Custom, Excise & Service Tax Tribunal
Group Pharmaceuticals Ltd vs The Principal Commissioner Of Central ... on 25 July, 2025
E/26432/2013
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Central Excise Appeal No. 26432 of 2013
(Arising out of Order-in-Appeal No. 46/2013-CE dated 13.02.2013
passed by the Commissioner of Central Excise (Appeals-I),
Bangalore.)
M/s. Group Pharmaceuticals
Ltd.,
Plot No. 41, Nesigere Village, Appellant(s)
Kasaba Hobli, KIADB Industrial Area,
Malur, Kolar District,
Bangalore - 563 130.
VERSUS
The Commissioner of Central
Excise Bangalore I
Commissionerate
Central Revenue Building, Respondent(s)
P.B. No. 5400, Queens Road, Bangalore - 560 001.
APPEARANCE:
Mr. Rajesh Chandra Kumar Rohra, Senior Advocate with Ms. Deepa Rani, Advocate for the Appellant Mr. M. Sreekanth, Superintendent (AR) for the Respondent CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MR PULLELA NAGESWARA RAO, MEMBER (TECHNICAL) Final Order No. 21276 /2025 DATE OF HEARING: 25.07.2025 DATE OF DECISION: 25.07.2025 Page 1 of 6 E/26432/2013 DR. D.M. MISRA This is an appeal filed against Order-in-Appeal No. 46/2013-C.E dated 13.02.2013 passed by the Commissioner of Central Excise (Appeals-I), Bangalore.
2. Briefly stated the facts of the case are that the appellant are engaged in the manufacture and marketing of pharmaceutical products falling under Chapter sub heading 3003 or 3004 of the Central Excise Tariff Act, 1985. The appellant was clearing their products meant for free distribution as 'Physician Samples' computing the assessable value adopting Cost Construction Method in accordance with Rule 8 of the Central Excise Valuation Rules, 2002. After issuance of Circular No. 813/10/2005-CX dated 25.04.2005 by CBEC stating that the pharmaceutical products are brought under MRP based assessment, the value of free samples be determined in accordance with Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000; the appellant was directed to discharge duty on free physician samples adopting Rule 4 of the said Valuation Rules, 2000 w.e.f. 07.01.2005. As the appellant continued to discharge duty on free physician samples by following cost construction method, a show-cause notice was issued to them on 24.01.2008 demanding differential duty for clearances during the period from January 2005 to December 2006 along with interest and proposal for penalty. On adjudication the demand was confirmed with interest and equivalent penalty. Aggrieved by the said order, they filed appeal before the learned Commissioner (Appeals) who in turn rejected their appeal. Hence, the present appeal.
3. At the outset, the learned advocate for the appellant has submitted that the appellant had manufactured pharmaceutical products and cleared physician samples following two types of transactions; for third parties in respect of the brand owners Page 2 of 6 E/26432/2013 owned by such third parties a clearance was made on principal- to-principal basis or on loan licence basis as per the agreed transfer prices and secondly, for their own branded products on which they discharge duty on the value arrived on cost construction basis following Rule 8 of the Valuation Rules, 2000. He has submitted that the cost construction method has been adopted for free physician sample as per Board's Circular No. 643/34/2002-CX., dated 01.07.2002. The said circular was revised in 2005, wherein it was clarified that physician samples freely distributed being not sold, the value should be determined as per Rule 4 of the Central Excise Valuation Rules, 2000. He has submitted that immediately the appellant addressed a letter on 27.05.2005 opposing to the said circular stating that there was no legal basis for the change in view and hence the appellant would continue to value the goods on the cost construction basis and discharge duty accordingly. The appellant continued to determine the value of free physician samples cleared of its own brands on cost construction basis and discharged duty accordingly. Since, no response was received to their letter dated 27.05.2005, they addressed another letter on 27.11.2006, stating that if any differential duty arises the same may be quantified and intimated to them for further course of action. He has submitted that instead of responding to their letter, after recording statements of their employees, show-cause notice was issued on 24.01.2008 proposing to recover differential duty amounting to Rs.45,04,510/- for the period 08.01.2005 to 18.12.2006 invoking extended period of limitation. He has submitted that the Department has not only included their own clearances of physician samples meant for free distribution but also included