Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise vs Cosme Remedies Ltd on 25 February, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT No.II APPEAL No.E/1479 & 1514/07 (Arising out of Order-in-Appeal No.GOA/CEX/MP/96/2007 dated 28/08/2007 passed by Commissioner of Central Excise & Customs (Appeals), Goa) For approval and signature: Honble Mr.S.S.Garg, Member (Judicial) Honble Mr. Raju, 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 :Yes 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? ========================================
Commissioner of Central Excise, Goa Appellant Vs. Cosme Remedies Ltd., Respondent Cosme Remedies Ltd., Appellant Vs. Commissioner of Central Excise, Respondent Goa Appearance:
Shri.NN Prabhudesai, Supdt. (AR) for appellant Shri.MP Baxi, Advocate for respondent CORAM:
Honble Mr. S.S.Garg, Member (Judicial) Honble Mr. Raju, Member (Technical) Date of Hearing : 25/02/2016 Date of Decision : /03/2016 ORDER NO Per: Raju
1. The Cosme Remedies Ltd. (CRL) are manufacturers of medicaments. The CRL manufactures the medicaments along with the physicians samples which are not meant for sale. The CRL are not only manufacturing the products for themselves but also doing job work for others. CRL were assessing the value of the physician samples @ 110% of the cost of production and paying duty accordingly, during the period December 2005 to September 2006. The revenue relying on the CBE&C Circular No.813/10-2005-CX dated 25/04/2005 alleged that the value of the samples intended to be distributed free as marketing strategy or as a gift or donation, should be determined in terms of Rule 4 of Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000. Accordingly, a demand of Rs.4,21,311/- was raised. The demand was confirmed by the original adjudicating authority. CRL challenged the said order before the Commissioner (Appeals). The Commissioner (Appeals) determined the value for the purpose of assessment differently for the physician samples manufactured by the CRL on their own behalf and those manufactured by the CRL as a job worker. The Commissioner (Appeals) observed as follows:
I see that there are two categories of clearances of physician samples which are manufactured on job work basis on behalf of M/s.Cosme Pharma Ltd., Bicholim and M/s.Cosme Farma Laboratories Ltd., Ponda and 2nd is the physician samples manufactured by M/s.Cosme Remedies Ltd. on their own account and is being sold to M/s.Cosme Farma Laboratories. The question is how are these 2 kinds of physician samples to be assessed to duty. I have gone to the show cause notice and its reliance on Boards Circular No.813/10/2005-CX dated 25/04/2005 wherein it is clarified that in respect of samples distributed free as marketing strategy as a gift, donation, the value should be determined under Rule 4 of Central Excise Valuation Rules. Now as far as the goods being sold to Cosme Farma Laboratories Ltd., they cannot be treated as goods being distributed free. Yes, M/s.Cosme Farma Laboratories Ltd. may distribute these samples free, but a sale transaction exists between M/s.Cosme Remidies Ltd. and M/s.Cosme Farma Laboratories Ltd. and in such a context the price under Section 4 being clearly available and applicable, there is no need to come to the Valuation Rules. And in so far as these goods are concerned, I see that in the light of the fact that a sale does exist, the demand to this extent merits dropping.
2. For the second category of goods, the Commissioner (Appeals) relied on the order of Bombay High Court in Writ Petition No.246/06, she particularly relied on the following observations of the Honble High Court of Bombay:
Assuming that the petitioner are right in contending that the valuation of the physicians samples cannot be determined under any of the specific rules, even then, as per Rule 11 the value of physician samples has to be determined by using reasonable means consistent with the principles and the general provisions of 2000 Rules and Section 4 (1) of the Act. As stated earlier, Rule 4 is the only general rule and therefore, it is just and proper to hold that the valuation of physician samples be determined under Rule 11 read with Rule 4 and such a valuation would be reasonable and consistent with the principles and the general provisions of the Rules and the Act. The contention that the physician samples must be valued under Rule 11 read with Rule 8 cannot be accepted because Rule 8 applies to cases where the goods are not sold but are captively consumed whereas, goods similar to physician samples are in fact sold in the open market and in fact physicians samples are not cleared for captive consumption. Hence, the valuation of physician samples cannot be determined under Rule 11 with Rule 8 of the 2000 Rules.
