Custom, Excise & Service Tax Tribunal
M/S Zyg Pharma Pvt. Limited vs Cce, Jaipur-I on 28 September, 2016
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No.2, R. K. Puram, New Delhi, Court No. 1 Date of hearing: 15.09.2016 Date of pronouncement: 28.09.2016 Excise Appeal Nos. 1640 1641 of 2009 (Arising out of order-in-original No. 16/Commr./CEx/IND/2009 dated 16.03.2009 passed by the Commissioner of Central Excise, Indore) M/s Zyg Pharma Pvt. Limited Appellant K. N. Mungi, Manager, Accounts & Auth. Signatory Vs. CCE, Jaipur-I Respondent
Appearance:
Sh. S. S. Gupta, C. A. for the appellant -assessee Sh. Yogesh Agarwal & Sh. G. R. Singh, DRs for the Respondent AND Excise Appeal Nos. 3017 of 2009, 355 of 2010 & 92 of 2010 (Arising out of order-in-appeal No. IND-I/189/2009 dated 28.08.2009, No. IND-I/304/2009 dated 11.12.2009 and OIA No. IND-I/267/2009 dated 20.11.2009 passed by the Commissioner (Appeals) Central Excise, Indore) CCE, Indore Appellant Vs. M/s Zyg Pharma Pvt. Limited Respondent K. Mungi, Manager Accounts & A.S. M/s Zyg Pharma Pvt. Limited Appearance:
Sh. Yogesh Agarwal & Sh. G. R. Singh, DRs for the appellant -Revenue Sh. S. S. Gupta, C. A. for the Respondent -assessee Coram: Honble Mr. Justice (Dr.) Satish Chandra, President Honble Mr. B. Ravichandran, Member (Technical) Final Order Nos. 53857 53861/ 2016 Per: B. Ravichandran:
These are five appeals involving the same issue relating to valuation of physician samples of medicines and hence, are taken up together for disposal. Two of the appeals were by appellant - assessee and remaining three are by Revenue. The appeals by assessee appellant is against order dated 16.03.2009 of Commissioner of Central Excise, Indore. Out of this, the main appeal is by the manufacturing assessee and the second appeal is by the Manager against imposition of penalty. The period covered in this appeal is 2005-06 to 2006-07. For the subsequent periods from April 2007 to March 2008 the demands against assessee were dropped by the first appellate authority in three different orders. Aggrieved by this, the Revenue filed three appeals.
2. The brief facts of the case are that the appellant assessee are engaged in the manufacture of pharmaceutical products in their own account as well as on loan licence basis. The dispute in the present case relates to determination of value of physician samples. There are two types of transactions involved in the clearance of such samples. In case the samples of pharmaceutical products are manufactured using own raw material and packing materials, the subject goods are sold to the contractered customers who in turn distributed the samples to the physicians free of cost. In such transaction the appellant discharged duty on such physician samples based on the transaction value indicated in the invoice. The Revenue entertained a view that when similar goods were sold in trade pack covered by MRP based valuation, the same system of MRP based valuation should be followed for such physician samples also.
3. The second set of transactions are relating to clearance of physician samples which are made out of raw material and packing materials supplied by the principal brand owner. In such situation, the appellant-assessee adopted 110% of cost of the product for discharging duty liability in terms of Rule 8 of Central Excise Valuation Rules, 2000. Here also the Revenue contested the valuation and held that the value of comparable goods (MRP based trade pack of similar pharmaceutical products) should be considered for valuation of physician samples and duty has to be discharged accordingly.
4. Ld. Counsel for the assessee appellant submitted that the department itself have started accepting the assessment of value of physician samples as determined by the appellant assessee for the later periods. When there is a transaction value between two unrelated parties where the price is the sole consideration, the excisable goods are to be taxed on such value only. Ld. Counsel relied on various decisions of the Tribunal to support his view. He specifically drew our attention to the decision of the Tribunal in Gelnova Laboratories (I) Pvt. Ltd. vs. CCE, Belapur 2014 (300) ELT 437 (Tri. Mum) which has been accepted by the department and the decision of Honble Supreme Court in Bal Pharma Limited 2010 (259) ELT 10 (SC). Ld. Counsel strongly contested the reliance placed by the Commissioner on the decisions of the Larger Bench of the Tribunal in Blue Cross Laboratories Ltd. vs. CCE, Mumbai 2006 (202) ELT 182 (Tri. LB) and Cadila Pharmaceuticals Ltd. vs. CCE, Ahmedabad-II 2008 (232) ELT 245 (Tri. LB). In those cases the physician samples were not sold by the appellant and as such no transaction value under Section 4 (1)(a) was available.
5. Regarding goods manufactured on loan licence basis reliance was placed on the decision of the Honble Supreme Court in Biochem Pharmaceuticals India Limited vs. CCE, Daman, Vapi -2015-TIOL-320-SC-CX, wherein the Supreme Court approved the determination of value on the basis of cost construction method. The period involved was both prior as well as after July, 2000. It was categorically recorded by the Honble Supreme Court that both the sides agreed that the provisions of Rule 3 to Rule 5 of Valuation Rules, 1975 are not applicable. Rule 4 of Valuation Rules, 1975 and Rule 4 of Valuation Rules, 2000 are identical. Hence, reliance placed by the department to invoke provisions of Rule 4 is unsustainable.
