2016 (2) TMI 682 - AT - Central Excise

MRP price - Demand of differential duty for the period 14/7/2004 to 06/1/2005 in terms of value to be adopted under Rule 4 of the said Rules - Held that - As the respondent/assessee have correctly followed the valuation for the impugned goods in terms of Board Circular dated 01/7/2002. The Board has categorically stated that since the goods are not sold Section 4 (1) (a) will not apply and the value has to be arrived at in terms of Valuation Rules. No specific Rule covered such a contingency. Except Rule 8 all other Rules cover the situation where a sale is involved. Hence it was clarified that residuary Rule 11 will have to be adopted alongwith the spirit of Rule 8 and assessable value would be 115% of cost of manufacture of the said goods. We find in a similar situation that the Hon ble Supreme Court in the case of Biochem Pharmaceuticals Ind. Ltd. vs. CCE Vapi reported in (2015 (9) TMI 312 - SUPREME COURT) held that best judgment method in terms of Rule 7 of Erstwhile Central Excise (Valuation) Rules 1975 is the correct method. The Tribunal in the case of Alkem Laboratories Ltd. vs. CCE Daman reported in (2006 (7) TMI 30 - CESTAT MUMBAI ) held that physician sample distributed free of cost are to be valued under Rule 11 read with Rule 8 of the Central Excise Valuation Rules. Duty liability - period of duty payment - assessee have contested that for the whole impugned period they are liable to pay duty using the same cost construction method - Held that - We find that the Hon ble High Court of Bombay in the case of Indian Drugs Manufacturer s Association vs. Union of India reported in 2008 (2006 (9) TMI 94 - HIGH COURT BOMBAY) upheld the Circular dated 25/4/2005 issued by the Board and held that physician free samples should be valued in terms of Rule 4 of the Valuation Rules. As such we find no merit in the contention of respondent/ assessee for the period post 07/1/2005. Imposition of penalty - Held that - We find that considering the above discussion the issue involved in this case is one of interpretation of valuation provisions. The Board itself changed the view in 2005 superseding the instruction issued in 2002. As such we find no justification to impose a penalty on the respondent/assessee on this issue.

Summary

Issues:
1. Dispute over assessable value for physician samples for Central Excise Duty.
2. Application of Central Excise Valuation Rules and Circulars.
3. Imposition of penalty on the respondent/assessee.

Issue 1: Dispute over assessable value for physician samples for Central Excise Duty
The respondent, engaged in manufacturing bulk drugs and P&P Medicine, faced a dispute regarding the assessable value for physician samples distributed for free. Initially, the respondent calculated the value based on cost construction method. However, a Circular in 2005 changed the valuation method to be based on the Maximum Retail Price (MRP). The Revenue demanded differential duty for a specific period, which was confirmed by the Original Authority. The Commissioner (Appeals) upheld this decision, leading to the Revenue filing an appeal against the order.

Issue 2: Application of Central Excise Valuation Rules and Circulars
The Revenue argued that the Circular from 2005 should be applied for the entire demand period, emphasizing the valuation under Rule 4 of the Central Excise Valuation Rules. On the other hand, the respondent contended that Rule 4 should not be applied to physician samples distributed for free, and that Rule 11 should be followed along with Rule 8. The respondent also challenged the imposition of penalty, stating that they followed the Board's instructions until the Circular was revised in 2005.

Issue 3: Imposition of penalty on the respondent/assessee
The main contention revolved around the interpretation of valuation provisions and the change in the Board's view through the Circular issued in 2005. The Tribunal referenced previous judgments to support the respondent's position that the valuation should be done under Rule 11 read with Rule 8. The Tribunal dismissed the Revenue's appeal, stating that the demand for differential duty was not justified. Regarding the penalty, the Tribunal found no basis to penalize the respondent/assessee for following the Board's instructions until the change in the Circular in 2005.

In conclusion, the Tribunal dismissed the Revenue's appeal and the respondent's Cross Objection, except for setting aside the penalty imposed on the respondent/assessee. The judgment emphasized the importance of following the correct valuation rules and considering the changes in Circulars issued by the Board for Central Excise Duty calculations.