Customs, Excise and Gold Tribunal - Mumbai
Medley Pharmaceuticals Ltd., Sabir ... vs Commissioner Of Customs And Central ... on 3 December, 2004
Equivalent citations: 2005(183)ELT471(TRI-MUMBAI)
ORDER Moheb Ali M., Member (T)
1. The appellants manufacture P or P medicines. During the period August 1995 to May 2000, they cleared physicians samples on payment of duty determining the value of such samples under Rule 6(b)(i) of the Central Excise Valuation Rules, 1975. It needs no mention that the value of regular packs of medicines was determined Under Section 4 of the Central Excise Act and that of the physicians samples under the Valuation Rules as the latter are supplied free. During the said period the appellants filed price declaration with the department in respect of physician samples giving the following particulars: description, tariff classification, cost of production, profit that could have been normally earned by assessee on sale of such goods and value declared Under Section 4. The department did not question the basis on which the value was arrived.
2. On 20th July 2000, however, a show cause notice was issued asking the appellants to show cause why the value of physician samples cleared during August 1995 to May 2000 should not be redetermined under Rule 4 of the Central Excise Valuation Rules 1975, and differential duty of Rs. 45,56,833/- should not be demanded under proviso to Section 11A(1) of the Central Excise Act and why various penalties should not be imposed on the company Under Section 11 AC, Rule 173Q and on the director and administrative manager under Rule 209A.
3. The differential duty itself is calculated taking the price at which the trade packs are cleaved. Depending upon the quantity contained in the physician sample, value is attributed. Thus for example, if a trade pack containing 10 tablets is sold for Rs. 10/-, a physician's sample containing four tablets is worked out to be Rs. 4/-. During the said period, the value determined by the assessee on costing method is much lower. This exercise is done because the assessable value of physician samples cannot be determined Under Section 4 of the Central Excise Act. The appellants agree that the value of physician samples has to be determined under the Valuation Rules 1975 but their contention is that it should be determined under Rule 6(b)(ii) (costing method) and not under Rule 4.
4. The Commissioner who adjudicated the case held that value should be determined under Rule 4. invoked the larger period of limitation as the appellants suppressed the facts with an intent to evade duty, demanded the impugned amount, imposed a penalty Under Section 11AC read with Rule 173Q and also for good measure imposed penalties on the officers of the company under Rule 209A, demanded interest Under Section 11AB etc. Hence these appeals.
5. Heard both sides.
6. The learned advocate Shri Manoj Sanklecha took us through the Valuation Rules. 1975 and argued how Rule 4 is inapplicable. The Rule itself during the relevant period read thus: "The value of any excisable goods shall be based on the value of such goods is sold by the assessee for delivery at any other time nearest to the time of removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment as may appear reasonable to the proper office." It is argued that the Rule applies to a situation where the value cannot be determined because of the difference in the dates of removal of goods. He further submitted that pro-rata determination of value adopted by the department is unacceptable as the physician samples and the regular packs are different in many respects, including the way they are packed and marketed. He relied on the decision of the Tribunal in the case of CCE, Aurangabad v. Mayo India Ltd. (2001 [127] ELT 192). The Tribunal held that the value of physician samples cannot be determined under Rule 4. The Tribunal observed, "The proper rule that would apply is Rule 7. Rule 4 obviously will not apply since the date of delivery is not known which causes the difference." He argued that the ratio of this decision squarely applies to their case. It is further argued that in the case of Cheryl Laboratories (P) Ltd. v. CCE, Hyderabad (1997 [93] ELT 129), the Tribunal held that the correct method of valuation of physician samples is to apply the principle enunciated in Rule 6(b)(i) as the value of comparable goods is available. The learned advocate referred to the Drugs and Cosmetics Rules, 1945 and argued that physician samples should cany an inscription that they are not for sale and such samples shall not be sold. The value of such samples which are distinct from the regular packs for sale are not comparable goods. Any attempt to arrive its value on the basis of the value of trade packs is erroneous. Finally he argued that the value as determined by the appellants based on a chartered accountant's certificate is correct.