6. Ld. AR opposed the contention of the ld. Counsel for the assessee-appellant. He submitted that the original order dated 16.03.2009 analysed all issues and correctly concluded that the valuation of physician samples cleared by the appellant assessee should be made under Rule 4 of Central Excise Valuation Rules, 2000. Ld. AR submitted that reliance placed by the original authority on the Larger Bench decisions in Blue Cross Laboratories and Cadila Pharmaceuticals (supra) is correct. Further, the ld. AR relied on the decision of Bombay High Court in Indian Drugs Manufacturers Association vs. Union of India 2008 (222) ELT 22 (Bom.). It was argued that the Honble High Court categorically held that Rule 4 is a general rule and in a situation where clearance of physician free samples not by way of sale the said rule will apply.
7. We have heard both the sides and perused the appeal records including written submissions and various decisions relied upon by both the sides. The main point of contest is applicability of Rule 4 of Valuation Rules, 2000 to determine the value of physician samples cleared by the appellant assessee. As already noted in one set of transactions such physician samples were sold to the contracting customers and the appellant assessee adopted the transaction value for purpose of discharging Central Excise duty. In another set of transaction where such physician samples alongwith trade pack were manufactured by the appellant assessee based on raw material, packing material supplied by the licence holder and the manufacture is on loan licence basis. The value of physician samples were arrived at by the appellant assessee on cost construction basis and following the principles of Rule 8 for discharging duty on 110% of cost of production. In both these situations the Revenue contended that the valuation of physician samples should be in terms of Rule 4 which talks about valuation based on comparable goods. Reliance was also placed on the revised Board Circular dated 25.04.2005 wherein it was clarified that in case of free samples the value should be determined under Rule 4.
8. To deal with the first issue, we find that when the excisable goods are sold and the transaction value is not tainted by any factor and is fulfilling the conditions of Section 4(1)(a), the tax liability has to be discharged in terms of such transaction value. We find that Section 4A will come into play when the physician samples are also covered under the said category for MRP based assessment. The Honble Supreme Court in Jayanti Food Processing (P) Ltd. vs. CCE, Rajasthan 2007 (215) ELT 327 (SC), held that merely because the goods are notified under Section 4A by itself does not mean that all goods so notified shall always be valued as per the provisions contained in the said section. The requirement that the packing of the goods shall contain MRP under the Standards of Weights and Measurement Act must be fulfilled in order to assess any goods under Section 4A. Since physician samples are not sold in retail and MRP is not fixed on the same and when the samples were sold by the appellant assessee on a transaction value to the principal customer such transaction value should form basis of assessment.
9. The Tribunal decision in the case of Sun Pharmaceuticals Industries vs. CCE, Surat-II 2005 (183) ELT 42 (Tri. Mumbai) is relevant. When the physician samples were sold and the transaction value is not questioned for any reason, the same has to be accepted for payment of Central Excise duty. Further, we find the Board Circular dated 25.04.2005 will apply to cases where when the samples were distributed free by the manufacturer. In the present case, there is a sale transaction and the manufacturer is selling the physician samples to the principal customer who may later distribute it free to the physician. In such circumstances, we find the reliance placed on the Larger Bench decision of the Tribunal is not appropriate.
10. The Tribunal in Gelnova Laboratories (supra) held that when the physician samples were manufactured on principal to principal basis the same are required to be assessed under Section 4(1)(a). The Tribunal examined the Larger Bench decision in Cadila Pharmaceuticals (supra). We find that the reliance placed by the Revenue on the decision of Honble High Court in Indian Drugs Manufacturers Association (supra) is also not appropriate. In the said case there was free supply of physician sample and the Court was not dealing with the issue of acceptance of transaction value under Section 4(1)(a). In the present case, as noted already there is, admittedly, a transaction value.
11. Regarding goods manufactured on loan licence basis where raw material and packing material were given by the principal brand owner, the appellant assessee followed cost construction method to value the physician samples cleared by them to the principal manufacturer. The Honble Supreme Court in the case of Biochem Pharmaceuticals (supra) held that the provisions of Rule 3 to 5 of the Valuation Rules, 1975 are not applicable. We note that Rule 4 of 1975 Rules and Rule 4 of 2000 Rules are identical. Further, the Honble Supreme Court also referred to the CESTAT decision which accepted valuation to be on the basis of cost of production or manufacture of the goods.
11. In view of the above discussions and analysis, we find that the original order dated 16.03.2009 holding that value of physician samples in the appellant- assessees case is to be made in terms of Rule 4 is not sustainable. Accordingly, we allow the appeals filed by the appellant assessee. For the reasons the appeals filed by the Revenue against later orders dropping the demands are also liable to be rejected. Accordingly, the appeals filed by the Revenue are rejected.
(Pronounced on 28.09.2016).
(Justice (Dr.) Satish Chandra) President (B. Ravichandran) Member (Technical) Pant