Custom, Excise & Service Tax Tribunal
L Oreal India Pvt. Ltd vs Pune I on 9 October, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: E/1227/2010
[Arising out of Order-in-Original No: 7/CEX/2010 dated 31/03/2010 passed by the Commissioner of Central Excise, Pune I.]
For approval and signature:
Honble Shri P.R. Chandrasekharan, Member (Technical)
Honble Shri Anil Choudhary, Member (Judicial)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 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
LOreal India Pvt. Ltd.
Appellant
Vs
Commissioner of Central Excise
Pune I
Respondent
Appearance:
Shri Gajendra Jain, Advocate for the appellant Shri K.M. Mondal, Special Consultant for the respondent CORAM:
Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) Date of decision: 09/10/2013 Date of decision: 04/12/2013 ORDER NO: ____________________________ Per: P.R. Chandrasekharan:
The appeal is directed against Order-in-Original No: 7/CEX/2010 dated 31/03/2010 passed by the Commissioner of Central Excise, Pune I.
2. M/s. LOreal India Pvt. Ltd. (LIPL for short) are manufacturers of cosmetics and toilet preparations such as hair dyes, shampoo, conditioners, etc. falling under Chapter 33 of the Central Excise Tariff. The cosmetic products are called catalogue products. For promoting the catalogue products, articles similar to the catalogue products are issued free-of-cost along with the catalogue products and the same are called promotional products. In most of the cases the promotional products is out of pack i.e., the catalogue products and the promotional products were not issued in the same pack i.e., for example, with a catalogue product of 400 ml. shampoo, the appellants offered promotional pack of 90 ml. of conditioner. The package of 400 ml. of shampoo would bear the MRP whereas the pack of 90 ml. of conditioner would not bear any MRP. The package of shampoo bears a declaration that Free: 90 ml. conditioner with this pack. The package of conditioner would bear a declaration such as Free Pack and Free: Not for Retail Sale.
2.1. The appellant was determining the assessable value of the promotional products under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 by taking into account its cost of production plus 10% notional profit. This method of valuation was followed in pursuance to the Boards Circular No. 643/34/2002-CX dated 01/07/2002. This circular was superceded vide Circular No. 813/10/2005-CX dated 25/04/2005 wherein it was clarified that in the case of free samples, the valuation should be determined under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. However, the appellant continued to determine the assessable value of the out-of-pack promotional products as per Boards Circular dated 01/07/2002.
2.2. Based on information that the appellant was undervaluing the promotional products, DGCE, Pune, conducted investigation in September, 2008 and statements of Shri P.L. Mishra, Legal Head, and Shri Shailendra A Goel, Ex-Accounts Manager of the appellants firm were recorded. Shri Mishra in his statement dated 10/02/2009 submitted that the catalogue products sold and the promotional products issued free-of-cost may differ in quantitative size and the promotional products are given free-of-cost as a marketing strategy to promote the catalogue products and they have been determining the value of the promotional products supplied free-of-cost under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. When a copy of the Circular dated 25/04/2005, which was recovered during the search of the premises of the appellant with the noting of Shri Shailendra A Goel, was shown to him, Shri Mishra stated that they continued to determine the assessable value of promotional products under Rule 8 since R.K. Jains Central Excise Manual, 40th edition mentioned that valuation of sample has to be under Rule 8 of the Central Excise Valuation Rules, 2000. In a statement dated 16/10/2008 Shri Shailendra A. Goel admitted receipt of Boards Circular dated 25/04/2005 and at the time of his leaving the company in March, 2006 he had informed his successor of all pending excise matters which needed attention.
2.3. After completion of investigation three show cause notices were issued demanding differential duty as given below:
S. No. Date of SCN Period Duty Demanded (`)
1.
06/04/2009 25/04/2005 to 31/01/2008 3,30,10,817/-
2. 03/03/2009 01/02/2008 to 31/01/2009 1,87,23,593/-
3. 03/07/2009 01/02/2009 to 31/03/2009 22,04,195/-
2.4. The notice also proposed to recover interest on the aforesaid duty demanded and also imposition of penalty under Section 11AC read with Rule 25 of the Central Excise Rules, 2002. Shri P.L. Mishra, Legal Head of the appellant-firm was called upon to show cause as to why penalty should not be imposed upon him under Rule 26 of the Central Excise Rules.
