Custom, Excise & Service Tax Tribunal
M/S Bright Drugs Industries Limited vs Cce, Indore on 28 June, 2016
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R. K. Puram, New Delhi. Date of hearing: 11.05.2016 Date of decision: 28.06.2016 For Approval and Signature: Honble Ms. Archana Wadhwa, Member (Judicial) Honble Mr. B. Ravichandran, Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Excise Appeal No. 189 of 2008- Ex. DB. (Arising out of the Order in Appeal No. IND-I/184 & 185/2007 dated 25.10.200 passed by the Commissioner (Appeals), Customs & Central Excise, Indore. M/s Bright Drugs Industries Limited Appellant (Sh. Tushar Jarwal, Ms. Charu Tripathi & Sh. M.S. Gulati, Advocates for the appellant) Vs. CCE, Indore Respondent
(Sh. Sanjay Jain, DR for the Respondent) AND Excise Appeal No. 158 & 159 of 2008- Ex. DB.
(Arising out of the Order in Appeal No. IND-I/184 & 185/2007 dated 25.10.200 passed by the Commissioner (Appeals), Customs & Central Excise, Indore.
CCE, Indore Appellant-Revenue (Sh. Sanjay Jain, DR for the Revenue) Vs. M/s Bright Drugs Industries Limited Respondent M/s Anupam Distributors (Sh. Tushar Jarwal, Ms. Charu Tripathi & Sh. M.S. Gulati, Advocates for the respondent) Coram: Honble Ms. Archana Wadhwa, Member (Judicial) Honble Mr. B. Ravichandran, Member (Technical) Final Order Nos. 52198 52200/ 2016 Per: Archana Wadhwa:
All the three appeals one by the assessee and other two by the Revenue are being disposed of by a common order as they arise of the same impugned order of the lower authority. First of all, we proceed to decide the assessees appeal.
2. As per facts on record M/s Bright Drugs Industries Limited (hereinafter referred to as M/s BDIL) are engaged in the manufacture of various pharmaceutical products and P&P medicaments falling under chapter 30 of the Schedule to the Central Excise Tariff Act, 1985. The said appellant entered into rate contracts with the Maharashtra Government as also to some other Government agencies for supply of the medicaments at an agreed upon price, in response to the tenders floated by the State Government agencies. The medicaments required to be supply by the said appellant were to be clearly marked as Govt. supply only, not for sale. The appellant supplied a part of the goods directly to the Government departments at the agreed upon price and discharged their duty liability accordingly. However, as per the investigation made by the Directorate General of Central Excise Intelligence, the appellants were also routing the said movement of the medicines, through their intermediaries M/s Anupam Distributors (hereinafter referred to as M/s Anupam) as also through M/s S.S. Pharma. The supplies made to the said intermediaries were at a lower price than agreed upon between the appellant manufacturer with the Government department in terms of the rate contract entered between the two. The said intermediaries further raised invoices to various Government hospitals and sold the goods at the agreed upon prices.
3. Revenue entertained a view that such medicaments manufactured by M/s BDIL were meant for direct supply to various Government hospitals at the agreed price and in terms and conditions of the contract, could not have been sold to any other person. The commercial invoices issued by M/s Anupam to the Government hospitals were raised under the authority letter issued by M/s BDIL and as such the said intermediaries were nothing but commission agents for the services being provided by them to M/s BDIL and the duty was required to be paid on the value, which was being charged by said M/s BDIL from the Government hospitals. It was also seen that in some cases the medicines were being directly sent by the manufacturer to various Government hospitals and only the invoices were being raise by them in the name of M/s Anupam so as to enable them to further raised the invoices in the name of the Government hospitals.
4. Accordingly, the Revenue proceeded to recover the differential demand by way of raising a show cause notice dated 30.08.2006 for the period February, 1999 to March, 2004, after making due investigations and recording the statement of various persons.
5. The said show cause notice stands adjudicated by the original adjudicating authority and upheld by Commissioner (Appeals). Hence the present appeal.