Thereafter, she observed as follows:
In the light of this, though these physician samples are being cleared on job work basis to M/s.Cosme Farma Laboratories Ltd. and to M/s.Cosme Pharma Limited, the Valuation under Rule 4 is apt.
The assessee has also contended that the job work value determination under Circular No.619/10/02-CX based on the decision of Ujagar Prints Ltd. (1989 (039) ELT 0493 (SC) and Pawan Biscuits Co. Ltd., Ltd. (2000 (120) ELT 0024 (SC) has not been followed. To this, I see that the Board Circular No.813/10/2005-CX dated 25/04/2005 is more apt in the present circumstances being the situation specifically of physician samples and by the same context the specific decision of the Bombay High Court is what is to be followed. She also reduced the penalty from Rs.4,21,311/- to Rs.5,000/- only. Aggrieved by this order, both the M/s.Cosme Remedies Ltd., and the revenue are in appeal.
3. Learned Counsel for M/s.Cosme Remedies Ltd. argued that the matter stands settled by the decision of the Honble Supreme Court in the case of Sun Pharmaceuticals Industries Ltd. 2015 (326) ELT 3 (SC). The Honble Supreme Court in the said decision had observed as follows:
10.?As mentioned above, the assessee had put up the defence that since physician samples were not meant for sale by distributors but were to be given free of cost to the physicians, the assessee had charged lesser price. This statement of the assessee had not been doubted. The only reason in the show cause notice given was that since the physician samples were given free of cost by the distributors and no price was charged, the case was not covered by the provisions of Section 4(1)(a) of the Act. This is clearly fallacious and wrong reason. The transaction in question was between the assessee and the distributors. Between them, admittedly, price was charged by the assessee from the distributors. What ultimately distributors did with these goods is extraneous and could not be the relevant consideration to determine the valuation of excisable goods. When we find that price was charged by the assessee from the distributors, the show cause notice is clearly founded on a wrong reason. The case would squarely be covered under the provisions of Section 4(1)(a) of the Act. In view thereof, the Central Excise Rules would not apply in the instant case.
11.?As a result, we are of the opinion that the decision dated 10-11-2006 rendered by the CESTAT depicts the correct position of law and rightly holds that the case would be covered by the provisions of Section 4(1)(a) of the Act and in view thereof Rule 6(b)(ii) of the Rules would not apply. Resultantly, Civil Appeal Nos. 3742-3744 of 2007 of the Revenue fail and are hereby dismissed.
C.A. No. 6984/2009; C.A. No. 9876-9878/2011; C.A. No. 1990-1992/2012; C.A. No. 3338/2012; C.A. No. 268-269/2015; C.A. No. 6571-6575/2015; C.A. No. 3387-3389/2005; C.A. No. 2431-2432/2008 The learned Counsel also asserted that vide the said decision, the Honble Supreme Court had also disposed of appeals filed against the following decision of the Tribunal:
a) Omni Protech Drugs Pvt. Ltd. CA No.3338/2012
b) Softsule Pvt. Ltd. CA No.1990-1992/2012
c) Mayer Health Care Pvt. Ltd. CA No.6984/2009
d) Themis Laboratories Pvt. Ltd. CA No.9876/2011 He argued that all the appeals of the revenue against the aforesaid order of the Tribunal have been dismissed and consequently the aforesaid orders of the Tribunal have been upheld by the Honble Supreme Court.
4. The learned AR relies on the order and the decision of this Tribunal in the case Goa Antibiotics & Pharmaceuticals Ltd. 2014 (314) ELT 546 (Tri-Mum). He also relies on the decision of the Honble Supreme Court in the case of Medley Pharmaceuticals Ltd. 2011 (263) ELT 641 (SC). He also relies on the decision in the case of Glenmark Pharmaceuticals Ltd. 2015-TIOL-2548-CESTAT-MUM. He also relies on the decision of the Tribunal in the case of Cadila Pharmaceuticals Ltd. 2008 (232) ELT 0245 (Tri-LB).