2.5. These notices were adjudicated and a duty demand of ` 5,39,38,605/- was confirmed along with interest thereon. An amount of ` 3 cores already paid by the appellant during investigation was appropriated towards the above demand. In addition, a penalty of ` 5,17,34,410/- was imposed on the appellant-firm under Section 11AC of the Central Excise Act, 1944 apart from penalty of ` 10 lakhs under Rule 25 of the Central Excise Rules, 2002. Goods valued at ` 19,31,521/- seized during the investigation was allowed to be redeemed on payment of a fine of ` 5 lakhs under Section 34 of the Central Excise Act. Aggrieved of the same, the appellant is before us.
3. The learned counsel for the appellant made the following submissions. The promotional pack and the trade pack constitute a combination package by virtue of cross-declaration on both of them. Merely because they are not tied/bundled together they do not cease to be a combination package. It is his contention that the appellant cleared combination pack consisting of trade pack and a promotional pack and the declaration made on the trade and promotional packs are contractual obligations and they are binding between the parties i.e., the appellant, its dealers and the retailers, in law. The promotional pack cannot be sold separately. It is his contention that the assessable unit for the purpose of valuation is the combination pack consisting of a trade pack and a promotional pack and the assessable units are not trade pack and promotional packs separately. The appellant has discharged duty on the MRP affixed on the trade pack, which is the MRP of the combination pack and, therefore, discharge of duty on the MRP of the trade pack would constitute discharge of duty on the combination pack. It is his further contention that the appellant has made excess payment of duty when excise duty is being discharged on the promotional pack under Rule 8 of the Central Excise Valuation Rules, 2000 and, therefore, the demand of differential duty on the promotional pack is incorrect.
3.1. Reliance is placed on the decision of this Tribunal in the case of Millennium Appliances India Ltd. vs. Commissioner of Central Excise 2009 (248) ELT 713 wherein this Tribunal held that, in respect of combination packages where the assessee packs goods under combination schemes as individual packages and declared a combined MRP on the major product which would suffice if duty liability is discharged on the MRP affixed on the combination pack. In the said decision, the Tribunal also relied on its earlier decision in the case of Icon Household Products vs. CCE 2007 (216) ELT 579. The learned counsel further argues that both the trade pack and the promotional pack are cosmetics notified under Section 4A of the Central Excise Act, and no separate amount is charged from the retail customer for the promotional packs for sale and therefore, the measure of excise duty should be the MRP on the combination pack. It is his submission that the reliance placed by the Revenue on the honble Bombay High Courts decision in the case of Indian Drug Manufacturers Association vs. Union of India 2008 (222) ELT 22 (Bom.) has no relevance to the facts of the present case as in the said case Section 4A was never under consideration when Rule 4 was sought to be applied. It is further argued that this Tribunal in the case of Commissioner of Central Excise vs. Anglo French Drugs 2008 (231) ELT 636 has held that the decision of the honble Bombay High Court and CBEC Circular dated 25/04/2005 has no relevance when the case is covered by Section 4A of Central Excise Act. Reliance is also placed on the decision of this Tribunal in the case of Geoffrey Manners vs. Commissioner of Central Excise 2006 (204) ELT 403. It is also argued that the decision of the Larger Bench of the Tribunal in the case of Cadila Pharmaceuticals Ltd. vs. Commissioner of Central Excise Ahmedabad II 2008 (232) ELT 245 would also not apply as it dealt with physician samples offered free.
3.2. The learned counsel further argues that application of Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 in the present case is incorrect since Rule 4 prescribes adoption of value of such goods sold for valuing the promotional packs. The expression such goods has a particular connotation and would apply only in respect of the goods of the same kind and quality. Since the size of the promotion packs is different from its regular trade pack, they cannot be considered as such goods and reliance is placed on the decisions in the case of Vinayak Mosquito Coil Manufacturing Co. vs. Commissioner of Central Excise 2004 (174) ELT 107; Savita Chemicals Ltd. vs. Commissioner of Central Excise 2000 (119) ELT 394; Tata Libert Ltd. vs. Commissioner of Central Excise 2003 (159) ELT 326; Rashtriya Ispat Nigam Ltd. vs. Commissioner of Central Excise 2005 (179) ELT 65; Procter & Gamble India Ltd. vs. Commissioner of Central Excise 2006 (206) ELT 913 and ICI India Ltd. vs. Commissioner of Central Excise 2003 (151) ELT 629. The learned counsel further submits that the decision of the larger Bench of this Tribunal in Cadilas case should be considered as per incuriam.
