2008 (7) TMI 179 - AT - Central Excise

Respondent cleared physician samples which were not for sale, by arriving at the assessable value on cost construction basis - Revenue, proceeded against the Respondent in respect of the valuation of the physician samples cleared by them free of cost - decision of the Commissioner (A) s that the valuation should be done u/r 11 Read with Rule 8 of the Central Excise Valuation Rules, 2000 which amounts to valuation on the basis of cost construction, is justified revenue appeal rejected

Issues Involved:
1. Correct method of valuation of physician samples distributed free.
2. Applicability of Rule 11 read with Rule 8 versus Rule 4 of the Central Excise Valuation Rules, 2000.
3. Interpretation of Board's Circulars dated 1-7-2002 and 25-4-2005.
4. Relevance of the Bombay High Court's decision on the valuation of physician samples.
5. Whether Section 4A of the Central Excise Act applies to physician samples.

Issue-Wise Detailed Analysis:

1. Correct Method of Valuation of Physician Samples Distributed Free:
The primary issue was whether the valuation of physician samples distributed free should be determined under Rule 4 or Rule 11 read with Rule 8 of the Central Excise Valuation Rules, 2000. The Respondent had cleared physician samples by arriving at the assessable value on a cost construction basis from 21-1-2003 onwards. The Central Board of Excise and Customs had issued Circulars on 1-7-2002 and 25-4-2005 for the valuation of free samples. According to the Circular dated 25-4-2005, the valuation of free samples should be determined under Rule 4. However, the Commissioner (Appeals) decided that the valuation should be done under Rule 11 read with Rule 8, which involves valuation on the basis of cost construction. The Respondent's action of paying duty in such a manner was approved by the Commissioner (Appeals).

2. Applicability of Rule 11 Read with Rule 8 versus Rule 4 of the Central Excise Valuation Rules, 2000:
The Revenue argued that the valuation of physician samples should be determined under Rule 4, as clarified by the Board's Circular dated 25-4-2005. The Commissioner (Appeals) relied on the decision of the Hon. CESTAT (LB) in the case of Alkem Laboratories Ltd. v. CCE, Daman, which ordered the valuation under Rule 11 read with Rule 8. The Revenue contended that this decision was not applicable to the present case since the period covered was prior to the Circular dated 25-4-2005. The Commissioner (Appeals) reasoned that since physician samples are not sold, Rule 11 read with Rule 8 is the most appropriate method, aligning with Section 4 of the Central Excise Act.

3. Interpretation of Board's Circulars Dated 1-7-2002 and 25-4-2005:
The Revenue cited the Board's Circular dated 25-4-2005, which clarified that the valuation of free samples should be determined under Rule 4. The Respondent argued that the Circular dated 1-7-2002 indicated valuation under Rule 11 read with Rule 8. The Bombay High Court dismissed the writ petition challenging the validity of the Circular dated 25-4-2005, stating that physician samples must be valued under Rule 4, as they are similar to goods sold in the market. The Commissioner (Appeals) concluded that the Circular dated 25-4-2005 did not mandate valuation under Section 4A, which applies to goods with an MRP.

4. Relevance of the Bombay High Court's Decision on the Valuation of Physician Samples:
The Bombay High Court upheld the validity of the Circular dated 25-4-2005 but did not rule that physician samples must be valued based on Section 4A price. The Court observed that if the valuation cannot be determined under specific rules, Rule 11 should be used, consistent with the principles and general provisions of the 2000 Rules and Section 4(1) of the Act. The Commissioner (Appeals) reasoned that since physician samples are not sold, Section 4A does not apply, and Rule 11 read with Rule 8 is appropriate.

5. Whether Section 4A of the Central Excise Act Applies to Physician Samples:
The Commissioner (Appeals) analyzed that Section 4A, which involves MRP-based valuation, does not apply to physician samples as they are not sold and do not require MRP affixation under the Standards of Weights and Measures Act. The Respondent argued that the value for physician samples should not be based on pro-rata value arrived at under Section 4A. The Supreme Court's decisions in Jayanti Food Processing (P) Ltd. v. CCE and CCE v. Acer India Ltd. were cited, emphasizing that when goods are not sold, Section 4A valuation cannot be indirectly applied.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s order, agreeing that the valuation of physician samples should be done under Rule 11 read with Rule 8, using the cost construction method. The Tribunal found no merit in the Revenue's appeal, stating that the Bombay High Court did not mandate valuation based on Section 4A price and that the valuation rules support the Commissioner (Appeals)'s reasoning. The appeal was rejected, and the impugned order was upheld.

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