6. After hearing both the sides duly represented by Sh. Tushar Jarwal, Ld. Advocate for the appellant and Sh. Sanjay Jain, Ld. DR for the Respondent we find that the factual position is not in dispute. The said appellant M/s BDIL were manufacturer of medicament and had entered into purchase order / rate contract with the State of Maharashtra for supply of medicines to various hospitals/ Government institutions. The goods required to be supplied under the said contract were to be marked clearly as for Government supplies only, nor for sale on each package of the consignment. Instead of supplying the said medicines to the Government hospitals directly and raising invoices in their name, the appellant adopted a modus-operandi to first sell the medicament to M/s Anupam who further raised the invoices on various hospitals.
7. It is seen that the said manufacturer had taken a stand that the sale by them to M/s Anupam was an independent sale inasmuch as M/s Anupam was their distributor and was buying and selling the products of other pharmaceutical companies also. They contended that in the absence of any allegation that there was no flow back of money from M/s Anupam to the appellant, the transaction value between the two, adopted as assessable value cannot be held to be not in accordance with law and as such the duty stands correctly paid by them on the said transaction value in terms of the provisions of Section 4 of the Central Excise Act. Detailing their arguments, it stands pleaded that in terms of the general practice in the medicine industries, the tenders are always filed in the name of the manufacturer as the Government agencies do not enter into contracts with the distributor or other person. The goods are however sold to the distributors, who further sell the goods to such Government agencies. In such a scenario, the manufacturer gets the payment immediately from the distributor who, after sale of the medicines to various Government agencies, collect the payments thereafter. As such it stand contended before us that the sale between M/s Anupam and the manufacturer has to be considered as a transaction on principal to principal basis and in the absence of any allegation that the transaction value is not the only consideration received by the manufacturer, the ingredients of Section 4(1)(a) of the Central Excise Act stands satisfied, thus making no room for any differential demand of duty.
8. The issue required to be decided in the present case is as to whether the clearance of goods by M/s BDIL to M/s Anupam for further despatch of the same to the Government authorities in terms of the contract entered into between M/s BDIL and Government agencies, would attract duty at the value at which the goods were sold by the appellant to M/s Anupam or given in the peculiar facts and circumstances of the case, the duty is required to be paid at the contracted value. Admittedly, the rate contract is between M/s BDIL and the State of Maharashtra for supply of the medicines manufactured by them at a contracted price. Such medicines also have the stamp to the effect that the same have been specifically manufactured for supply to Government departments and it is not open to sell the said goods in the market.
The question which arises is as to whether M/s Anupam, though named as distributor, can actually be called as distributor or are having the status of an intermediary agency for the manufacturer for supply of goods to the Government agencies. In a common parlance, a distributor is a person, who is free to sell the procured goods in the market at a price to any person. In the present case the goods purchased by M/s Anupam from the manufacturer cannot be sold to any person other than the Government agencies. Such goods are a part of the contract entered into between the manufacturer and the Government agencies. Accordingly for the appellant, M/s Anupam has been roped in by them so as they can make efforts to recover the consideration from the Government authorities. This fact clearly shows that M/s Anupam are nothing but is facilitating agency or a recovery agency.
Taking a hypothetical situation that where the services of the agency is required for recovery of the consideration of the medicines supplied to the Government hospitals, whether payments made to the recovery agent for such services would get deduction from the total assessable value of the medicines supplied directly by M/s BDIL. The answer would lie in an emphatical NO. M/s BDIL are also supplying medicines directly to Government hospital at the contracted price in which case the assessable value is admittedly the contracted price. In such a scenario, to en route the medicaments through a third agency, in respect of the same contracted goods is nothing but a modus operandi adopted by the manufacturer to evade payment of duty. We have already observed that M/s Anupam cannot be held to be having a status of distributor, the appellantscontention of adopting the transaction value between the two in terms of the provision of Section 4(1)(a), has no weightage inasmuch as Section 4(1)(a) would not be applicable in such a scenario, the transaction being not on principal to principal basis. The fact that the goods stands supplied directly by the manufacturer and it is only the invoices which are initially being raised by them in the name of M/s Anupam, who are further raising the invoices in the name of the Government hospital is indicative of the cleverly adopting the fictitious route by the manufacturer. Even if viewed from another angle, the part of the goods which stand directly supplied by the manufacturer to the Government hospital having been assessed at the contracted price, a part of the goods in respect of the same very contract cannot be allowed to be assessed on a different assessable value merely because the appellant have roped in an intermediary agency in between. As such we find no infirmity in the views adopted by the authorities below and hold that the appellant were required to discharge the duty liability at the contracted price in respect of the goods supplied by them to the Government hospitals, either directly or through M/s Anupam.