3.3. It is his further contention that if the value of promotional pack cannot be determined directly under Section 4A then its value cannot be determined indirectly under the Section by resorting to statutory interpretation. It is his contention that whenever a thing is prohibited, it is prohibited whether it is done directly or indirectly and reliance is placed on the decision of the honble apex Court in the case of CCE vs. Acer India Ltd. 2004 (172) ELT 289 (SC). It is his argument that the concept of value under Section 4 is linked with transaction value whereas the value under Section 4A is a deeming fiction where adoption of MRP has been provided for. Therefore, the value under Rule 4 cannot be determined on the basis of the value declared under Section 4A.
3.4. The learned counsel further submits that the entire demand is beyond the normal period of limitation. During the material period, the decision in the case of Anglo French Drugs and Geoffrey Manners (cited supra) were ruling the field and these were in favour of the appellant. The view taken in these decisions were departed only on 26/09/2008 when the Larger Bench of this Tribunal in the case of Cadila Pharmaceuticals held that the physician samples offered free-of-cost can be valued on the basis of Section 4A value of the trade pack by applying Rule 4. Under such circumstances and settled legal positions, it is not correct to allege that the view entertained by the appellant is not a possible view and, therefore, demand of duty invoking the larger period of limitation is not maintainable. Reliance is placed on the decision of the honble apex Court in the case of Larsen & Toubro 2007 (211) ELT 513 (SC). It is further contended that the allegation of the Revenue that the appellant did not disclose relevant facts in their statutory ER-1 returns is not sustainable as they have disclosed the clearance of promotional packs in the monthly ER-1 returns and in these returns, no separate columns have been provided for value under Section 4 or under 4A Therefore, the defect in the format of the return cannot mean that there is suppression of value by the appellant.
3.5. It is his further argument that the appellant have introduced combination package w.e.f. 01/04/2009 and they have been discharging excise duty on the MRP declared on the combination package and the Revenue is not disputing the same and, therefore, the appellant cannot be alleged to have suppressed information from the Revenue with an intent to evade payment of duty.
3.6. Lastly, it is submitted that the entire issue revolves on interpretation of law and when such interpretation is involved, demand of duty made beyond the normal period of limitation is not sustainable.
3.7. As regards the imposition of redemption fine it is submitted that, since the goods are not available for confiscation, imposition of redemption fine is unsustainable. As regards the penalty imposed under Section 11AC and Rule 25, it is his contention that when the duty demand itself is not sustainable penalty cannot be imposed. In view of the above, it is prayed that the appeal be allowed by setting aside the impugned order.
