Custom, Excise & Service Tax Tribunal
Amazon Drugs Pvt Ltd vs Bangalore Service Tax- I on 14 July, 2023
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
REGIONAL BENCH
EXCISE APPEAL NO. 1652 OF 2010
(Arising out of Order-in-Appeal No. 190/2010 dated 22.04.2010 passed by the
Commissioner of Central Excise (Appeals-II), Bangalore)
M/s. Amazon Drugs Pvt. Ltd. ...Appellant
76, 5th Cross, 5th Block, S.S.I. Area,
Rajajinagar,
Bangalore-560 010
Versus
The Commissioner of Central Excise ...Respondent
(Appeals-II)
No. 16/1, 5th Floor, SP Complex,
Lalbagh Road, Bangalore - 560 027
APPEARANCE:
None for the appellant.
Shri P. Saravana Perumal, Authorized Representative for the Respondent
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MS. R. BHAGYA DEVI, MEMBER (TECHNICAL)
Date of Hearing: 26.06.2023
Date of Decision: 14.07.2023
FINAL ORDER NO. 20687/2023
JUSTICE DILIP GUPTA:
M/s. Amazon Drugs Pvt. Ltd., Bangalore 1 has filed this appeal to
assail the order dated 22.04.2010 passed by the Commissioner
(Appeals) by which the order dated 31.12.2008 passed by the Assistant
Commissioner has been upheld and the appeal has been dismissed.
2. The appellant is a manufacturer of P or P Medicines and the
valuation of the goods manufactured by the appellant is undertaken
1. the appellant
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with reference to the retail sale price under section 4A of the Central
Excise Act, 19442 w.e.f. 07.01.2005.
3. The department noticed that during the period from 25.04.2005
to 31.03.2007 the appellant cleared the physician samples by taking the
assessable value as 115% / 110% of the cost of production of such
goods by applying rule 8 of the Central Excise Valuation (Determination
of Price of Excisable Goods) Rules 20003 and the Board Circular dated
01.07.2002. The department believed that as per the Circular dated
25.04.2005 issued by the Board, the value of free samples should be
determined under rule 4 of the 2000 Rules and, therefore, the value of
the free samples has to be at par with the value of the goods under
section 4A of the Excise Act. The following chart shows the differential
duty that the appellant would have to pay:
Period Assessable Assessable Differential Differential
value on which value under value Duty
physicians section 4A
samples actually
cleared
25.04.2005 1,88,115/- 4,25,386/- 2,37,271/- 38,723/-
to
31.03.2007
01.04.2006 1,95,028/- 4,56,991/- 2,61,963/- 42,800/-
to
31.03.2007
Total 3,83,143/- 8,82,377/- 4,99,234/- 81,523/-
4. Accordingly, a show cause notice dated 30.11.2007 was issued
to the appellant to show cause as to why central excise duty amounting
to Rs. 81, 523/- may not be demanded from the appellant under section
11A(1) of the Excise Act with interest and penalty.
2. the Excise Act
3. the 2000 Rules
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5. The appellant filed a reply dated 28.01.2008 to the aforesaid
show cause notice and denied the allegations made therein. The main
contention of the appellant is reproduced below:
"4. In as much as, the physician samples
cleared are not required to be affixed with MRP, as
the same are not meant for sale, the question of
discharging duty under section 4A does not arise.
This issue, has already been considered by the Central
board of Excise and Customs and a clarification is issued
in Circular No. 625/16/2002-CX Dt. 28.02.2002, wherein
the board categorically stated that where there is no
statutory requirement under the provisions of the Weights
and Measures Act, to declare the retail price on the
packages, then the provisions of section 4A will not apply
even if the goods are notified under the said section. It
may be stated that the circular clearly also dealt with the
clearance of physician samples. Therefore, the issue of
valuation of physician samples would have to be
determined under section 4 of the act. At this
juncture, it may be stated that circular of the board
bearing No. 813/10/2005 CX dt. 25.4.2005 also
recognises that such samples are required to be value in
terms of the valuation of physician samples should be
determined in terms of rule 4 of the said rules."
