Custom, Excise & Service Tax Tribunal
Wintac Ltd vs Bangalore-Iii on 15 April, 2024
E/685/2011
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Central Excise Appeal No. 685 of 2011
(Arising out of Order-in-Appeal No. 16/2011 dated 05.01.2011
passed by the Commissioner of Central Excise (Appeals-ll),
Bangalore.)
M/s. Wintac Limited,
54/1, Boodhihal, Appellant(s)
Nelamangala,
Bangalore 562 123.
VERSUS
Commissioner of Central
Excise, Bangalore III
Commissionerate, Respondent(s)
C.R.Building, Queens Road, Bangalore - 560 001.
APPEARANCE:
Mrs. Yovini Rajesh Rohra, Advocate, for the Appellant Mr. H. Jayathirtha, Superintendent (AR), for the Respondent CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MRS R BHAGYA DEVI, MEMBER (TECHNICAL) Final Order No. 20458 /2024 DATE OF HEARING: 15.04.2024 DATE OF DECISION: 15.04.2024 PER : DR. D.M. MISRA This appeal is filed against Order-in-Appeal No.16/2011 dated 05.01.2011 passed by the Commissioner of Central Excise(Appeals-II), Bangalore.
2. Briefly stated the facts of the case are that the appellant are engaged in the manufacture and clearance of P or P medicines falling under Chapter heading 3003.10 of the Central Page 1 of 10 E/685/2011 Excise Tariff Act, 1985. During the period January 2005 to April 2007, appellant had cleared physician samples discharging duty on the value arrived adopting Rule 8 of the Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000 (Central Excise Valuation Rules, 2000, for short) i.e. 110% of the cost of production. Alleging that the method of assessment is incorrect as the value needs to be determined under Rule 4 of Central Excise Valuation Rules, 2000, show- cause notice was issued to them invoking extended period of limitation for recovery of the differential duty amounting to Rs.44,94,650/- with interest and penalty. On adjudication, the demand was confirmed with interest and penalty. On appeal, the learned Commissioner(Appeals) upheld the Order-in-Original. Hence, the present appeal.
3. The learned advocate for the appellant has submitted that the appellants manufacture pharmaceutical products on a principal to principal agreement with 3rd parties. Under such agreement, the appellant also manufacture physician samples and supplies the same to purchasers. The learned advocate submitted that the issue to be decided is the method of determination of value of goods manufactured and cleared by the appellants in terms of transaction on principal to principal basis and the issue of involving extended period and imposition of penalty. She has submitted that the issue is no more res integra and covered by various judgements of the Tribunal and Hon'ble Supreme Court. She relied on the following judgments.
i. CCE Surat Vs. Sun Pharmaceutical Industries Ltd.
[2015(326) ELT 3 (SC)] ii. Medispray Laboratories P. Ltd. Vs. CCE, Goa [2017(5) GSTL 300 (Tri. Mumbai)] iii. Zyg Pharma Pvt. Ltd. Vs. CCE, Indore [2017(348) ELT 389 (Tri. Del.)] iv. CC goa Vs. Cosme Remedies Ltd.
[2016(344) ELT 379 (Tri. Mum.)] v. Gelnova Laboratories (I) Pvt. Ltd. Vs. CCE, Belapur [2014(300) ELT 437 (Tri. Mum.)] Page 2 of 10 E/685/2011 vi. Omni Protech Drugs Pvt. Ltd. Vs. CCE, Pune-I [2011(274) ELT 377 (Tri. Mum.)] vii. Themis Laboratories Pvt. Ltd. Vs. CCE, Mumbai [2012(286) ELT 244 (Tri. Mum.)] viii. Mayer Health Care Vs. Asst. Commissioner of CE, Bangalore-II [2009(247) ELT 488]
4. On the issue of invoking extended period of limitation, she has submitted that the duty has been paid on the assessable of law prevailing at the relevant time applicable to their case. No facts was suppressed nor misdeclared. When the issue is interpretation of law, invoking extended period and imposition of penalty is bad in law.