4. The learned Special Consultant for the Revenue strongly refutes the arguments advanced by the learned counsel for the appellant. It is his submission that the promotional products supplied free-of-cost to the customers along with the catalogue products of the appellant are subject to Central Excise levy and the appellants has been paying Central Excise duty since 2002 in accordance with Boards Circular No. 643/34/2002 dated 01/07/2002. The said circular provided that in case of valuation of samples which are distributed free-of-cost as marketing strategy, regards will have to be given to Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and no specific rule covers such a contingency except Rule 8. All other rules cover contingencies where sale is involved. Therefore, the residuary Rule 11 will have to be adopted along with the spirit of Rule 8. In other words, the assessable value would be 115% of the cost of production of the manufactured goods. The above circular was superceded vide Circular dated 25/04/2005 wherein the Board clarified that in the case of free samples, the value should be determined under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. It is further argued that the dispute in valuation of free samples under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 has been resolved by the decision of the honble Bombay High Court and two Larger Bench decisions of this Tribunal. In the case of Indian Drug Manufacturers Association vs. Union of India 2008 (222) ELT 22 (Bom.) the honble Bombay High Court has held that Rule 4 is the only general Rule and, therefore, it is just and proper to hold that the valuation of the 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 honble High Court further held that application of Rule 11 read with 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 physician samples are not cleared for captive consumption. The larger Bench of this Tribunal in the case of Blue Cross Laboratories Ltd. vs. Commissioner of Central Excise 2006 (202) ELT 182 held that if the value of excisable goods under assessment cannot be determined under sub-clause (i) of clause (b) of Rule 6, then only the costing method can be resorted to under sub-clause (ii) of sub-clause (b) of Rule 6, but not otherwise. Similarly, another Larger Bench decision of this Tribunal in the case of Cadila Pharmaceuticals Ltd. vs. Commissioner of Central Excise 2008 (232) ELT 245, relying on the decision of the honble Bombay High Court in the case of Indian Drug Manufacturers Association (supra) held that Rule 4 is the general rule and unless found to be inapplicable would govern the valuation of physician samples. It was further held that physician samples are not supplied for captive use for production or manufacture of any articles. They are final products like any medicines sold in regular packs and therefore, the method of valuation provided in Rule 8 cannot be applied for valuation of physician samples. In the same decision, a question arose, as to what is the value defined in Rule 2(c) of the said Valuation Rules which can be taken for the purpose of Section 4 of the Central Excise Act and the honble Tribunal held that the fact that medicines/medicaments are specified goods within the meaning of Section 4A of the Act would not make any difference for the MRP is to be treated as value of the goods i.e. deemed value in place of transaction value under Section 4 and this does not take the goods out of the pale of Rule 4. It is accordingly, contended that the value to be taken for determination of value of promotional packs under Rule 4 could be MRP of promotional products with suitable adjustments which has been done in the present case.
4.1. As regards the reliance placed by the learned counsel for the appellant in the case of Vinayak Mosquito Coil Manufacturing Co. vs. Commissioner of Central Excise 2004 (174) ELT 107; Savita Chemicals Ltd. vs. Commissioner of Central Excise 2000 (119) ELT 394; Tata Libert Ltd. vs. Commissioner of Central Excise 2003 (159) ELT 326; ICI India Ltd. vs. Commissioner of Central Excise 2003 (151) ELT 629 these decisions have no relevance to the facts of the present case and merely because these decisions were affirmed by the honble Supreme Court at the admission stage itself, it cannot be said to be an affirmation of the Tribunals decision and, therefore, the decision of this Tribunal in those cases will be of no consequence in view of the two Larger Bench decision and the honble Bombay High Court decisions cited supra.
4.2. As regards the contention of the limitation advanced by the counsel for the appellant, it is the Revenues contention that as per the Boards Circular No. 813/10/2005-CX dated 25/04/2005, the said circular provided for valuation of free samples to be determined in accordance with the provisions of Rue 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The validity of the said circular was subsequently upheld by the honble High Court in the case of Indian Drug Manufacturers Association on 28/09/2006. Even thereafter, the appellant continued to determine the value of the promotional products under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. It is a fact that the appellant was aware of the instructions issued on 25/04/2005 and a copy of the same was recovered from the appellants premises. Therefore, the contention of bona fide belief by the appellant cannot be accepted as a valid defence and it is only an afterthought to getaway from the clutches of law. The appellant also did not indicate separately in the ER1 returns that they had determined the value of the promotional products under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Thus, the intent to evade appropriate amount of excise duty is obvious and, therefore, the extended period of time has been correctly invoked in the show cause notice dated 06/04/2009. The other two show cause notices dated 03/03/20009 and 03/07/2009 are well within the normal period of limitation. Since it is a case of deliberate violation of the provisions of the Central Excise Act, 1944 read with Rules made thereunder, imposition of mandatory penalty under Section 11AC is warranted and penalty under Rule 25is also sustainable in law.
4.3. It is accordingly submitted that the appeal fails both on merits as well as on limitation and therefore, the same deserves to be dismissed.
5. We have carefully considered the submissions made by both the sides.
5.1. As regards the contention of the assessee, that the promotional pack and trade pack constitute a combination packages by virtue of cross-linking declaration on both packages. This contention does not appear to be correct. The expression combination package has been defined in Rule 2(c) of the Packaged Commodity Rules. 1977 as under:
Combination package means intended for retail sale, containing two or more individual packages, or individual pieces, of dissimilar commodities.