(emphasis supplied)
6. The Assistant Commissioner did not accept the contentions
raised by the appellant and confirmed the demand of duty with interest
and penalty. The relevant portion of the order is reproduced below:
"4. In view of the above discussion it is my
candid opinion that notwithstanding the non-
availability of the normal sale price under Section
4(1)(a) of the Central Excise Act 1944, by the virtue
of goods being specified under Section 4A(1)
making the retail price i.e. MPR as its deemed value,
the appropriate rule governing the valuation of
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physician's sample would be Rule 4 of Central Excise
Valuation Rules 2000. I therefore hold that Rule 4 of
Central Excise Valuation Rules 2000 is applicable to the
present case on all fours to the facts of the case.
Therefore Rule 4 ibid applicable to impugned goods -
Section 4 and Section 4A ibid as the case may be."
(emphasis supplied)
7. Feeling aggrieved, the appellant filed an appeal before the
Commissioner (Appeals), who by order dated 24.04.2010 upheld the
order passed by the Assistant Commissioner and dismissed the appeal.
The relevant portion of the order is reproduced below:
"5. I have carefully gone through the case records,
grounds of appeal and the submissions made during the
Personal Hearing. The contention of the appellants is that
the physician samples supplied free are not treated as sale
of such goods and hence MRP is not applicable even if it is
mentioned and for this they took the support of Circular
dated 28.2.02 and argued that it should not be under
Section 4 - transaction value but it should be under Rule
11 read with Rule 8 of Central Excise Valuation Rules
2000. I do not agree with their contention. Though the
physician samples are supplied free, they are of
same nature of the main P or P Medicines in
function. Board's Circular of 2005 and the recent
Circular of 2010 mention that even if it is for marketing
purposes, once MRP is mentioned, valuation should be as
per MRP under Section 4A of Central Excise Act, 1944.
They further contend that under the Weights and
Measures Act, 1976, they are not required to
mention the MRP. Even though it is mentioned,
various clarifications made through different
circulars and 37 B orders make it clear that these
goods not being used for captive consumption are
not to be assessed under Rule 11 read with Rule 8 of
Valuation Rules nor the transaction value under
Section 4 is to be applied. The original adjudicating
authority has given clear finding as to valuation and
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suppression of facts with an intention to evade duty
and hence he has imposed mandatory penalty under
Section 11AC and demanded interest under Section
11AB. The appellants' further contention is that since the
valuation rules and circulars are not free from doubt, they
should not be blamed that they had suppressed the facts
as discussed supra. The department has issued Show
Cause Notice for differential demand and interest based on
circulars and clarifications and hence it can be construed
that the appellants despite all was deliberately doing this
to evade payment of duty. Hence, I do not want to
interfere with the order passed by the original adjudicating
authority."
(emphasis supplied)
8. On the case being called out no one appeared on behalf of the
appellant. The appeal is of the year 2010 and the order sheet reveals
than even on earlier occasion no one had appeared on behalf of the
appellant. It is, therefore, considered appropriate to decide the appeal
on merits after hearing the learned authorized representative appearing
for the department.
9. Shri P. Saravana Perumal, learned authorized representative
appearing for the department has contended that in view of the decision
of the Larger Bench of the Tribunal in Cadila Pharmaceuticals Ltd.
vs. Commr. of C. Ex. Ahmedabad-II 4 and the decision of the
Supreme Court in Medley Pharmaceuticals Ltd. vs. Commr. of C.
Ex., & Cus., Daman5, the appeal would have to be dismissed.
10. The issue before the Larger Bench in Cadila Pharmaceuticals
was also in respect of valuation of physician sample of medicines
4. 2008 (232) E.L.T. 245 (Tri.-LB)
5. 2011 (263) E.L.T. 641 (S.C.)
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supplied free of cost. The operative part of views expressed by the
majority is as follows:
"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."