5. We have considered the rival submissions.
6. We find that there are various situations which arises while manufacturing physician samples. The manufacturer may be a manufacturing
i) on job work basis for some principal manufacturer, both the trade packs and physician samples, and supplying both to the principal manufacturer, who in turn distributes physician samples free of cost, or sells to distributers for distribution free of cost.
ii) on his own behalf, both the trade packs as well as the physician samples and
a) distributing physician samples to distributors free of cost or
b) selling physician samples to distributors for further distribution free of cost.
6.1 It is seen that the various cases cited by rival counsels fall in these different categories. In the instant case there are two situations
a) CRL manufacturing the physician samples on job work basis for Cosmae Pharma Lts and Cosmae Farma Laboratories, who in turn distribute the physician samples or sells for distribution free of cost.
b) CRL manufacturing for itself and selling the same to Cosmae Farma Laboratories.
The CRL was paying duty on these samples on the basis of the 110% of the cost of production. The demand notice seeks to demand duty at the value to be determined under rule 4 of the CER Valuation rules.
6.2 The decision of the Honble High Court of Bombay in the case of Indian Drugs Manufacturers Association 2008 (222) ELT 0022 (Bom) and the Larger Bench decision of this Tribunal in the case of Cadila Pharmaceuticals Ltd. 2008 (232) ELT 0245 (Tri-LB), were given under the circumstances where the physician samples were distributed free of cost by the manufacturers themselves. Thus these decisions are not applicable to facts in the instant case where the physician samples are not being distributed by manufacturer free of costs.
6.3 The decisions cited by the AR are examined as follows. The decision of Honble Supreme Court in the case of Medley Pharmaceuticals Ltd. 2011 (263) ELT 641 (SC) is solely based on the earlier decision of the Honble Supreme Court in case of M/s. Bal Pharma [2010 (259) E.L.T. 10 (S.C.)]. In the case of Bal Pharma the Honble court has reached the verdict on the following grounds
4.?It is evident from the impugned order passed by the Customs, Excise and Service Tax Appellate Tribunal, Mumbai (for short, the Tribunal) in Appeal No. E/357/02 that while holding that samples have to be valued on pro rata basis, the Tribunal has relied on its earlier decision in the case of Sun Pharmaceuticals Industries & Ors. v. CCE, Surat, reported as 2005 (123) E.C.R. 390 (Tri.-Mum.) = 2005 (183) E.L.T. 42 (Tri. - Mumbai). Admittedly, the said decision of the Tribunal has not been challenged by the Revenue and as such, has attained finality. In that view of the matter, we decline to entertain the appeal. The same is dismissed accordingly.
In the said case no Ratio has been laid out.
6.4 In the decision in the case of Glenmark Pharmaceuticals Ltd. 2015-TIOL-2548-CESTAT-MUM the issue of valuation was not contested.
6.5 The case of GOA ANTIBIOTICS & PHARMACEUTICALS LTD 2014 (314) E.L.T. 546 is distinquishable. In the said case the Tribunal has observed
4.?We have considered the submissions of both sides. As per various case laws cited by the ld. Advocate for the appellant this Tribunal has been consistently taking the view that in respect of physicians sample being manufactured by job worker and sold to the principal manufacturer, valuation is to be done as per Ujagar Prints judgment of Apex Court. However, we find in this case appellants themselves are not assessing duty as envisaged in Ujagar Prints case, which requires specifying cost of all the raw materials, packing material supplied by the principal manufacturer, job charges and profit element. In fact, principal manufacturer on his own dictating the assessable value to be declared. This has come out clearly in the statement mentioned by the ld. AR Ld. Advocate for the appellant has not rebutted the same. Even ld. Advocate is claiming that they are declaring value as per CAS-4. CAS-4 valuation scheme is applicable for goods meant for captive consumption, which is not the case here. Thus the transaction between appellant and principal manufacturer cannot be considered as on principal to principal basis. Under the peculiar circumstances, the only way left is to assess the value based upon M.R.P. of similar goods after giving abatement as prescribed and on proportionate basis. This is what has been ordered by Commissioner (Appeals).
The said decision also tribunal observes that in respect of physicians sample being manufactured by job worker and sold to the principal manufacturer, valuation is to be done as per Ujagar Prints judgment of Apex Court. It is only due to peculiar circumstances of this case that a different view has been taken.