Illustration: A package containing dissimilar commodities such as spoons, knives, forks, cups, napkins, or the like, is a combination package. 5.2. Therefore, to constitute a combination package it should be a package containing dissimilar commodities. In the present case, it is an undisputed fact that the trade packs and the promotional packs are packed separately and they are not packed in a single package. They are also dispatched to the dealers and the retailers separately. Therefore, it is difficult to accept the contention of the appellant that they constitute a combination package. The very conduct of the appellant in not packing them together and discharging excise duty separately on both of them, i.e., under Section 4A of the Central Excise Act in respect of the trade pack and under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 in respect of promotional pack clearly shows that the appellant themselves did not treat them as a combination package. It is also on record that only w.e.f. April, 2009 the appellant introduced combination packages thereby saving excise duty on promotional packs. Earlier the regular trade packs were distributed separately making the promotional packs liable to Central Excise duty. In view of the above admitted position, as evident in the written submissions filed by the appellant before the adjudicating authority as also before us, the argument of the appellant that the trade packs and the promotional packs should be treated as a combination pack fails and is rejected accordingly.
5.3. The next question is whether the promotional pack is liable to excise duty and if so, under what provision of law value of the promotional pack has to be computed. The promotional pack is also a cosmetic product classifiable under Chapter 33 of the Central Excise Tariff and there is no dispute in this regard. Merely because the same is supplied free-of-cost, it does not obliterate the liability to pay excise duty of the promotional pack. It is a well settled position in law that excise duty is on manufacture and not on sale of the goods. Therefore, irrespective of the fact whether the goods are sold or otherwise disposed of, liability to excise duty is attracted, the moment the goods are manufactured. Therefore, notwithstanding the fact that the promotional packs are given free, they are liable to excise duty.
5.4. The next question is what should be the value on which excise duty liability has to be discharged on the promotional packs. Inasmuch as the goods are not sold but are given free, resort has to be made to Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 to determine the value of the promotional packs for the purpose of excise levy. As regards the rule applicable in respect of the goods sold, the decision of the honble Bombay High Court in Indian Drugs Manufacturers Associations case (supra) clearly lays down the legal position. The honble High Court in the said case held as follows:
29. It was contended that the revenue, based on several judicial decisions of the Tribunal, has been valuing the physicians free samples for nearly three decades by applying the method applicable to captively consumed goods and, therefore, even under 2000 Rules the physicians samples are liable to be valued by applying the rule applicable to captively consumed goods. There is no merit in this contention, because, firstly, 1975 Rules and 2000 Rules are not identical. Under Rule 6 (b) of 1975 Rules, two methods were provided for valuation of captively consumed goods, namely valuation based on the value of comparable goods [Rule 6(b) (i)] and valuation based on the cost of production [Rule 6 (b) (ii)] whereas Rule 8 of 2000 Rules provides for only one method of valuation based on the cost of production. Secondly, even under the 1975 Rules, the decisions of the Tribunal were to the effect that the physicians samples are liable be to valued by applying the value applicable to comparable goods and not the method based on the cost of production. Thirdly, as held by the Tribunal in the case of Medley Pharmaceuticals Ltd. (supra), Rule 4 and Rule 6(b) (i) of 1975 Rules being similar, the result would be same if Rule 4 is substituted by Rule 6 (b) (i). In other words, the fact that rule similar to Rule 6 (b)(i) of 1975 Rules is not to be seen in 2000 Rules would not preclude the revenue from valuing the physicians samples under Rule 4 especially when Rule 4 of the 2000 Rules is similar to Rule 4 of 1975 Rules. Therefore, valuation of physicians samples under Rule 4 of 2000 Rules would be reasonable and in consonance with the principles consistently followed in the last three decades.
30. Various decisions relied upon by the counsel for the petitioners do not support the case of the petitioners because in none of those cases the scope of Rule 4 of 2000 Rules has been considered. Decisions rendered under the 1975 Rules as stated above, in fact, do not support the case of the petitioners. The contention that Rule 8 is the only rule which deals with the instances where the goods are not sold and, therefore, Rule 11 with the spirit of Rule 8 have to be applied to the physicians samples cannot be accepted because Rule 8 applies to cases where the goods are not sold but are consumed captively in the manufacture of other articles. In the cases of physicians samples, the clearances are not for captive consumption and moreover, goods similar or identical to physicians samples are sold in the market. Therefore, the question of applying the spirit of Rule 8 does not arise at all.