5. Learned AR for the Revenue has submitted that the issue has been considered at length by this Tribunal in the case of Wallace Laboratories P. Ltd. Vs. CCE, Belgaum [Final order No.20136-20138/2024 dt. 14/03/2024] where the Tribunal referring to the principle of law settled in this regard held that the physician samples cleared to the principal manufacturer are to be assessed under Rule 4 read with Rule 11 of the Central Excise Valuation Rules, 2000 instead of Rule 8 of the said Valuation Rules, 2000.
5. Heard both sides and perused the records.
6. The short issue involved in the present appeal is whether the assessable value of physician samples manufactured and cleared be determined, following Rule 4 read with Rule 11 of the Central Excise Valuation Rules, 2000 or Rule 8 read with Rule 11 of the Central Excise Valuation Rules, 2000 under cost construction method by adopting value of 110% of the cost of production. The adjudicating authority referring to the reply filed by the appellant dated 03.01.2009 rejected the contention of the appellant that the value of such samples to be determined adopting cost construction method. On appeal, the learned Commissioner(Appeals) upheld the said order of the adjudicating Page 3 of 10 E/685/2011 authority. We find that the issue has been considered by this Tribunal in Wallace Laboratories P. Ltd.'s case. The Tribunal observed as under:-
6. The short issue involved for consideration is whether the physician samples cleared by the appellant to the principal manufacturer or manufactured and cleared on job work basis to be assessed under Rule 4 read with Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 or Rule 8 of the said Rules; whether penalty is imposable under Rule 25 of the Central Excise Rules.
7. We find that the Hon'ble Supreme Court in Medley Pharmaceuticals' case (supra) has laid down the principle as follows:
"41. Now coming to the valuation of the physician samples for the purpose of levy of excise duty, in our view, this issue need not detain us long in view of the decision of this Court in the case of Commissioner of Central Excise v. M/s. Bal Pharma [Civil Appeal No. 1697 of 2006] [2010 (259) E.L.T. 10 (S.C.)]. This Court has upheld the conclusion of the Tribunal that the physician's samples have to be valued on pro-rata basis. The Tribunal, while arriving at the aforesaid conclusion, had relied upon its earlier decision in the case of Commissioner of Central Excise, Calicut v. Trinity Pharmaceuticals Pvt. Ltd., reported as 2005 (188) E.L.T. 48, which has been accepted by the department. Therefore, we hold that physician samples have to be valued on pro- rata basis for the relevant period."
8. This principle has been followed by this Tribunal in Amazon Drugs Pvt. Ltd. and it is observed as follows:
"14. Thus, the contention of the appellant before the Supreme Court that the free physician samples have to be assessed on the cost of manufacture plus 15% profit as contemplated under rule 8 of the 2000 Rules was not accepted by the Supreme Court. 15. In the present appeal, the appellant has also determined the valuation under rule 8 of the 2000 Rules by adding 15% profit to the cost of manufacture. Such a determination of the assessable value has not been accepted by the Supreme Court. The Commissioner (Appeals), therefore, committed no illegality."Page 4 of 10
E/685/2011
9. We also find that the Larger Bench of the Tribunal in the case of Cadila Pharmaceuticals Ltd. (supra) has held as under:-
22. Medicaments came to be notified as specified goods under Section 4A of the Act in January, 2005. Thus, when sold in packages or bottles, the MRP is to be treated as the value of medicines for purpose of Central Excise duty.
The point for consideration is what shall be the assessable value of physician's samples which are not sold in market and are supplied free of cost. Since the physician's samples are not sold and they do not have MRP mentioned on them, the assessable value has to be determined in accordance with the provisions of the Valuation Rules - as per the mandate of Section 4(1)(b) of the Act. There is no dispute between the parties on this score.
