal metrology laws are exempt from the levy of special additional duty of customs in lieu of value-added tax (SAD).
LMPC Rules specifically exempt packaged commodities meant for industrial and institutional consumers from the MRP-labelling requirement. The terms ‘industrial’ and ‘institutional’ consumers earlier meant consumers who buy goods ‘directly from the manufacturer’ for use by industry or institutions. Given this, a controversy plaguing the implementation of the legal metrology laws has been whether consumers who bought goods through a trader or importer would be covered within the ambit of ‘industrial’ or ‘institutional’ consumer considering the fact that goods are not purchased ‘directly’ from the manufacturer in such cases. Contrary views on this point have been taken by the Karnataka and Bombay High Courts and the matter is sub-judice before the Supreme Court.
Pending clarity on the correct legal position on applicability of MRP-labelling norms, many industries (viz. food products, electronics goods, consumer durables industries, etc) have been dealing with confusion regarding assessable value for excise duty computation on domestic manufacture (and CVD on the import of goods) as well as eligibility for SAD exemptions on imported goods meant for resale. As much as the tax payers are confused, the tax authorities have been taking contrary stands, even in the face of identical facts/patterns, depending on what suits their eventual aim of revenue augmentation.
The government has attempted to address these issues with the recent amendments to the LMPC Rules whereby, inter-alia, the definition of ‘industrial’ or ‘institutional’ consumer has been expanded to cover consumers who buy goods from traders, importers or from wholesale dealers. With this amendment, exemption from labelling requirements is available to the manufacturers even if the sale is made to industrial or institutional customers through wholesale traders. Similarly, importers are no longer required to comply with the MRP-labelling requirements in the bonded warehouse before customs clearance if goods are meant for sale to industrial or institutional consumer. The only condition is that the goods should contain a declaration that they are ‘not for retail sale’.
This amendment also impacts offshore manufacturers who operate through distribution agencies/ channel partners in India and do not have direct agreements with consumers in India. In such cases, the offshore manufacturers would not be required to comply with the declaration requirements as per the LMPC Rules where goods are meant for consumption by industrial or institutional consumers in India. Consequently, the basis of valuation for payment of CVD and SAD exemption eligibility on import of goods in such cases may change, depending on whether or not the products in question are meant to be sold to industrial/institutional consumers or are otherwise notified for MRP-based levy.
The aforesaid amendments provide clarity to a certain extent. However, there are various concerns which remain unaddressed. For instance, the LMPC Rules or the customs or excise laws do not clarify the position for a case where, at the time of import or supply by domestic manufacturer, the end-consumer profile is not known. Therefore, the question arises as to whether MRP-labelling requirements will apply and the consequent duty implications follow in such cases?
Further, the amendment in the definition of ‘institutional consumer’ to covers ‘any organisation’ vis-à-vis only ‘service institutions’ is also likely to give rise to host of controversies. Whether the term ‘any organisation’ has to be interpreted broadly or restrictively applying the principles of ejusdem generis?
Another grey areas created by the MRP-labelling requirements under the LMPC Rules and the Indian excise legislation is that in respect of the products liable for excise duty /CVD on MRP basis, the activity of packing/labelling/re-packing/re-labelling amounts to deemed manufacture. The ambiguity in this context is: Where manufacturers/traders undertake labelling to comply with the metrology laws, will excise implications follow? Indian judiciary has been taking varying stands on this issue on the basis of the facts of each case. This aspect also remains without clarity.
Thus, while the government has provided some relief to industry by amending the definition of ‘industrial’ and ‘institutional’ consumers, the LM norms remain a half-baked cake and provide partial relief only and create a Pandora’s Box of new disputes. It would be relevant for business to have clarity on whether legal metrology laws will remain relevant under the GST regime. Upon any announcement by the Union government regarding the continuity of nexus between legal metrology laws and GST, it would be critical to initiate advocacy to ensure that the controversies under the current regime are duly sorted out.
With inputs from from Anupama Agarwal and Poonam Harjani
The author is leader (indirect tax), BMR & Associates LLP.
Views are personal