2009 (2) TMI 836 - AT - Central Excise

Valuation - Physician samples - Related person - whether the transaction value at which the physician s samples have been sold by the appellant to M/s. Aditya Medisales Ltd. is required to be adopted for the purposes of duty, in terms of provisions of Section 4(1)(a) of the Central Excise Act or resort is required to be made to Section 4(1)(b) read with the Central Excise Valuation Rules

Summary

Issues Involved:
1. Determination of the correct assessable value for physician samples under Section 4(1)(a) of the Central Excise Act.
2. Whether the transaction value at which the physician samples were sold should be accepted or if valuation rules should be applied.
3. The relevance of the relationship between the appellant and the consignee in determining the transaction value.
4. The role of free distribution of physician samples in the valuation process.
5. The applicability of penalties in the case of valuation disputes.

Issue-wise Detailed Analysis:

1. Determination of the correct assessable value for physician samples under Section 4(1)(a) of the Central Excise Act:

The appellant, engaged in the manufacture of P.P. Medicines, sold physician samples (P.S. Packs) to M/s. Aditya Medisales Ltd. under proper Central Excise invoices. The Commissioner (Appeals) held that the transaction value should be accepted since the sale was on a Principal to Principal basis, the consignee was not a related person, and there was no additional consideration or financial flowback. The Commissioner observed that all the ingredients of Section 4(1)(a) were fulfilled, and the declared value in the invoices should be accepted as the transaction value.

2. Whether the transaction value at which the physician samples were sold should be accepted or if valuation rules should be applied:

The Revenue appealed, arguing that the price charged by the assessee could not be treated as the normal price because the price was not the sole consideration. They contended that the overall control of delivery and distribution remained with the respondent, and the samples were distributed free to physicians by the employees of the respondent, indicating that the sale to M/s. Aditya Medisales Ltd. was a paper transaction. The Tribunal considered whether the transaction fulfilled all the requirements of Section 4(1)(a), particularly if the price was the sole consideration. The Tribunal concluded that the conditions were not met, as the control and distribution of the goods remained with the seller, necessitating the application of valuation rules.

3. The relevance of the relationship between the appellant and the consignee in determining the transaction value:

The respondent argued that M/s. Aditya Medisales Ltd. was not a related person and the transactions were on a Principal to Principal basis. The Tribunal noted that no evidence was provided by the Revenue to show that M/s. Aditya Medisales Ltd. was a related person or that there was a financial flowback. However, it was emphasized that the price should be the sole consideration, which was not the case here due to the control over distribution by the appellant.

4. The role of free distribution of physician samples in the valuation process:

The Tribunal observed that M/s. Aditya Medisales Ltd. did not sell the physician samples but distributed them free of cost through the appellant's employees. This indicated that the price was not the sole consideration, as the distribution expenses were borne by the appellant. The Tribunal distinguished this case from previous decisions where the overall control of the goods did not remain with the appellant, and the free distribution was not done by their employees.

5. The applicability of penalties in the case of valuation disputes:

The Member (Judicial) disagreed with the imposition of penalties, noting that the entire dispute was a bona fide dispute of valuation. It was argued that the imposition of penalties by the original adjudicating authority was not justified and was rightly set aside by the Commissioner (Appeals). The Member (Judicial) emphasized that the transaction value should be adopted as the correct assessable value, as the sale was on a Principal to Principal basis, and there was no flowback of money.

Separate Judgments:

- Member (Technical): Concluded that the transaction did not fulfill all the requirements of Section 4(1)(a) as the price was not the sole consideration, and allowed the Revenue's appeal.
- Member (Judicial): Held that the transaction value should be accepted as the sale was on a Principal to Principal basis, and rejected the Revenue's appeal.
- Third Member (Technical): Agreed with the Member (Technical), allowing the Revenue's appeal and setting aside the order of the Commissioner (Appeals).

Final Order:

In view of the majority order, the Revenue's appeal was allowed, and the impugned order passed by the Commissioner (Appeals) was set aside.