23. As mentioned above, Rules 4 to 11 of the Valuation Rules contain provisions as to the manner of determination of values. However, learned advocate for the appellant and learned SDR for the Revenue fairly agreed that none of the rules - from Rule 4 to Rule 10 (Rule 10A was inserted later in 2007) - covers the case of free supply of goods by manufacturers and, therefore, aid has to be taken of the residuary rule i.e.; Rule 11 of the Valuation Rules. Rule 11 lays down:
"If the value of any excisable goods cannot be determined by the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of section 4 of the Act."
On a plain reading, it would appear that where the value of any excisable goods cannot be determined under the preceding Rules i.e rules 4 to 11 which are the substantive rules laying down the manner or formula for determination of value, that is, if none of the substantive rule is per se applicable, the value is to be determined as per the principles and general provisions of the Rules as well as Section 4(1) of the Act. In other words, when no particular rule or rules can be strictly applied per se, the value shall be determined using reasonable parameters consistent with the express provisions of the Rules and sub-section (1) of Page 5 of 10 E/685/2011 Section 4 of the Act. However, the rule itself does not contain any formula and, therefore, cannot be applied independently de hors the provisions of Rules 4 to 10 and Section 4(1) of the Act.
23. Both sides, again, very fairly agreed that the provisions of Rules 5, 6, 7, 9 & 10 are not applicable and, therefore, the answer has to be found in either Rule 4 or Rule 8. According to the parties, Rules 4 and 8 are the competing rules applicability whereof is to be decided. These Rules have been referred to by Member (Judicial) in her opinion; however, for the sake of convenience, they may be quoted again a under:
"Rule 4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the 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.
Rule 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be (one hundred and ten per cent) of the cost of production or manufacture of such goods."
24. The same question as to whether the assessable value of the physician's samples is to be determined as per the provisions of Rule 4 or Rule 8 came up for consideration in the Bombay High Court in the case of Indian Drugs Manufacturer's Association v. Union of India - 2008 (222) E.L.T. 22 (Bom.). After elaborate discussion, the High Court came to the conclusion that rule 4 squarely applies to clearances of physician's free samples and they cannot be valued under Rule 8. Before we notice the relevant observations, it may be mentioned that the decision was rendered in the context of challenge to the validity of a circular of the Central Board of Excise & Customs, being Circular No. 813, dated 25-4-2005, clarifying Page 6 of 10 E/685/2011 that the valuation of physician's free samples should be determined under Rule 4 instead of Rule 8 of the 2000 Rules. Earlier, by Circular No. 643, dated 1-7-2002 the Board had held that the valuation be done under rule 11 read with rule 8 of the Rules.
25. The Bombay High Court noticed that prior to 1-7-2000 the concept of valuation of excisable goods was based on the deemed value. The deemed value as per Section 4(1)(a) of the Act, as it stood prior to 1-7-2000, was the normal price at which such goods were ordinarily sold for delivery at the time and place of removal to a buyer who was not a related person and price was the sole consideration. Where, however, the normal price could not be ascertained for the reason that such goods were not similar or for any other reason, the value was to be determined in the manner prescribed
- as laid down in Section 4(1)(b). For determining the value of excisable goods under Section 4(1)(b), the Central Government had framed Central Excise (Valuation) Rules, 1975. (I shall refer to the relevant rules a little later.) The concept of valuation underwent a drastic change with the amendment of clause (a) of Section 4(1) with effect from 1-7-2000. The concept of deemed value was done away with and substituted by the concept of the transaction value as the basis of valuation. With the introduction of the concept of valuation based on transaction value, the Central Government framed new rules in 2000, namely, Central Excise Valuation (Determination of Price of the Excisable Goods) Rules, 2000 with which we are concerned in this case.
26. .... ...
27. .... ...
28. ... ...
29. In order to attract Rule 4 there need not be another sale. The rule has been quoted above but in order to bring home the point, the relevant part of it may be quoted again as under:
"The value of the excisable goods" (read physician's sample) "shall be based on the Page 7 of 10 E/685/2011 value of such goods sold by the assessee.....".
