2016 (7) TMI 298 - AT - Central Excise

Valuation - sale of medicines through their intermediaries - related parties - The supplies made to the said intermediaries were at a lower price than agreed upon between the appellant manufacturer with the Government department in terms of the rate contract entered between the two. The said intermediaries further raised invoices to various Government hospitals and sold the goods at the agreed upon prices. - Held that - The fact that the goods stands supplied directly by the manufacturer and it is only the invoices which are initially being raised by them in the name of M/s Anupam, who are further raising the invoices in the name of the Government hospital is indicative of the cleverly adopting the fictitious route by the manufacturer. Even if viewed from another angle, the part of the goods which stand directly supplied by the manufacturer to the Government hospital having been assessed at the contracted price, a part of the goods in respect of the same very contract cannot be allowed to be assessed on a different assessable value merely because the appellant have roped in an intermediary agency in between. The appellant were required to discharge the duty liability at the contracted price in respect of the goods supplied by them to the Government hospitals, either directly or through M/s Anupam. Demand of duty confirmed - Decided against the assessee.

Issues Involved:
1. Determination of assessable value for duty calculation.
2. Legality of the intermediary's role.
3. Invocation of the extended period of limitation.
4. Application of Section 11D of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Determination of Assessable Value for Duty Calculation:
The primary issue was whether the clearance of goods by M/s BDIL to M/s Anupam for further dispatch to government authorities should attract duty at the value at which the goods were sold to M/s Anupam or at the contracted value with the government. The Tribunal found that M/s BDIL had entered into a rate contract with the State of Maharashtra for the supply of medicines at a contracted price, with goods marked for government supply only. The Tribunal held that M/s Anupam acted merely as a facilitating or recovery agency rather than an independent distributor. Consequently, the duty was required to be paid at the contracted price, not the transaction value between M/s BDIL and M/s Anupam, as the transaction was not on a principal-to-principal basis. The Tribunal concluded that the modus operandi adopted by M/s BDIL was an attempt to evade payment of duty.

2. Legality of the Intermediary's Role:
The Tribunal examined whether M/s Anupam could be considered a distributor or merely an intermediary agency. It was observed that a distributor is typically free to sell goods in the market at any price. However, M/s Anupam was restricted to selling the goods only to government agencies as per the contract. The Tribunal determined that M/s Anupam's role was to facilitate the recovery of payments from government authorities, indicating that M/s Anupam was not an independent distributor but a facilitating agency. Therefore, the assessable value should be the contracted price between M/s BDIL and the government agencies.

3. Invocation of the Extended Period of Limitation:
The appellant challenged the demand on the grounds of limitation, arguing that the show cause notice was issued beyond the normal period of limitation. The Tribunal noted that M/s BDIL had not disclosed the routing of goods through M/s Anupam in any statutory documents filed with the Central Excise authorities. The Tribunal found that the arrangement was a deliberate attempt to evade duty, justifying the invocation of the extended period of limitation. The detailed investigation and scrutiny of records revealed the true nature of the transactions, supporting the Revenue's position.

4. Application of Section 11D of the Central Excise Act:
The Revenue's appeal concerned the confirmation of duty under Section 11D, alleging that M/s BDIL collected amounts representing excise duty from government agencies but did not deposit the same with the Revenue. The Tribunal upheld the Commissioner (Appeals)'s decision, which found that the invoices for the differential amount were issued by M/s Anupam, not M/s BDIL, and did not clearly indicate that the amounts collected represented excise duty. The Tribunal concluded that the revision of prices due to increased excise duty was not attributable solely to excise duty, and the appropriate duty had been paid at the time of clearance. Therefore, Section 11D was not applicable, and any short-paid duty could only be demanded under Section 11A, which was time-barred for the period in question.

Conclusion:
All appeals filed by the assessee and the Revenue were rejected. The Tribunal affirmed that M/s BDIL was required to discharge duty liability at the contracted price for goods supplied to government hospitals, either directly or through M/s Anupam. The invocation of the extended period of limitation was justified due to the deliberate attempt to evade duty. The Revenue's appeal under Section 11D was dismissed, as the differential amount collected was not solely attributable to excise duty, and the appropriate duty had been paid at the time of clearance.

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