6.6 The impugned order drops the demand on the category (a) listed in para 6.1 above. Revenue has filed appeal on the ground that since the trade packs are assessed under Section 4A of the CEA, 1944, the samples should also be assessed under rule 4 of the of the Central Excise Valuation rules. It may be noted that the physician samples are not being distributed free of cost by CRL. They are being manufactured on the Job work basis for the principal manufacturer and they are being sent back to the principal manufacturer. In the case of Omni Protech Drugs Pvt. Ltd. 2011 (274) ELT 377 (Tri-Mum), the appellant was a job worker and was clearing the physician samples to the brand owner on payment of duty on the assessable value arrived at as per formula laid down by the Honble Apex Court in the case of Ujagar Prints 1989 (39) ELT 493 (SC) on the transaction value of the physician samples cleared by them. In the said case, the Tribunal observed as under:
6.?The issue in this matter before us is that whether the physician samples cleared by the appellants to the brand owner on payment of duty on the transaction value arrived at as per the formula laid down by the Honble Apex Court in the case of Ujagar Prints (supra) i.e. cost of raw materials + conversion charges or the physician samples manufactured on job work basis are to be cleared as per Section 4A of the Act i.e. less abatement on pro rata basis. The case law cited by the learned SDR are not relevant to the facts of the case as in those cases the manufacturers themselves manufacturing the physician samples and distributing the same to Physicians/Doctors free of cost, therefore no transaction value was available. It is an admitted fact that P&P medicaments are to be cleared on MRP basis value therefore on those cases it was held as valuation of physician samples is to be on the basis of MRP basis under Section 4A of Act.
7.?In this case, it is clear that the appellant is not clearing these physician samples to the Physician/Doctor free of cost but the appellant is clearing these physician samples on transaction value arrived at after including cost of raw materials + job charges as held by the Honble Apex Court in the case of Ujagar Prints to the brand owner on principal to principal basis. Therefore, the case laws cited by the learned SDR are not applicable to the facts of this case. The ratio laid down by the Themis Laboratories Pvt. Ltd. (supra) is that if the manufacturer clearing the physician samples to the brand owner on transaction value, the transaction value is the assessable value. Therefore, following the ratio laid down in the Tribunals decision in the case of Themis Laboratories Pvt. Ltd. (supra) we hold that the appellant has correctly valued their product i.e. cost of raw material inputs + job charges. In view of the above observations, we set aside the impugned order and allowed the appeal without going into the issue of limitation.
In view of above it is not open to the revenue to demand duty on the value arrived at in terms of rule 4 of the Central Excise Valuation rules. The appeal of the revenue is dismissed.
6.7 The impugned order confirms the demand under the category (b) specified in para 6.1 above. The facts of the case are that CRL is manufacturing Physician Samples for itself and selling the same to Cosme Farma Laboratories. The goods are not being distributed free of cost. The decision of the Honble Supreme Court in the case of Sun Pharmaceuticals Industries Ltd. (supra) relates to a similar situation where the appellants were manufacturing the trade packs as well as the physician samples for themselves. In that case the appellants were engaged in selling the physician samples to the distributors who were further distributing the same with free of cost. In these circumstances, the Honble Supreme Court held that since there is a transaction value available at which the goods are sold by the assessee to the distributors, and the same has not been challenged, the same should be assessable value under Section 4 (1) (a) of the Central Excise Act. It has observed Further there was no allegation in the show cause notice that the price at which the goods were sold by the assessee to the distributors was not sole consideration. In fact, the genuineness of the price at which the physician samples were sold by the assessee to the distributors was not even doubted. It is only on the ground that the goods were not actually sold by the distributors to the physicians, which was the ground on which it was contended that the case was not covered under Section 4(1)(a).
Thus the decision of the Hon Supreme court squarely covers the situation in the instant case. Respectfully following the Honble Supreme Court decision, the appeal of CRL is allowed.
(Pronounced in Court on ..) (S.S.Garg) Member (Judicial) (Raju) Member (Technical) pj 1 2 Appeal No.E/1479 & 1514/07