It would thus appear that there need be another sale of the goods, that is, medicines in the present case. The expression 'such goods' must necessarily be understood as referring to the goods which are subject matter of assessment, that is to say, physician's sample in the instant case. It cannot be contended that physician's samples are different from the goods (medicines) sold notwithstanding that they may be sold in lesser quantities or in a different pack having different label, colour, etc. As held by the Bombay High Court, physician's samples are physically, chemically and functionally the same goods (medicines) which are sold in the market. I am in complete respectful agreement with their Lordships of the Bombay High Court that Rule 4 is the general rule and unless found to be inapplicable, would govern valuation of physician's samples. It is to be kept in mind that even if certain ingredients of Rule 4 are found lacking, it would make no difference, for, by virtue of Rule 11 of the Valuation Rules, it is the principle underlying the rule which needs to be applied consistent with other statutory provisions. The situation contemplated in Rule 8 on the other hand is completely different and alien. Rule 8 applies to cases where goods are cleared for use and consumption in the production or manufacture of other articles i.e. for captive consumption. Physician's samples are not supplied for being captively used for production or manufacture of any article; they are final products like any 'medicine' sold in regular packs, and, therefore, the method of valuation provided in Rule 8 cannot be applied for valuation of physician's samples.
30. The fact that medicines/medicaments are specified goods within the meaning of Section 4A of the Act since January, 2005, does not appear to have been brought to the notice of the Bombay High Court but this would hardly make any difference, for, the MRP is to be treated as value of the goods i.e. deemed value in place of the transaction value under Section 4(1)(a) and it does not take the goods out of the pale of Rule 4. Besides, it is to be kept in mind that the Bombay High Court was seized of a legal issue in the context of challenge to the validity of a circular issued on 25-4-2005, that is, in the Page 8 of 10 E/685/2011 aftermath of the notification under Section 4A(1).
31. In view of the above discussions, I am of the opinion that notwithstanding the non- availability of the normal sale price under Section 4(1)(a) of the Act, by reason of the goods being specified under Section 4A(1) making the retail sale price i.e. MRP as its deemed value, the appropriate rule governing the valuation of physician's samples would continue to be Rule 4 and the decision of the Larger Bench in Blue Cross Laboratories Ltd.'s case (supra) mutatis mutandis continues to be good law. The reference is accordingly answered in the affirmative in favour of the Revenue and against the appellant/assessee.
10. Consequently, following the aforesaid judgments, we find that the physician samples cleared to their principal manufacturer are assessable under Rule 4 read with Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Also, the physician samples manufactured and cleared on job work basis for free distribution also be assessed on the value of retail sale price of similar goods and not under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, since the same were not cleared for captive consumption as observed by the Tribunal in the case of Goa Antibiotics & Pharmaceuticals (supra). Consequently, the demand of differential duty with interest confirmed in the impugned orders does not warrant interference. However, since the issue relates to interpretation of valuation rules, we do not find merit in imposing penalty on the appellant under Rule 25 of the Central Excise Rules, 2002. In the result, the impugned orders are modified to the extent of setting aside the penalty, while upholding the demand of differential duty with interest in all the appeals. Appeals are disposed of as above.
7. Following the aforesaid order of this Tribunal, we are of the view that the demand for the normal period of limitation has to be recalculated in the light of the principle of law referred to in the said judgment. However, since the issue relates to determination of assessable value which rests on interpretation of law and the appellant had disclosed the assessable value at Page 9 of 10 E/685/2011 the time of clearance of goods from the factory and reflected in the ER1 returns periodically; therefore invocation of extended period of limitation is unwarranted and also imposition of penalty on the appellant is unjustified.
8. In the result, the impugned order is modified by setting aside the demand for extended period and penalty. For the normal period, duty with interest is to be redetermined. Consequently, the matter is remanded to the adjudicating authority for redetermination of the duty and interest for the normal period following the principles of law laid down, after observing principles of natural justice. Appeal is disposed accordingly.
(Operative part of this Order was pronounced in Open Court on conclusion of the hearing.) (D.M. MISRA) MEMBER (JUDICIAL) (R BHAGYA DEVI) MEMBER (TECHNICAL) Raja....
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