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2017 (10) TMI 1295 - HC - Central ExciseVires of section 4A of the Central Excise Act, 1944 - According to the petitioner, the said provision is beyond the legislative competence of Union Legislature - charging excise duty under section 4A of the Act on the trade discount provided by the petitioners in the shape of free medicines on bulk purchases - levy of duty on the free samples provided to the doctors - related party transaction. Validity of section 4A of the Act - Held that - The concept of not levying duty on taxes is retained also under section 4A where the Central Government while providing amount of abatement in such retail sale price would take into account the amount of duty of excise, sales tax and other taxes if any payable on such goods. It is true that retail sale price of the MRP would take into account certain post sale costs which may not be borne or payable by the seller and would also include the profit of the successive dealers. However, the abatement that the Government may allow in the retail sale price would also be expected to take into account such factors in addition to the duties of excise, sales tax and other taxes which may be payable. Though no specific formula is provided for providing such abatement and it may be that in a given case the abatement that the Government may permit under the notification may not entirely neutralize of such costs, the question is would that by itself render the provision unconstitutional? The concept, that the duty of excise is to be charged on manufacturing costs and manufacturing profits is all too well settled and recognized. However, its application to every case may have a different element. In case of Cibatul Limited. P.O. Atul (supra) the Division Bench of this Court considered the constitutionality of an amendment in section 4 of the Act through which the Parliament introduced the concept of a related person for charging of duty of excise. In case the seller and buyer were found to be related persons, as per the definition contained therein, the excise duty would be charged not on the price which the manufacturer charges his buyer but on the price which the buyer would charge from his ultimate customers - The Court referred to large number of judgements of Supreme Court to observe that the duty of excise, within the meaning of Entry 84 in the Union list, is a tax on manufacture or production. It must be linked with the manufacture or production of excisable article. It can be levied on the assessable value of excisable goods which consists of the manufacturing costs and manufacturing profits and which cannot be loaded with post-manufacturing costs and post manufacturing profits such as those which arise out of subsequent sales. On such basis, the Court declared that the relevant amendment in section 4 of the Act is ultra vires the Parliament s legislative competence. Duty on free samples provided to the doctors - Held that - Under sub-section (1) of section 4A itself, the Central Government can notify goods in relation to which, under the provisions of the Standards of Weights and Measures Act or the rules made there under, it is necessary to declare on package, the retail sale price of such goods. The free samples provided to the doctors on the contrary contain necessary declaration required under the law that the samples are free of charge and are not for sale in the market. The very first requirement of sub-section (1) of section 4A of the Act in such a case fails. For such reasons duty of excise cannot be levied on such free samples in terms of section 4A of the Act - it is absolutely clear that the Valuation Rules of 2000 would apply in a case where the duty of excise is levied under section 4 of the Act. The respondents cannot seek to levy duty under section 4A but apply the method of computation of the value of the goods which is devised for the purpose of section 4 of the Act. Clarificatory instructions dated 25.04.2005 do not lay down correct position in law. The petitioner s challenge to the vires of section 4A of the Act fails - the excise duty on the doctors free samples can be levied only under section 4 of the Act and not under section 4A. Petition disposed off.
Issues Involved:
1. Constitutional validity of section 4A of the Central Excise Act, 1944. 2. Levy of excise duty on free samples provided to doctors. Issue-wise Detailed Analysis: 1. Constitutional Validity of Section 4A of the Central Excise Act, 1944: The petitioner challenged the vires of section 4A of the Central Excise Act, 1944, claiming that the provision is beyond the legislative competence of the Union Legislature. The petitioners argued that excise duty should be charged based on manufacturing costs and profits, not on the retail sale price (MRP), which includes post-manufacturing costs and dealer profits. They contended that this method partakes the character of sales tax, which is outside the purview of the Union Legislature. The court analyzed the statutory provisions, noting that section 3 of the Central Excise Act is the charging section for levy of central excise duty, and section 4 pertains to the valuation of excisable goods. Section 4A, inserted w.e.f. 14.05.1997, allows the Central Government to collect excise duty based on the MRP of specified goods, less an abatement. The court referred to previous judgments, including the Supreme Court's decision in *Union of India v. Bombay Tyre International Ltd.*, which upheld the broader-based standard for assessing excise duty, not limited to manufacturing costs and profits. The court concluded that the legislative change to levy excise duty on MRP, less abatement, is within the legislative competence of the Union Parliament. The abatement accounts for excise duty, sales tax, and other taxes. The court held that section 4A is constitutionally valid. 2. Levy of Excise Duty on Free Samples Provided to Doctors: The petitioner challenged the levy of excise duty on free samples provided to doctors, arguing that these samples do not carry an MRP and are not meant for sale in the market. The court examined section 4A and noted that it applies to goods with a declared retail sale price. Since free samples are labeled "Physician's sample-Not to be sold" and do not have an MRP, they do not fall under section 4A. The court referred to the Supreme Court's decision in *Medley Pharmaceuticals Ltd. v. Commissioner of Central Excise and Customs, Daman*, which held that excise duty is payable on free samples as excise is a duty on manufacture, not on sale. However, the court clarified that the duty on free samples should be levied under section 4, not section 4A. Conclusion: 1. The challenge to the vires of section 4A of the Central Excise Act fails. 2. Excise duty on doctors' free samples can only be levied under section 4 of the Act, not section 4A. 3. Any instructions and directions to the contrary are set aside. Clarification: The court clarified that this declaration does not automatically entitle the petitioners to a refund. Any refund applications should be decided in accordance with the law.
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