the clearances made to third parties using their brands of physician samples meant for free distribution. He has submitted that as far as the clearance of physician sample to third party brand owners on transaction value, the principle of law is well settled by the judgment of the Hon'ble Supreme Court in the case of CCE, Surat vs. Sun Pharmaceuticals Industries Ltd., [2015 (326) ELT 3 (SC)] and CCE, Thane vs. Meghdoot Page 3 of 6 E/26432/2013 Chemicals Ltd. [2022 (380) ELT 531 (SC)]. Further, he has submitted that the appellant after coming across the Board's Circular revising the method of valuation of physician samples for free distribution in April 2005, immediately, informed to the Department that the appellant would be clearing the physician samples for free distribution adopting the Cost Construction Method only. However, later two reminders though sent to the Department no response was received and the show-cause notice was issued three years thereafter invoking extended period of limitation. He has submitted that since there was no suppression of fact nor misdeclaration, differential duty confirmed invoking of extended period of limitation, cannot be sustained. This Tribunal in the case of Elvina Pharmaceuticals Ltd., Vs. The Commissioner of Central Excise [Final Order No. 21164/2023 dated 31.10.2023], even though observed following the judgment of the Hon'ble Bombay High Court in the case of Indian Drugs Manufacturer's Assocn. Versus Union of India [2008 (222) E.L.T. 22 (Bom.)] that the physician sample distributed free, the assessable be determined under Rule 4 of the Central Excise Valuation Rules, held that invocation of extended period of limitation in confirming the differential duty demand cannot be sustained.
4. The Learned AR for the Revenue has reiterated the findings of the learned Commissioner (Appeals). He has submitted that the appellant all along had been pleading that physician sample for free distribution be assessed following cost construction method and not under Rule 4 of the Central Excise Valuation Rules, 2000. For the first time before this Tribunal during the hearing, the argument was advanced that the demand has been confirmed including the clearances made to third parties who in turn distributed the physician samples freely. Therefore, the said arguments should not be entertained at this stage being not supported by evidence. As far as the confirmation of demand invoking the extended period of limitation is concerned, he has submitted that in spite of the fact Page 4 of 6 E/26432/2013 that they were being intimated about the correct method of assessment based on Board's Circular, they continued to defy the direction and assessed the goods by following cost construction method. Therefore, the demand has been issued invoking extended period of limitation and confirmed by the authorities below.
5. Heard both sides and perused the records.
6. From the record, we find that the issue raised before the authorities below revolves around the determination of assessable value of physician samples of pharmaceutical products meant for free distribution. The appellant from the very beginning resisted to adopt Rule 4 of the Central Excise Valuation Rules, 2000 and continued to determine the assessable value adopting cost construction method as per Rule 8 read with Rule 11 of the Central Excise Valuation Rules, 2000 as per Board Circular No. 643/34/2002-CX., dated 01.07.2002. It is not in dispute that the appellant was discharging duty resorting to cost construction method and the present demand was issued to the appellant on 24.01.2008 demanding differential duty for the period from January 2005 to December 2006. Also, it is not in dispute that the appellant has paid the duty under various challans before adjudication which was appropriated in the order. This Tribunal in Elvina Pharmaceuticals Ltd., case (Supra) analysing the applicability of Rule 4 of physician samples meant for free distribution observed that Rule 4 of the Central Excise Valuation Rules, 2000 be applicable and also held that the demand be limited for normal period of limitation. Following the said precedent, in the present case also we are of the view that the physician samples meant for free distribution be subjected to assessment as per Rule 4 of the Central Excise Valuation Rules, 2000 and extended period of limitation cannot be invoked in demanding differential duty.
Page 5 of 6E/26432/2013
7. Consequently, the appeal is allowed on limitation.
(Operative part of this Order was pronounced in Open Court on conclusion of the hearing.) (D.M. MISRA) MEMBER (JUDICIAL) (PULLELA NAGESWARA RAO) MEMBER (TECHNICAL) GB Page 6 of 6