Custom, Excise & Service Tax Tribunal
M/S Merck Ltd vs Commissioner Of Central Excise, ... on 8 September, 2016
IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT NO. I APPEAL NO. E/3915 & 3916/05-MUM (Arising out of Order-in-Appeal No. AT/481-482/Bel/2005 dated 22nd September 2005 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone-II.) For approval and signature: Honble Shri Ramesh Nair, Member (Judicial) Honble Shri C J Mathew, Member (Technical) ====================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ==================================================== M/s Merck Ltd Appellant Vs Commissioner of Central Excise, Belapur Respondent Appearance: Shri Cyrus Bharucha, Advocate Shri Zeeshan Faroogui, Advocate for Appellants Shri H M Dixit, Assistant Commissioner (AR) for Respondent CORAM: HONBLE SHRI RAMESH NAIR, MEMBER (JUDICIAL) HONBLE SHRI C J MATHEW, MEMBER (TECHNICAL) Date of Hearing: 08/09/2016 Date of Decision: 05/01/2017 ORDER NO. Per: C J Mathew:
Appellant, M/s Merck Ltd, seeks quashing of demand of duty of Rs 6957, interest thereof and penalty under rule 25 and 27 of Central Excise Rules, 2002 and demand of Rs 3,97,611, along with penalty, in another appeal which, having been remanded by the Tribunal, were both disposed off by common order-in-appeal no. AT/481-482/Bel/2005 dated 22nd September 2005 of Commissioner of Central Excise (Appeals), Mumbai Zone-II.
2. Dispute relates to valuation of special packing used for physician samples (distributed free of cost) which was alleged to have been deliberately excluded from the assessable value adopted for clearance; the assessable value was, admittedly, computed as a proportion of the value of traded polybion and neurobion even though these goods were cleared in normal packing. Appellant submits that the value of special packing is included in the overall cost of production of the traded goods and adoption of proportionate value is the most logical and appropriate method providing the felicity of convenience without jeopardizing the interests of revenue.
3. The impugned order has placed reliance on the decision of the Tribunal in Cross Lands Research Lab Ltd v. Commissioner of Central Excise, Pune [2002 (150) ELT 212 (Trib)] to hold that, notwithstanding the inclusion of the total cost of physician samples in the computation of assessable value of traded goods, duty liability would, yet, arise separately, upon removal of physician samples. Reliance was placed on Commissioner of Central Excise v. Mayo India [2001 (127) ELT 192 (Trib)] as support for valuation to be computed in accordance with rule 7 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 with due consideration to rule 6(b) after adjusting for quantity and other factors.
4. Though one of the matters decided in the impugned order had been remanded by the Tribunal specifically for not having considered the decision in Cheryl Laboratories (P) Ltd v. Commissioner of Central Excise, Hyderabad [1997 (93) ELT129], the impugned order has merely recorded a finding of non-applicability as the packing used in traded goods and samples were identical in the cited case.
5. It is the contention of Learned Authorized Representative that the samples are provided in catch cover/catch boxes which is not used in the normal supply of goods and that valuation in accordance with rule 7 would require this aspect to be taken into consideration.
6. Learned Counsel for appellant drew our attention to the decision of the Honble Supreme Court in Biochem Pharmaceuticals Ind Ltd v. Commissioner of Central Excise, Vapi [2015 (322) ELT 808 (SC)] and, in particular, to 7.?Thus, to arrive at valuation under this Rule, the proper officer may adopt the principles contained in Rule 6(b). Rule 6(b) deals with two methods :
(i) In case these are comparable goods, the value of comparable goods produced or manufactured by the assessee, can be the basis and thus pro rata method can be applied;
(ii) In case aforesaid method cant be applied, then the second method can be resorted to viz. cost of production or manufacture including profits, if any, which the assessee would have normally earned on sale of goods.
8.?In these cases the physicians samples which are given free of cost are clearly comparable with the goods that are manufactured by the assessee and sold in the market as the two goods are identical. In fact out of the same lot manufactured some are distributed as samples. Therefore, even while exercising his power under Rule 7 the proper officer can chose any of the aforesaid two methods prescribed in Rule 6(b) of the Rules. No doubt it is the discretion of the proper officer to determine the value as it is his best judgment which he has to exercise. However, the Rule also mentions that while exercising his best judgment, he has option to give regard to any of the methods, prescribed in the earlier rules. The words among other things would indicate that regard can be to other material also which is produced. Thus while exercising his discretion as to which method is most suitable in a given situation, the proper officer will have to look into entire relevant material furnished before him
7. From the above, it would appear that physician samples are liable to duty upon removal and, as best judgment is to be resorted to for valuation by factoring in the principles governing the other rules, physician samples that are comparable to traded goods should be valued on pro rata basis while valuation of non-comparable samples would be on cost basis.
8. In view of the contention of Revenue that the samples are not comparable with traded goods as far as packing is concerned, costing should have been adopted for computation of assessable value. In the show cause notice, the value of the special packaging used for samples of polybion and neurobion tablets has been computed at Re 1.06 and Re. 0.83 per sample. We observe that this is inclusive of margin of profit which, considering the purpose to which samples are distributed, is not tenable. We also notice that the cost of packaging of normal sample, which, obviously, is included in the pro rata price on which duty has been paid has not been deducted to arrive at the differential duty. On the contrary, appellant contends that cost of the special packaging and the normal packaging has been apportioned over the entire cost of traded medicines. In that situation, even if the special packing does cost more than the normal packaging, it cannot but be conceded that duty has been recovered on the incremental cost.
9. Accordingly, we hold that physician samples are liable to duty on removal and that, in view of the special nature of packaging, costs must be computed of the sample including the special packaging cost for computing assessable value. However, we note that this incremental cost has been subject to duty and, in the absence of any reasonable evidence that this cost has not been included or adjusted in the duty paid on physician samples, we set aside the impugned order and allow the appeals.
(Pronounced in Court on 05/01/2017) (Ramesh Nair) (C J Mathew) Member (Judicial) Member (Technical) Sp E/3915 & 3916/05 6