Customs, Excise and Gold Tribunal - Delhi
Aristo Pharmaceuticals Ltd. vs Commissioner Of C. Ex. on 27 February, 2003
Equivalent citations: 2003(154)ELT413(TRI-DEL)
ORDER C.N.B. Nair, Member (T)
1. The issue raised in both these appeals is the same, the effect of amendment in Section 4 (Valuation) of Central Excise Act, 1944 in the valuation of medicines which are subject to Maximum Retail Price, whether fixed under the Drug (Control) Law or by manufacturers. The appeals were heard on 18-2-2003 and 27-2-2003 and are disposed of under this common order.
2. The controversy is around the following provision which came into force with effect from 28-9-1996 :
"(4) For the purposes of this Section, -
(2).......
(b) 'place of removal' means -
(i) ......
(ii) ......
(iii) a depot, premises of a consignment agent or any other place premises from where the excisable goods are to be sold after their clearance from the factory".
3. The appellants first remove the medicines in question from the factories of production to their sales depots and sell them from these depots. Both sides are agreed that, in view of the amendment, sale prices from the depots should be the basis for assessment of the medicines to central excise duty on ad valorem basis; but disagree as to which of the depot prices is to be adopted. The appellant manufacturers contend that medicine prices are fixed "Batch Wise" (Batch of Production) and therefore, the depot price of the relevant batch should be the basis, while Revenue contends that Batch is of no relevance, as the same medicine continues to be manufactured from Batch to Batch. According to Revenue depot price of the medicine under assessment should be adopted without any regard to the price variations for the same medicine, based on the Batch of production.
4. The appellants have explained that medicines are known and monitored by their Batch of production and all aspects including price are also fixed Batch-wise. Legal provisions under the Drugs (Control) Law also operate batch-wise. Where medicines are subject to price control (fixed by the Drugs Control Authorities at retail level) those prices are marked batch-wise. The submission of the appellants is that since medicine prices are fixed and administered batch-wise, whether under the Drugs Control or otherwise, their value should be taken for all purposes, including assessment to Central Excise duty, as the value fixed for each batch of production. It is pointed out that the higher values noticed for medicines at the depots were the values applicable to medicines of a different batch than the batch which was being cleared from the factory. During the hearing of the case, the learned Counsel/Chartered Accountant for the appellants submitted that since all parties concerned, manufacturers, traders, Drug Control Authorities recognized medicines batch-wise, Revenue authorities have committed an error in adopting the price of one batch of medicine for another batch. It has been submitted that such an action is impermissible since it is contrary to commercial practice. This action has also been contended to be against the provisions of Section 4 of the Central Excise Act inasmuch as that Section stipulated the "normal price at which such goods (emphasis added) are ordinarily sold" as the value for assessment to duty. It is the contention of the appellants that "such goods" can take in only the medicines produced in a particular batch and not medicines produced in different batches, though under the same name, composition etc. The learned Counsel has pointed out that treatment of goods from different batches of production as different goods was well recognized in excise valuation. He referred in this connection to the departmental clarification, contained in Circular File No. 312/1/75/CX.10, dated 8-8-75 which was issued at the time Section 4 was introduced. It is pointed out that the phrase "such goods" has continued to remain in the Section therefrom. The Circular clarified the meaning of phrase as under :
"(a) Such goods: The expression 'such goods' has been used in the generic sense and means not only the goods under assessment but also other goods of the same class. In other words, the same goods manufactured by an assessee will be considered, as 'such goods'. The same goods manufactured by the assessee may be cleared at different times in different lots and different consignments and the goods of each lot or consignment will be 'such goods'. To illustrate, a company manufactures refrigerators of a particular brand and capacity : each of these refrigerators will fall in the category of 'such goods' (emphasis supplied).
Similar goods, for example goods of different brands manufactured by another assessee are also not 'such goods'. Similar goods manufactured by another assessee also not 'such goods'; that may fall in the category of 'comparable goods'. Even homogeneous goods e.g., sugar or cloth manufactured by different manufacturers would only be comparable goods and would not constitute 'such goods'."
It is the submission of the learned Counsel that this clarification, in terms, has accepted that each lot or consignment will be 'such goods'. The appellants have also relied on the decision of this Tribunal in the case of Savita Chemicals Ltd. v. C.C.E., Mumbai VI - 2000 (119) E.L.T. 394 (T) which has held that goods falling in a particular group would become 'such goods'. It is also pointed out that this decision has been confirmed by the Apex Court.