31. The fact that the Board had issued a Circular No. 643 dated 1/7/2002 directing that the physicians samples be valued under Rule 8 does not mean that the revenue cannot withdraw that circular even if it is found to be erroneous and issue a circular which is in consonance with the Act and the Rules made thereunder.
32. The argument of the petitioners that the physicians samples are distinct from the goods sold in the market is without any merit. As noted earlier, the physicians free samples must be similar or identical to the goods that are sold in the wholesale trade. If the physicians samples are not similar or identical to the goods that are sold in the wholesale trade, then the consequences will be disastrous, because, the physicians prescribe medicines based on the free samples supplied by the assessee. The fact that the physicians samples may be distributed in a different pack or in a different bottle would not make the physicians samples different from the goods sold in the open market. The difference in the size or quantity may entitle the assessee to some adjustment in the value, however, that would not make the physicians samples to be distinct from the goods sold in the open market. In other words, irrespective of the fact that the physicians samples are distributed in a pack different from the pack that is sold in the market, the valuation of the physicians free samples have to be determined under Rule 4 by applying the valuation of such goods sold in the open market.
33. Assuming that the petitioners 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 physicians 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 physicians 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 physicians 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 physicians samples are in fact sold in the open market and in fact physicians samples are not cleared for captive consumption. Hence the valuation of physicians samples cannot be determined under Rule 11 read with Rule 8 of the 2000 Rules. From the above decision it is crystal clear that in respect of goods distributed free-of-cost, the value has to be determined in terms of Rule 4 read with Rule 11 and Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 has no application whatsoever.
5.5. A similar issue came up before the Larger Bench of this Tribunal in the case of Blue Cross Laboratories Ltd. (supra). This Tribunal held as follows:
10. Where the medicines put in the retail packs and free physician's samples are identical in the material characteristics as well in quantity, then there would be no scope for any doubt in working out the value of the excisable goods not sold, namely, free physician's samples on the basis of value of such medicines which are sold by the assessee, as provided by Rule 4. The only adjustment contemplated in that rule would be on account of the difference in the dates of delivery which can be made in cases where there is such difference in the delivery dates. However, when the physician's sample differs in quantity though identical in essential characteristics of the medicine, keeping in view Chapter Note 5 of Chapter 30, which includes labelling, repacking etc. in the manufacturing process, these nonetheless would be "comparable goods" within the meaning of Rule 6(b)(i) of the said rules and there would be no scope for adopting the costing method contemplated by Sub-clause (ii) of Sub-clause (b) of Rule 6 in respect of such physician's samples. The material characteristics of the goods are virtually identical because the identical medicine which is packed in the retail packs is packed in the physician's sample. Though manufacturing process gets an extended meaning by virtue of Chapter Note 5 of Chapter 30, it cannot be said that the medicine was not manufactured before it was packed. The material characteristics of the medicine whether in physician's sample or in retail pack do not at all change by virtue of the provisions of Note 5 of Chapter 30. Moreover, the medicine, having been already manufactured even before the packaging, could be consumed as such medicine even before its removal. Once taken out of the packages it was difficult to relate medicine from one package to the medicine from the other type of package, as was amusingly demonstrated in the court. The only adjustments in such cases would therefore be in the context of the proviso to Sub-clause (i) of Rule 6(b), as discussed above. 5.6. The issue again came up for consideration before a Larger Bench of this Tribunal in the case of Cadila Pharmaceuticals Ltd. and it was held as follows:
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 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 25.04.2005, that is, in the 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. 5.7. In view of the decision of the honble Bombay High Court read with Larger Bench decisions of the Tribunal (supra) it is Rule 4 of the Valuation Rules read with Rule 11 which would apply as far as the promotional packs which are distributed free-of-cost are concerned.
5.8. The Boards Circular dated 25/04/2005 also makes this position very clear. The decision relied upon by the counsel for the appellant are of Division Benches of this Tribunal and, therefore, in view of the decisions of the Larger Bench of this Tribunal and the honble High Court, these decisions have no application whatsoever.
