Custom, Excise & Service Tax Tribunal
Yeluri Formulations Pvt Ltd vs Hyderabad-I on 13 March, 2019
(1) Appeal No. E/1293/2011
E/1302/2011
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
APPEALs No. E/1293/2011 & E/1302/2011
(Arising out of Orders-in-Appeal Nos. 90/2010 (H-I)CE, dated 30.12.2010 and
91/2010 (H-I)CE, dated 30.12.2010 passed by CCCE&ST (Appeals-I), Hyderabad)
YELURI FORMULATIONS LIMITED .. APPELLANT(s)
Vs.
CCCE&ST, Hyderabad-I .. RESPONDENT(s)
Appearance
Shri B. Seshagiri Rao, Advocate for the appellant
Shri C. Mallikharjun Reddy, Superintendent/AR for the Respondent.
Coram:
Hon'ble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL)
Hon'ble Mr. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing: 06.02.2019
Date of Decision: 13.03.2019
FINAL ORDER No. A/30332-30333/2019
[Order per: Mr. P. Venkata Subba Rao)
1. These two appeals are against Orders-in-Appeal as stated herein
above. Both these appeals are on the same issue and hence are disposed
of together.
(2) Appeal No. E/1293/2011
E/1302/2011
2. Ld. Counsel for the appellant submits that the short point to be
decided in both these appeals is whether the appellants are liable to pay
Central Excise Duty on physician samples which they had sold to their
distributors on the basis of transaction value under section 4A of Central
Excise Act, 1944. The appellants herein are engaged in the manufacture of
P & P medicines falling under Chapter 30. They were issued show cause
notices proposing recovery of Central Excise Duty invoking the extended
period of time and proposing penalties under section 11 AC of Central
Excise Act, 1944. Ld. Counsel submits that they manufacture
pharmaceuticals both on their own account and as job workers. As they
are a small manufacturers they cannot afford to supply physician samples
free of cost. However, their Dealers and Distributors find it necessary to
distribute samples free of cost to the physicians in order to market the
products and expand their own market. Therefore, they have an
arrangement according to which they manufacture physician samples
clearly marked as physician samples but these samples are sold by them to
their distributors who, in turn, supply them free of cost to the doctors. They
have discharged service tax on these physician samples as per the
transaction value. There is no retail price on these samples because these
samples cannot be sold. However, there is a price on which they have sold
these samples to their dealers which is the transaction value on which they
paid the Central Excise Duty.
(3) Appeal No. E/1293/2011
E/1302/2011
3. It is the case of the Department that physician samples should be
charged to Central Excise Duty as per the price of corresponding goods
which are sold in the market, as has been held by Hon'ble High Court of
Bombay in the case of Indian Drugs Manufacturers' Association
[2008(222)ELT 22 (HC-Mum.)] and CBEC Circular No. 813/10/2005-CX,
dated 25.04.2005. It is the case of the appellant that they are liable to pay
Central Excise Duty as per the transaction value wherever the samples
were sold by them. The Department demanded duty invoking the extended
period, holding that they have not disclosed that they were clearing
physician samples valuating them at Section 4 instead of Section 4A as
required in their ER-1 returns, thereby they have deliberately suppressed
their under valuation. The appellant contests this matter both on merits and
on limitation.
4. Ld. DR reiterates the findings of the first appellate authority. He
draws the attention of the Bench to paras 9 to 12 of the impugned order in
which he clarified the reasons for not accepting the contentions of the
appellant as follows:
(i) The purchase orders which were presented before him had the
invoices which did not indicate that they were physician samples
and not for sale.
(4) Appeal No. E/1293/2011
E/1302/2011
(ii) There is no cross reference between the invoices and payments as
indicated in the Ledgers. He concluded that physician samples
were actually not being sold but were distributed free to their
Distributors. He however observed that appellant was statutorily
prohibited from selling physician samples under Rule 65(18) and
Rule 95 and Rule 96(1)(ix) of Drugs & Cosmetics Rules and
therefore their contention that they were selling physician samples
is a complete mis-representation of the facts.
5. He relied upon the Larger Bench decision of the Tribunal in the case
of Cadila Pharmaceuticals Limited vs. CCE, Ahmedabad-II [2008(232) ELT
245 (Tri.-LB)] and held that physician's samples have to be valued as per
Section 4A of Central Excise Act, 1944.
6. We have considered the arguments on both sides and perused the
records. The question to be answered is how physician's samples should
be valued when the free samples are sold by the appellant to their
distributors and for which there is an invoice value. It is the case of the
department that physician samples cannot be sold and the assertion that
they are sold is incorrect because it violates the Drugs & Cosmetics Rules.
