CESTAT upholds additional customs duty on imported natural rubber, dismissing MRF Ltd.’s appeal and reinforcing tax parity with domestic producers

CESTAT upholds additional customs duty on imported natural rubber, dismissing MRF Ltd.’s appeal and reinforcing tax parity with domestic producers

MRF Ltd.’s refund claim on rubber cess for imported natural rubber rejected by CESTAT, confirming legality under the Customs Tariff Act

In a significant ruling with implications for importers of natural rubber, the Customs, Excise and Service Tax Appellate Tribunal, Bangalore Bench, has upheld the imposition of additional customs duty on imported natural rubber, equivalent to the rubber cess under the Rubber Act, 1947. The Tribunal dismissed refund appeals filed by MRF Ltd., reinforcing the legality of the levy under Section 3(1) of the Customs Tariff Act, 1975.

Background of the Case

MRF Ltd., a leading tyre manufacturer, imported natural rubber and classified it under Customs Tariff Heading 40012100. The customs authorities levied an additional duty of customs equal to the rubber cess payable under Section 12 of the Rubber Act, 1947. MRF paid the duty under protest and subsequently filed for a refund, asserting that the cess applied only to domestically produced rubber. The refund applications were rejected by both the adjudicating authority and the Commissioner (Appeals), Cochin, prompting MRF to escalate the matter to the CESTAT.

Arguments Presented by MRF Ltd.

MRF’s counsel made the following key submissions:

Rubber cess is domestic in scope: They contended that Section 12 of the Rubber Act, 1947, restricts cess liability to rubber produced in India and does not extend to imports.

Precedent case support: Reliance was placed on the earlier CESTAT decision in MRF Ltd. v. Commissioner of Customs, Madras [1997 (96) ELT 198], which ruled that no cess was payable on imported rubber.

Compulsory payment under duress: The appellant claimed that the additional duty was paid under coercion, as clearance of goods was contingent upon payment, entitling them to a refund with interest.

Revenue’s Counterarguments

The Revenue Department countered MRF’s claims by citing:

Binding precedents: The tribunal’s previous ruling in MRF Ltd. v. Commissioner of Customs, Madras [2017 (358) ELT 566 (Tri.-Chennai)], which upheld the levy of additional customs duty on imported rubber.

Larger Bench judgment: The landmark decision in TTK-LIG Ltd. v. Commissioner of Customs, Chennai [2006 (193) ELT 169 (Tri.-LB)] was referred to, wherein it was held that Section 3(1) of the Customs Tariff Act permits levying an additional duty equal to the excise duty or cess on similar goods manufactured in India.

Dismissals by Supreme Court irrelevant: The Revenue emphasized that dismissal of certain appeals by the Supreme Court on procedural grounds (delay or low tax effect) did not dilute the prevailing legal position.

CESTAT’s Observations and Ruling

The two-member bench, comprising Judicial Member, Dr. D.M. Misra and Technical Member, Mr. Pullela Nageswara Rao, rejected the appellant’s contentions. Key points in the judgment include:

Legal clarity established by Larger Bench: The tribunal noted that the issue had been conclusively settled by the Larger Bench in TTK-LIG Ltd., confirming the applicability of additional customs duty equivalent to rubber cess.

Statutory parity requirement: The bench reiterated that Section 3(1) of the Customs Tariff Act mandates that imported goods bear a duty equal to the excise duty or cess imposed on similar domestically produced goods, ensuring a level playing field between domestic manufacturers and importers.

No entitlement to refund: Since the levy was held to be valid, the refund claims made by MRF Ltd. were deemed inadmissible.

The CESTAT’s dismissal of MRF Ltd.’s appeals mark a reaffirmation of the principle of tax parity between imported and domestically produced goods. The ruling underscores the applicability of additional customs duty equivalent to the rubber cess under existing legislation, closing the door on refund claims related to this issue. Importers of natural rubber should carefully consider the implications of this judgment while structuring their import compliance and duty payment strategies.