5.9. The vires of the Boards Circular dated 25/04/2005 also came up for consideration recently before the honble High Court of Karnataka in Writ Petition No. 45584/2012 filed by M/s. Kennametal India Ltd., Bangalore. The petitioner, a manufacturer of tools, tool tips and inserts, etc. cleared the said tools for trial and demonstration purposes, during May, 2006 to September, 2010 and they adopted the value @ 110% of the cost of production in terms of Rule 8 of the Central Excise Valuation Rules, 2000 and in terms of CBEC Circular 643/34/2002.CX dated 01/07/2002 (same as the appellant in the present appeal before us) claiming that the clearances are free issues not meant for sale. The department was of the view that valuation of the goods cleared free-of-coast was to be done under Rule 4 of the said Valuation Rules in terms of the Circular dated 25/04/2005 and demanded differential duty of ` 41,35,113/- and issued demand notice accordingly. The Boards Circular was challenged by the petitioner by way of Writ Petition. After considering the rival contentions and the provisions of Central Excise Valuation Rules, the honble High Court held as follows:
21. Even according to the learned Counsel for the parties, Rules 5, 6, 7, 9 & 10 are inapplicable to goods cleared for trial and demonstration, thus leaving without doubt to ascertain which of the Rules 4, 8 & 11 are applicable to such goods? A bare perusal of Rule 8 what implies is that goods cleared for trial and demonstration, cannot be valued there under since they are not cleared for use for consumption in the production or manufacture of other articles by the assessee. Admittedly since the carbide tools, tips and inserts are cleared as and when engineers of the petitioner-Company make a request for trial and demonstration purpose, at different locations in the country and not cleared for consumption in the production or manufacture of other articles, the method of valuation under Rule 8 is inapplicable to such goods.
22. Viewed thus, what remains is the applicability of Rules 4 and 11 to goods cleared for trial and demonstration. A bare reading of Rule 4, what can be deciphered is that, it is, a general rule for valuation of excisable goods not sold and delivered at the time and place of removal to be based on the value of such goods sold and delivered at any other time nearest to the time and removal of the goods under assessment. There can be no more doubt that the words such goods in Rule 4 means, goods which are similar or identical to and have same quality or character to the goods sold and delivered. Meaning thereby, valuation by taking the value of such goods sold and delivered at the time nearest to the time and place of removal of the goods in question. Therefore Rule 4 applies to carbide tools, tips and inserts cleared for trial and demonstration, since, not cleared for sale and delivery at the time and place of removal and 'such goods' are goods similar or identical to goods cleared trial and demonstration, as are sold and delivered at the time and place of removal. It is needless to state that goods cleared for trial and demonstration have to be strictly identical to the goods that are cleared for sale, since the edifice of trial and demonstration goods having the same physical properties, is in the direction of establishing them to be identical to those sold. Therefore goods cleared for trial and demonstration are liable to be valued under Rule 4 on the basis of the value of such goods sold and delivered at any other time nearest to the time and place or removal of such goods. Thus, this decision also confirms the legal sanction that in case of goods cleared free-of-charge, it is not Rule 8 but Rule 4 that is relevant for determination of value and thus the vires of the said Circular dated 25/04/2005 was upheld.
