2015 (12) TMI 670 - SC - Central Excise

Valuation - physician samples were given free of cost by the distributors and not by the manufacturer - Determination of transaction value - Held that - Assessee had put up the defence that since physician samples were not meant for sale by distributors but were to be given free of cost to the physicians, the assessee had charged lesser price. This statement of the assessee had not been doubted. The only reason in the Show Cause Notice given was that since the physician samples were given free of cost by the distributors and no price was charged, the case was not covered by the provisions of Section 4(1)(a) of the Act. This is clearly fallacious and wrong reason. The transaction in question was between the assessee and the distributors. Between them, admittedly, price was charged by the assessee from the distributors. What ultimately distributors did with these goods is extraneous and could not be the relevant consideration to determine the valuation of excisable goods. When we find that price was charged by the assessee from the distributors, the Show Cause Notice is clearly founded on a wrong reason. The case would squarely be covered under the provisions of Section 4(1)(a) of the Act. In view thereof, the Central Excise Rules would not apply in the instant case. - decision dated 10.11.2006 rendered by the CESTAT depicts the correct position of law and rightly holds that the case would be covered by the provisions of Section 4(1)(a) of the Act and in view thereof Rule 6(b)(ii) of the Rules would not apply. - Decided against Revenue.

Summary

Issues:
- Conflict in decisions by Customs, Excise and Service Tax Appellate Tribunal (CESTAT) regarding the 'transaction value' of goods sold by M/s. Sun Pharmaceuticals Industries Limited (SPIL) as physician samples to distributors.
- Interpretation of Section 4(1)(a) of the Central Excise Act, 1944 in relation to the valuation of excisable goods sold by the assessee.
- Application of Central Excise Valuation Rules, 1975 in determining the value of goods sold as physician samples.

Analysis:
The Supreme Court addressed the conflicting decisions of CESTAT regarding the 'transaction value' of goods sold by SPIL as physician samples. The dispute arose as the goods were sold at different prices to distributors and ultimate consumers. The Revenue contended that since physician samples were cleared for free distribution, the value should be determined as per Section 4(1)(b) of the Act, invoking Rule 6(b) of the Rules. However, CESTAT in its judgment dated 10.11.2006 accepted the plea of the assessee, leading to Revenue's appeal in Civil Appeal Nos. 3742-3744 of 2007.

In another appeal, Civil Appeal No. 3263 of 2009, a Show Cause Notice raised similar issues for different periods. The Technical Member of CESTAT held that the price was not the sole consideration as physician samples were meant for free distribution, while the Judicial Member took a contrary view. The Supreme Court found that CESTAT had exceeded the grounds of the Show Cause Notice in its judgment dated 27.02.2009, leading to the allowance of Civil Appeal No. 3263 of 2009.

The central issue revolved around the applicability of Section 4(1)(a) of the Act, which states that the transaction value shall be considered for excisable goods sold by the assessee. The Court emphasized that the transaction between the assessee and distributors, where a price was charged, was crucial for valuation. The Show Cause Notice's reasoning, based on goods not being sold to physicians, was deemed fallacious. Thus, the case fell under Section 4(1)(a), and Rule 6(b)(ii) of the Rules did not apply.

Consequently, the Court upheld the decision of CESTAT dated 10.11.2006, dismissing Civil Appeal Nos. 3742-3744 of 2007. The Court further dismissed all related appeals of the Revenue on the same issue, following the established legal position.