11. The Supreme Court framed the question of law in one of the two
Civil Appeals in Medley Pharmaceuticals:
"Whether Physician samples manufactured and distributed
as free samples have to be assessed on the basis of cost
of manufacture plus normal profits, if any, earned on the
sale under Rule 6(b)(ii) of the Central Excise Valuation
Rules, 1975 (for short, "Rules 1975") upto 1st July, 2000
and thereafter, on application of Rule 8 of Central Excise
Valuation Rules, 2000 (for short, "Rules 2000") i.e. on
cost of manufacture plus 15% profit basis and not on pro-
rata basis as has been done by the Revenue?"
12. The following questions were framed by the Supreme Court in
the other Civil Appeal:
"(A) Whether "Physician Samples" are excisable goods
in view of the fact that they are statutorily prohibited from
being sold under the Drugs and Cosmetics Act, 1940 (in
short, "Drugs Act") and the Rules made thereunder?
(B) If physician's samples are held to be excisable,
then what is the appropriate method of valuing physician
samples for the purpose of excise duty?"
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13. After considering the earlier decisions, the Supreme Court
observed as follows:
"26. Therefore, the prohibition on the sale of Physician
Samples intended for distribution to medical practitioners
as free samples by Rule 65(18) of the Drugs Rules shall
have no bearing or effect upon the levy of excise duty
under the Act, since excise is a duty on manufacture, duty
is payable whether or not goods are sold. Excise duty is
payable even in case of free supply, since sale is not a
necessary condition for charging duty under the Act.
27. Even assuming that Shri. Ganesh is correct, when
he contends that physician samples are not allowed to be
sold in the open market in view of the statutory
prohibition on their sale, and hence are not marketable;
the Revenue is only concerned with the manufacture of
the goods and the possibility of marketability of the goods.
When the product is manufactured by a Pharmaceutical
Company, it is for the purpose of sale i.e., every such
product including Physician Sample is capable of being
sold in the open market, but the pharmaceutical company
makes the choice to distribute the same as a free sample.
In other words, it is not mandatory for the pharmaceutical
company to distribute free physician samples of every
drug they manufacture. This choice made by the
pharmaceutical companies in terms of Rule 96(1)(ix) of
the Drugs Rules by overprinting words 'Physician's sample
- Not to be sold' on the label of the drugs will not come in
the way of the Revenue from levying excise duty on the
drugs so manufactured.
*****
41. Now coming to the valuation of the physician samples for the purpose of levy of excise duty, in our view, this issue need not detain us long in view of the decision of this Court in the case of Commissioner of Central Excise v. M/s. Bal Pharma [Civil Appeal No. 1697 of 2006] [2010 (259) E.L.T. 10 (S.C.)]. This Court has upheld the conclusion of the Tribunal that the physician's samples have to be valued on pro-rata basis. The Tribunal, while 8 E/1652/2010 arriving at the aforesaid conclusion, had relied upon its earlier decision in the case of Commissioner of Central Excise, Calicut v. Trinity Pharmaceuticals Pvt. Ltd., reported as 2005 (188) E.L.T. 48, which has been accepted by the department. Therefore, we hold that physician samples have to be valued on pro-rata basis for the relevant period."
14. Thus, the contention of the appellant before the Supreme Court that the free physician samples have to be assessed on the cost of manufacture plus 15% profit as contemplated under rule 8 of the 2000 Rules was not accepted by the Supreme Court.
15. In the present appeal, the appellant has also determined the valuation under rule 8 of the 2000 Rules by adding 15% profit to the cost of manufacture. Such a determination of the assessable value has not been accepted by the Supreme Court. The Commissioner (Appeals), therefore, committed no illegality.
16. The appeal would, therefore, have to be dismissed and is dismissed.
(Order pronounced on 14.07.2023) (JUSTICE DILIP GUPTA) PRESIDENT (R. BHAGYA DEVI) MEMBER (TECHNICAL) Shreya