5.10. The next issue is whether extended period of time could have been invoked in the present case. From the records it is seen that the appellant was earlier following the Boards circular dated 01/07/2002 and discharging excise duty liability on the promotional products following the procedure laid down under Rule 11 read with Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The said circular was superceded vide Circular No. 813/10/2005-CX dated 25/04/2005 wherein it was clarified that in the case of free samples the value should be determined under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The appellant was aware of the said circular and a copy of the same was also recovered during the search of the premises of the appellant. Shri Shailendra Goel, the Ex-Accounts Manager of the appellant, in his statement admitted that he had brought this to the notice of the management that they need to revise their method of payment of excise duty in terms of the Circular dated 25/04/2005. In his note dated 20/07/2005, Shri Goel had opined that they should pay excise duty on promo goods under Rule 4 and not as per their present practice of cost of goods + 10% w.e.f. 25/04/2005. He had also suggested in the said note to take expert opinion of PL (Shri P.L. Mishra, All India Legal Head of the appellants firm) on this. The said note was addressed to Mr. Rehal Satnam Singh (All India Accounts Head) and Mr. B.K. Krishna (Despatch Head of the appellant firm). In his statement Shri Goel has also admitted that, he had discussed this matter with Shri Karl Shroff, the Company Advocate, who was also of the same opinion. Even during the course of cross-examination, this position has been reconfirmed by the Shri Shailendra Goel, Ex-Accounts Manger of the appellant. Thus, the fact that the Boards Circular dated 25/04/2005 was in the knowledge of the top official of the appellants firm is not at all in dispute. Secondly, we have also perused copies of few ER1 returns filed by the appellant during the material period. In this ER1 returns there is no mention about free supply of any promotional products along with the trade pack at all and therefore, the contention of the appellant that the department was aware of the practice followed by them and they had declared this information to the department is completely incorrect. Even in the invoices issued, there is no mention of any free supply of promotional products. In view of the above it is clear that the appellant had suppressed the facts of determination of assessable value of the promotional products under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. In view of the above factual position, invocation of extended period of time for confirmation of duty demand is sustainable in law and we hold accordingly.
5.11. Reliance is placed on the decision of the honble Gujarat High Court in the case of Neminath Fabrics Pvt. Ltd. [2011-TIOL-10-HC-AHM-CX] and the Larger Bench decision in Union Quality Plastic Ltd. [2013-TIOL-1072-CESTAT-AHM-LB] wherein it has been held that knowledge and awareness of the department is not a relevant factor for invocation of extended period of time. In these decisions, it was ruled that whenever there is non-levy or short levy of duty with an intention to evade payment of duty or any of the circumstances enumerated in the proviso to Section 11A(1) of the Central Excise Act, such suppression or willful omission is either admitted or demonstrated, invocation of the extended period of limitation would be justified.
5.12. The next question is with regard to imposition of penalty. The appellants contention is that they were under the bona fide belief that they were required to discharge excise duty liability on the promotional products under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. However, it is a fact on record that the appellant was aware that the said method which was based on Boards Circular dated 01/07/2002 was subsequently superceded vide Circular No. 813/10/2005-CX dated 25/04/2005. The said Circular was affirmed by the honble High Court of Bombay in the case of Indian Drug Manufacturers Associations case (supra) vide order dated 28/09/2006 in W.P. No. 246 of 2006. If that be so, the appellant cannot take the plea that they entertained the bona fide belief with regard to the determination of value. Further a larger bench of this Tribunal in the case of Blue Cross Laboratories (supra) had also held that in the case of free samples, the valuation has to be done under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Therefore, the appellant cannot take the plea that they become aware of the correct position of law only in 2008 which does not stand to any reason. Since the legal position was settled way back in 2006 itself, the appellant could not have entertained any bona fide belief with regard to their liability to discharge excise duty under Rule 4 read with Rule 11. This is all the more so when the appellant companys advocate Mr. Karl Shroff has also advised that duty liability has to be discharged in terms of Boards Circular dated 25/04/2005 as admitted by Shri Shailendra Goel in his statement before the investigating agency. Thus, the alibi of bona fide belief fails flat on its face.
5.13. In view of the above, we uphold the imposition of penalty under Section 11AC. When the law stipulates imposition of mandatory penalty on account of suppression of facts, the same cannot be set aside or waived as held by the honble apex Court in the case of Rajasthan Spinning & Weaving Mills [2009 (238) ELT 3 (SC)] case. For the same reason, imposition of penalty under Rule 25 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 is also upheld.
5.14. As regards the confiscation of goods and imposition of fine, the appellant has pleaded that the goods are not available for confiscation and hence imposition of fine is not warranted. This argument is totally incorrect. The goods were seized and thereafter they were released on execution of bond/bank guarantee. Therefore, the decision to confiscate the goods and imposition of fine in lieu thereof is correct in law as held by the honble apex Court in the case of Weston Components vs. Commissioner 2000 (115) ELT 278 (SC).
6. To sum up, we do not find any merit in the appeal and accordingly the same is dismissed.
(Pronounced in Court on 04/12/2013) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 32