Therefore, physician's samples should be treated at par with the normal
goods and duty has to be charged proportionately as is applicable. Since
the pharmaceutical goods are covered under Section 4A of the Central
Excise Act, 1944 as has been decided by Hon'ble High Court of Mumbai in
(5) Appeal No. E/1293/2011
E/1302/2011
the case of Indian Drugs Manufacturers' Association (supra), Central
Excise duty should be charged under section 4A. The first appellate
authority also observed that appellant has not produced invoices to show
that they are actually sold physician samples. Learned Counsel for the
appellant produced a letter dated 25.01.2006 from Sriven Pharma to M/s
Yeluri Formulations Pvt. Ltd. detailing the payments made with respect to
invoices covering physician samples.
7. We find that this question as to how to value physician samples which
are sold and not supplied free was answered in the case of Parnax Lab.
Pvt. Ltd. vs. CCE, Vapi [2012(278)E.L.T. 95 (Tri.-Ahmd.)] (in which one of
us Shri M.V. Ravindran was a Member), paras 7 to 9 of this order are
reproduced:
"7. As regards the physician samples manufactured by the appellant for other
principals and sold the same to them under contractual obligations, it is seen that the
said contracts have not been challenged by the Revenue in the proceedings initiated
by the show cause notice. It is also noticed that the transaction value which has been
declared by the appellant while clearing the goods from their factory premises has
not been rejected. It is also not in dispute that the appellant has been discharging the
duty liability on the said physician samples as per the invoices raised from his
factory and cleared to the principal manufacturer who in turn distributes the very
same to the medical profession. On this back ground, we find that the judgment of
this Bench in the case of Sidmak Laboratories (India) Ltd. is squarely on the point.
The issue involved in that case was the first appellate authority has held that the
samples cleared from the factory premises of the assessee therein were not being
cleared for free distribution but are being sold at factory gate and the whole sale price
is available at the factory gate. It is also seen that in that case there was no dispute
about the factual position that the samples were being sold, this bench held that the
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E/1302/2011
value of the sample should be in terms of Section 4. Aggrieved by such an order, the
Revenue preferred Civil Appeal before the Apex Court in appeal No. D/1456/09. The
said appeal was dismissed by Apex Court [2011 (270) E.L.T. A90 (S.C.)] by
recording as under :
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. OF 2009
(D. NO. 1456 OF 2009)
COMMISSIONER OF CENTRAL EXCISE, DAMAN ...APPELLANT
VERSUS
M/S. SIDMAK LABORATORIES (I) LTD. ...RESPONDENT
ORDER
Delay condoned.
The Civil Appeals are dismissed.
sd/-
.......................
(S.H. KAPADIA)
New Delhi, sd/-
.........................
July 27, 2009 (AFTAB ALAM)
8. It can be said that the ratio laid down by the Bench for the case of M/s. Sidmak Laboratories (I) Ltd. is upheld by the Apex Court hence we are of the considered view that the demand of the duty liability on the physician samples sold by the appellant to the principals, the assessable value as ascertained by the assessee and the duty liability discharged is correct and there is no reason for recalculating the assessable value based upon the value arrived at on pro rata basis of sales pack.
9. As regards the physician samples manufactured and cleared by the appellant of their own product, we agree with the learned DR that on merits the issue is covered against the assessee by the Larger Bench decision of this Tribunal in the case of Cadila Pharmaceuticals Ltd. (supra)."
(7) Appeal No. E/1293/2011
E/1302/2011
8. The circular issued by the Board relied upon by the Department as well as the Case laws on Indian Drug Manufacturers' Association and others shows that physician samples were not sold but were supplied free of cost and hence there was no transaction value. The present case is similar to the case of Parnax Lab Pvt. Ltd. (supra) in which there is a transaction value because the physician samples were sold by the manufacturer to the Distributor who in turn supplied them at free of cost to the Doctors. We have also considered the findings of the first appellate authority that selling physician samples is violative of Drugs & Cosmetic Rules, 1945. This is an issue which may have to be looked into by the State Drugs Controller/Drug Controller of India but where there is a transaction value, the same cannot be ignored. Once the samples are sold and there is a transaction value, the price at which they are sold forms the assessable value and the assessment has to be done. Therefore, no differential duty can be charged, holding that Section 4A should be applied even in cases where the appellant has sold the physician samples. On the factual position whether the physician samples were actually sold or otherwise, the matter needs to be verified by the adjudicating authority after giving the appellant an opportunity to present the documents. In view of the above, the appeal is disposed of as below:
The impugned order is modified to the extent setting aside the demand in respect of the invoices where the appellant is able to (8) Appeal No. E/1293/2011 E/1302/2011 provide documentary evidence to the adjudicating authority to substantiate their claim that physician samples were sold by them and not at free of cost. The demand in respect of those cases where the appellant is not able to substantiate their claim along with interest is sustained. All penalties are set aside.
(Pronounced in open Court on 13.03.2019) (P.VENKATA SUBBA RAO) (M.V. RAVINDRAN) MEMBER (TECHNICAL) MEMBER (JUDICIAL) Vrg