9. The appellant have also assailed the demand on the point of limitation. By drawing attention to the fact that the demand for the period February, 1999 to March 2004 stand raised by way of show cause notice dated 30.08.2006 and thus beyond the normal period of limitation. It stands contended that the appellant have been filing the declaration and all other statutory documents with their jurisdictional Central Excise authorities and as such no suppression or mis-statement with any malafide intention can be attributed to them. Our attention stands drawn to various documents produced on record.
10. However, on going through the said documents we note that in neither of the documents the fact of routing the goods through M/s Anupam and others has been disclosed. As already observed that this was a make belief arrangement made by the manufacturer to sell a part of their goods covered under the same contract, where they were also supplying the goods directly, with intention to evade payment of duty, the malafide is writ large on the face. Merely because they were filing the returns and the invoices issued in the name of M/s Anupam, does not ipso facto lead to the disclosure of the marketing pattern adopted by the said M/s BDIL. It is only as a result of detailed investigation and scrutiny of the records which resulted in emergence of the real picture. As such, we find no reason to deny the Revenue the invocation of the extended period.
11. As regards the Revenues appeal, it is seen that apart from the above allegation, the show cause notice also proposed to confirm a particular amount of duty, in terms of the provision of Section 11D of the Central Excise Act on the ground that they have collected such amount from the Government agencies representing the same as duty of excise but has not deposited the same with the Revenue. The assessee took the stand before the adjudicating authority that the excise rate was enhanced, which was paid by them at the time of clearance of the goods and it is only enhanced excise duty, which already stands paid by them, which was collected from the Government agencies. The said plea of the assessee was not accepted by the original adjudicating authority by observing that the initial contract awarded to M/s BDIL was inclusive of duty and as such the subsequent amount collected by the assessee by way of supplementary / additional bills was on account of excise duty collected but not deposited. He accordingly confirmed the demand.
On appeal against the said part of the lower authorities, Commissioner (Appeals) extended the benefit by observing as under:
9. As far as the demand of duty under Section 11D of the Act is concerned, I find that the same is not sustainable on account of the following facts:
a) The invoices for collecting the differential amount on account of revision of prices has been issued only by M/s Anupam Distributors and not by the Appellant No. 1. In all these invoices there is no clear indication to show that the amounts collected represent excise duty only.
b) As the contract with the Govt. Departments is an all inclusive price, any revision of price cannot be attributed to excise duty element alone when it is a fact that the duty payable at the time of clearance has been paid correctly by Appellant No. 1 (i.e. after Budget of 1999 & 2000).
c) The revision of prices had been requested by the Appellant No. 1 on account of increase in excise duty from 0 to 8% in Budget 1999 (Generic Medicines) and from 8 to 16% in Budget 2000. The rates were revised upwards by the Director Medical Education and Research, Mumbai vide various letters. Thus the differential amount to be realised on account of such price revision at a later date cannot be attributed to excise duty alone, when the Appellant has paid the appropriate duty at the time of clearance of goods. Hence duty short paid, if any, can be demanded only under Section 11A of the Act and not under Section 11D of the act as has been done here. Under Section 11A, the demand made is clearly time barred for the period prior to July 2001 as the SCN was issued only on 30/08/2006, covering the period Dec 1999 to December 2003. Moreover, the demand includes a few cases of supply originally made in Jan/Feb 1999 i.e. prior to Budget of 1999 and therefore cannot be justified.
12. Revenue being aggrieved with the said part of the impugned order had filed the present two appeals.
13. Admittedly, there was a revision on account of increase in excise duty during the Budget of 1999 and 2000. Accordingly rates were revised upwards and the appellant during the relevant period paid the higher rate of duty. It is subsequently they realised the said amount on account of the revised rate contract and in such a scenario it can be safely concluded that the provision of Section 11D are not applicable inasmuch as they get invoked only when an assessee receives the amount representing as duty of excise from its customer and does not deposit the same with the Revenue. As such, we find no merit in the appeal filed by the Revenue. Same are accordingly rejected.
14. In view of the above, all the appeals filed by assessee as also by the Revenue are rejected.
(Order pronounced on 28.06.2016).
(Archana Wadhwa) Member (Judicial) (B. Ravichandran) Member (Technical) Pant