5. Learned Counsel Shri C.S. Lodha for M/s. Lupin Lab. Ltd. and Shri S.S. Gupta, Chartered Accountant for M/s. Aristo Pharmaceuticals Ltd. have also pointed out that method of valuation adopted by the Revenue authorities under the impugned orders would upset the apple cart, both for revenue as well as trade. They also pointed out that if re-valuation of goods is to be adopted based on the sale price of previous batch of medicines, the same will have to be done when prices are increased as well as decreased. This would bring in great uncertainty in the administration of the Central Excise Act since at any given time medicines manufactured in different batches are bound to be in the market. They also pointed out that apart from the uncertainty this would cause, great scope for abuse of the legal provision also would be introduced, inasmuch as, in cases of increase in prices of medicines, manufacturers can continue to claim assessment at the lower price prevailing for earlier batches, still in the trade chain. In fact, it is easy to retain some stock of lower priced medicines from earlier batches in the market so that higher priced medicine of later batch could be cleared from the factory after paying duty at the price applicable to older batch. It has been stressed that viewed from this angle also, the interpretation of law made by the Commissioner is to be set aside.
6. As against the above contentions on behalf of the appellants, the learned SDR has submitted that there is no difference in a medicine produced under different batches. The medicine remained the same, irrespective of batch, in all material characteristic, like composition, potency etc. Doctors who prescribed them and the patients who consumed them did not recognize batch of production as material. He therefore, submitted that treating medicines of different batches as different goods has no basis. He also pointed out that it has to be noted that Drug Control Authorities did not fix sale price batch-wise for medicines. A particular price was fixed for a particular medicine and a time limit of 15 days was provided to the industry and trade to bring a new price into force. He further pointed out that batch-wise earmarking of goods is not unique to medicines. According to him, batch-wise identification is merely a matter of convenience so that the scope for rectification of defects, if any, noticed subsequently, is rendered easy. By batch-wise identification, a manufacturer can recall defective products from the market whether for repair or destruction.
7. A perusal of the various provisions under the Drugs (Control) Order and the assessees' practice of manufacture, pricing and sale of the medicines make it clear that it is a well established practice that medicines are identified and dealt with for all purposes like quality control, expiry, batch-wise. This is true of pricing also. The price is fixed at the Maximum Retail Price (MRP) level. Sale prices at the previous levels of trade are worked out backwards from the MRP. This applies for a particular batch or until price revision. Of course, Drug Control Authorities do not fix prices batch-wise. Prices are fixed by them prospectively and a reasonable time is given to the industry to bring the revised prices into force. That enables the industries to adopt the new price for subsequent batch of production. It is thus, clear that medicines are identified and dealt with for all purposes; including pricing, according to the batch of production. It is well settled that tax authorities should recognize well established commercial practice while implementing taxation provisions. Swimming against the current has no additional benefit to the Revenue also, inasmuch as the tax gained from adopting an earlier batch's higher value in the case of lowering a price would well be off-set by the compulsion to adopt the lower value of a earlier batch in the case of increase of price. On the whole, such an approach by the Revenue would only throw a spanner in the works. That is to be avoided.
8. Valuation adopted in these orders does not appear to be warranted by the provisions of law. It had been clarified by the Government at the time of introduction of amended Section in 1975 itself that the term 'such goods' in Section 4 apply to goods of a lot. In the pharmaceutical industry, the well established practice appears to be to recognize the production of a batch as of a lot. The decision of this Tribunal (which has been upheld by the Apex Court) in the case of Savita Chemicals Ltd. also supports the appellant's contention. Dealing with the valuation of medicines purely from the point of view of name, quality, etc., as has been done under the impugned orders would create differently in other respects also .... Valuation is to be with regard to the time of clearance also. Thus value has to satisfy both "time" and "place of removal". The amendment from September, 1996 cannot be interpreted so as to delay the bringing into effect of revised prices.
9. Apart from these considerations is the consideration of certainty and stability in tax administration, which has been rightly stressed by the learned Counsel. The principle of valuation adopted in these orders would bring about great uncertainty and scope for abuse. An interpretation of law which promotes its abuse is to be eschewed. The 1996 amendment was brought about to overcome loss of revenue on account of the gap between the value adopted for payment of duty at the time of removal from the factory to the manufacturers' own depots and the sale price from the depots. This amendment should not cause a new vice by creating uncertainty and instability in tax administration.
10. From the foregoing, it is clear that, viewed from any angle, the re-valuation of the goods as done in the impugned orders is not correct or justified. Consequential duty demand and penalties cannot be sustained. In the result, the appeals succeed and are allowed, after setting aside the impugned orders.