2014 (1) TMI 1565 - AT - Central Excise

Valuation of goods - Duty on promotional pack and trade pack - Demand of differential duty - Penalty u/s 11AC - Imposition of redemption fine - Held that - to constitute a combination package it should be a package containing dissimilar commodities. In the present case, it is an undisputed fact that the trade packs and the promotional packs are packed separately and they are not packed in a single package. They are also dispatched to the dealers and the retailers separately. Therefore, it is difficult to accept the contention of the appellant that they constitute a combination package. The very conduct of the appellant in not packing them together and discharging excise duty separately on both of them, i.e., under Section 4A of the Central Excise Act in respect of the trade pack and under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 in respect of promotional pack clearly shows that the appellant themselves did not treat them as a combination package. The promotional pack is also a cosmetic product classifiable under Chapter 33 of the Central Excise Tariff and there is no dispute in this regard. Merely because the same is supplied free-of-cost, it does not obliterate the liability to pay excise duty of the promotional pack. It is a well settled position in law that excise duty is on manufacture and not on sale of the goods. Therefore, irrespective of the fact whether the goods are sold or otherwise dispose of, liability to excise duty is attracted, the moment the goods are manufactured. Therefore, notwithstanding the fact that the promotional packs are given free, they are liable to excise duty - 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. Appellant cannot take the plea that they become aware of the correct position of law only in 2008 which does not stand to any reason. Since the legal position was settled way back in 2006 itself, the appellant could not have entertained any bona fide belief with regard to their liability to discharge excise duty under Rule 4 read with Rule 11. This is all the more so when the appellant company s advocate Mr. Karl Shroff has also advised that duty liability has to be discharged in terms of Board s Circular dated 25/04/2005 as admitted by Shri Shailendra Goel in his statement before the investigating agency. Thus, the alibi of bona fide belief fails flat on its face - When the law stipulates imposition of mandatory penalty on account of suppression of facts, the same cannot be set aside or waived. The goods were seized and thereafter they were released on execution of bond/bank guarantee. Therefore, the decision to confiscate the goods and imposition of fine in lieu thereof is correct in law - Decided against assessee.

Summary

Issues Involved:
1. Valuation of promotional products.
2. Applicability of Rule 4 vs. Rule 8 of the Central Excise Valuation Rules.
3. Invocation of the extended period of limitation.
4. Imposition of penalties and fines.

Detailed Analysis:

1. Valuation of Promotional Products:
The appellant, M/s. L'Oreal India Pvt. Ltd. (LIPL), was determining the assessable value of promotional products under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, based on the cost of production plus 10% notional profit. This method was followed as per Board's Circular No. 643/34/2002-CX dated 01/07/2002. However, Circular No. 813/10/2005-CX dated 25/04/2005 clarified that free samples should be valued under Rule 4. Despite this, LIPL continued using Rule 8.

2. Applicability of Rule 4 vs. Rule 8 of the Central Excise Valuation Rules:
The Tribunal held that promotional products given free-of-cost are liable to excise duty, as excise duty is on manufacture, not sale. The appropriate rule for determining the value of promotional packs is Rule 4 read with Rule 11, not Rule 8. The Tribunal referenced the decision of the Bombay High Court in Indian Drug Manufacturer's Association vs. Union of India, which held that Rule 4 should be applied for free samples, and Rule 8 is applicable only for captive consumption.

3. Invocation of the Extended Period of Limitation:
The Tribunal found that the appellant was aware of the Circular dated 25/04/2005 but continued to use Rule 8 for valuation. The appellant did not disclose the free supply of promotional products in their ER-1 returns or invoices, constituting suppression of facts. Therefore, the invocation of the extended period for confirming the duty demand was justified.

4. Imposition of Penalties and Fines:
The Tribunal upheld the imposition of penalties under Section 11AC and Rule 25, stating that the appellant could not claim a bona fide belief regarding their duty liability under Rule 8, given the clear legal position established by the Circular and judicial decisions. The confiscation of goods and imposition of fines were also upheld, as the goods were seized and released on bond/bank guarantee.

Conclusion:
The appeal was dismissed, and the Tribunal confirmed the duty demand, interest, penalties, and fines against the appellant. The decision emphasized the correct application of Rule 4 for valuing promotional products and justified the extended period of limitation due to suppression of facts by the appellant.