2009 (4) TMI 704 - AT - Central Excise

Demand - Valuation - job work - products on free sample to doctors and hospitals - transaction value under Section 4 or under Section 4A of the Act?

Summary

Issues Involved:
1. Valuation method for physician samples.
2. Applicability of Section 4A of the Central Excise Act.
3. Legitimacy of the transaction value.
4. Applicability of Board's Circular dated 25-4-2005.
5. Imposition of penalty and interest.

Detailed Analysis:

1. Valuation Method for Physician Samples:
The appellants, manufacturers of pharmaceutical products, cleared physician samples and discharged Central Excise Duty using the Cost Construction Method under Rule 8 of the Central Excise Valuation Rules, 2000. The proceedings initiated against them argued that valuation should be determined under Rule 4, as per Board's Circular dated 25-4-2005. The differential duty was calculated based on this rule, leading to a demand for Rs. 1,50,91,849/- and a penalty of Rs. 15,00,000/-.

2. Applicability of Section 4A of the Central Excise Act:
The appellant contended that Section 4A, which pertains to the valuation of goods based on the Maximum Retail Price (MRP), was not applicable since the goods were not meant for retail sale but for free distribution. They cited the Board's Circular dated 28-2-2002 and a decision by the Mumbai CESTAT in the case of Rallies India Limited, which supported their stance that goods not intended for retail sale should be assessed under Section 4, not Section 4A.

3. Legitimacy of the Transaction Value:
The appellants argued that duty had been discharged on the transaction value for their own goods and on the cost construction method for loan licensee products, following the Supreme Court's decision in Ujagar Prints. They contended that the Commissioner's finding that the sale of samples to buyers for free distribution was not genuine was incorrect, as no extra consideration was received.

4. Applicability of Board's Circular dated 25-4-2005:
The appellants argued that the Circular dated 25-4-2005 was not applicable because it pertained to samples distributed free by the manufacturer, whereas in their case, the samples were sold to buyers who then distributed them free. The Tribunal agreed, stating that the clarification related to free samples distributed as part of a marketing strategy did not apply to their case.

5. Imposition of Penalty and Interest:
The Tribunal found that the Show Cause Notice was defective as it did not clearly state whether the goods were cleared free of cost. The Tribunal concluded that the differential duty demand based on the Board's Circular was incorrect and set aside the impugned order, allowing the appeal with consequential relief.

Conclusion:
The Tribunal concluded that the valuation of physician samples should be based on the transaction value when sold to buyers, and the Board's Circular dated 25-4-2005 did not apply. The imposition of differential duty, penalty, and interest was deemed unjustified, and the appeal was allowed with consequential relief.