2013 (1) TMI 582 - AT - Central Excise

Demand - Clandestine removal - Intention to evade excise duty liability Bona fide belief - Assessee is manufacturer of Patent and Proprietary medicines Valuation of physician samples - Manufacturing both exempted products and dutiable products - Issuing two sets of invoices - One set called central excise invoices for paying excise duty - Another set of invoices called challan-cum-invoices for other commercial purposes - Clear the goods under his challan-cum-invoice rather than under excise invoice CENVAT Credit short reversed under rule 57CC of the Central Excise Rules, 1944 - Free replacements of defective goods without payment of duty - Assessee was not paying duty on goods which was cleared free Held that - Following the decision in case of Kalvert Foods India Pvt. Ltd. (2011 (8) TMI 24 - SUPREME COURT OF INDIA) and we are not in agreement that the assessee entertained a bona fide impression that he need not pay excise duty on manufactured goods if it was cleared free. This is because the legal position that liability to excise duty arises when any goods are cleared from a factory whether for consideration or for free is a long settled issue. Further the excise liability on physician samples cleared free, was always known to the drug industry for decades. There were disputes only about method of valuation to be followed and not about the duty liability. The respondent is not a tiny manufacturer with no awareness of what happens in the industry. The fact that the respondent took care to clear the goods under his challan-cum-invoice rather than under excise invoice showing nil payment of duty shows his clear intent to evade excise liability. Valuation of physicians sample Held that - Following the decision in case of BLUE CROSS LABORATORIES LTD. (2006 (8) TMI 220 - CESTAT, MUMBAI) that goods have to be valued on the basis of value of identical goods. Free replacement of damaged/defective goods - Time expired medicines Held that - we hold that extended period of time could not have been invoked for demanding duty short paid. Demand on account of improper reversal of credit under Rule 57CC Lapsed credit - Held that - The liability is for the period before the lapsing of credit though determined after the date of lapsing. In such situation it is only proper that a set off on account of such lapsed credit is given because of such liability was determined correctly during the relevant time the credit would have been available for discharging such liability. In favour of assessee

Summary

Issues:
1. Allegation of clandestine removal of goods.
2. Valuation of physician samples.
3. Utilization of expired credit for discharging duty liability.
4. Duty on free replacement of damaged goods and time-expired medicines.
5. Set off allowed for demand on account of improper reversal of credit under Rule 57CC.

Analysis:
1. The case involved an allegation of clandestine removal of goods by small scale manufacturers of Patent and Proprietary medicines. The Revenue contended that the manufacturers were issuing two sets of invoices, one for excise duty payment and another for commercial purposes. The duty demand was confirmed against them for not accounting for the full production of goods and not paying duty on all manufactured goods. The Commissioner (Appeals) upheld the demand on some grounds but allowed certain credits. The Revenue challenged this decision, arguing that the manufacturers were clearing goods without paying duty, constituting clandestine removal.

2. Regarding the valuation of physician samples, the Revenue argued that the goods should be valued based on identical goods cleared by the manufacturer on payment of excise duty. The Commissioner (Appeals) had determined the value differently, leading to the Revenue's appeal. The respondent claimed they were not aware of the duty requirement on such samples and had a bona fide belief that no duty was payable. However, the Tribunal held that the liability to pay duty on all cleared goods, including free samples, was well-established in law.

3. The issue of utilizing expired credit for discharging duty liability under Rule 57CC was raised. The Revenue contended that there was no provision for such utilization, and the Commissioner (Appeals) erred in allowing it. The Tribunal disagreed, stating that in this case, where the liability was for a period before the lapsing of credit, set off against lapsed credit was appropriate, as the liability would have been discharged if determined correctly during the relevant time.

4. The question of duty on free replacement of damaged goods and time-expired medicines was considered. The respondent argued that they believed no duty was payable based on previous Tribunal decisions. The Tribunal accepted this belief as reasonable and held that the extended period for demanding short-paid duty could not be invoked in this case.

5. Finally, the Tribunal directed the respondent to pay the duty short-paid along with interest and penalty within 30 days. The decision was based on a precedent from the Gujarat High Court. Failure to make the payments within the specified time would result in the liability equal to the duty short-levied becoming payable. The appeal was disposed of accordingly.