7. On the limitation aspect, he argued that the department was aware of the method adopted by the appellants in arriving at the value as the appellants have been filing declaration under Rule 173C of the Central Excise Rules during the relevant period. If such a declaration is found wanting in detail, the department could have asked the appellants to furnish further information. The department cannot contend that the declaration lacked information necessary to determine the value and therefore there was suppression. Section 11 AC is not applicable to the clearances made prior to September 1996. No penalty can be imposed on the company and its employees.
8. The learned DR Shri S.V. Parelkar submitted that the value has to be arrived at under Valuation Rules as Section 4(l)(a) is not helpful in determining the value of the samples. There is no difference between a physician sample and trade pack except that the former has lesser contents than the latter. Proportionate value can be adopted for the purpose of arriving at the value. He argued that larger period can be invoked as the appellants while filing the declaration under Rule 173C of the Central Excise Rules have not given vital details which amounts to suppression.
9. It is observed that the issue of valuation of physician samples is no more res integra. The Tribunal both in the cases of Mayo India Ltd. and Cheryl Laboratories cited supra has categorically held that value of physician samples should be determined in accordance with the principle laid down in Rule 6(b)(i) read with Rule 6(b)(i) provides for determination of value of excisable goods on the value of comparable goods produced or manufactured by the assessee or by any other assessee. Suitable adjustments, of course, need to be made while arriving at the value under this Rule. In the case of Cheryl Laboratories, the arguments were exactly the same as are put-forth by the learned advocate in the present case. The Tribunal after rejecting the various contentions held that the physician samples are comparable with the regular trade packs and therefore the value of the trade packs, after giving suitable adjustments can be adopted for the purpose of determining the value of physician samples. We, therefore, following the ratio of this decision, agree with the appellants that value cannot be determined under Rule 4.
10. Having said so, we have to examine the method adopted by the Commissioner in the impugned order. Even though he cited Rule 4 as the correct rule, he determined the value as per Rule 6(b)(i) only. He gave suitable adjustments for the quantity and arrived at (he value. The Rule-may be wrong but the method adopted by the Commissioner cannot be faulted. For a moment if we substitute Rule 4 in the impugned order with Rule 6(b)(i), the result would be the same. We have already observed that the Tribunal in Cheryl Laboratories's case held that physician samples are comparable with trade packs. While saying so, the Tribunal also observed that no adjustments are called for arriving at the value of the samples. The Tribunal also held that while determining the value under Rule 7 of the Valuation Rules, one can adopt the method stated in Rule 6(b)(i). Except the fact that the Commissioner quoted a wrong rule (Rule 4), he determined the value correctly in accordance with the decision of the Tribunal in Cheryl Laboratories. We therefore uphold the method of valuation and confirm that the value is correctly determinable under Rule 6(b)(i) and not 6(b)(ii) as was done by the appellants.
11. We now come to the issue in regard to limitation. The appellants have been filing declarations under Rule 173C of the Central Excise Rules. The Commissioner's finding that the declaration did not contain details as to how the value is arrived at and therefore there is suppression has to be rejected. One look at the price declaration shows that the method adopted is cost construction method envisaged in Rule 6(b)(ii) of the Central Excise Valuation Rules. The department cannot claim that this fact is suppressed. As per the contention that details are not given in the declaration, we hold that nothing prevented the department from asking for those details. The appellants have not suppressed the fact that they were determining the value of physician samples under Rule 6(b)(ii). Larger period is not invokable. We. however, confirm the demand for duty on goods cleared during the normal period of limitation. Consequently, penalty Under Section 11AC is not imposable. So is the case in respect of interest Under Section 11AB. We do not subscribe to the theory that penalty under Rule 173Q read with Section 11 AC can be imposed in these circumstances. The issue pertains to valuation and not clandestine removal. The assessee may have entertained a genuine belief that the goods are assessable to duty after determining the value under Rule 6(b)(ii).
12. Penalties on the director and administrative manager are set aside allowing their appeals.
13. The appeals are allowed in the following terms:-
(a) The appellant company's appeal is partly allowed upholding the demand during the normal period of limitation. Penalties on the company and demand for interest are set aside. The duty be calculated accordingly upon which the appellants shall pay the amount indicated.
(b) Appeals of the director and administrative manager are allowed in full.