2017 (11) TMI 9 - AT - Central Excise

Valuation - physician samples cleared for free distribution - physician samples cleared on sale on principal to principle basis - Held that - In respect of physician samples cleared for free distribution inter alia res integra it has been conclusively decided that valuation of physician samples manufactured for free distribution are required to be made on the basis of pro-rata value of regular pack of comparable goods in terms of provisions of Rule 4 of Central Excise Valuation Rules, 1988 - The very issue was addressed by the Larger Bench in the case of Cadila Pharmaceuticals Ltd., 2008 (9) TMI 98 - CESTAT AHEMDABAD where it was held that physician samples being final product not supplied for captive consumption under Rule 8 of Valuation Rules is not applicable and Rule 4 ibid only would be applicable to such goods - appeal dismissed. Physician samples manufactured and sold on P or P basis - demand of differential duty - Held that - the controversy in this matter has been settled by the Tribunal decisions in Sidmak Laboratories India Ltd., reported in 2008 (9) TMI 360 - CESTAT, AHMEDABAD where it was held that in such cases that valuation under Section 4 of CEA 1944 was justified - appeal allowed. Penalty - Held that - there were clearly two views on the manner and method of valuation of physician samples supplied for free distribution - penalty set aside. Appeal allowed in part.

Summary

Issues: Valuation of physician samples cleared for free distribution and cleared on sale on a principal to principal basis.

Valuation of Physician Samples Cleared for Free Distribution:
The case involved the valuation of physician samples distributed for free by the appellants, manufacturers of P or P medicaments. The Department relied on a circular stating that free samples should be valued under Rule 4 of the Valuation Rules. The appellants had adopted a notional value for duty payment, but the Department argued that the transaction value should be determined under Section 4(1)(b) of the CEA 1994. The original authority confirmed a duty liability, interest, and penalty, which was upheld by the Commissioner (Appeals). The appellant contended that the demand was time-barred as they had paid duty based on prevailing legal positions. They cited similar cases where extended periods were not invoked. The Tribunal held that physician samples for free distribution should be valued based on the pro-rata value of regular packs of comparable goods, not the cost construction method. The appellant's method for payment of duty on free samples was deemed incorrect, and the duty liability was upheld.

Valuation of Physician Samples Sold on Principal to Principal Basis:
Regarding physician samples sold on a principal to principal basis, the appellants had adopted the transaction value for assessment. However, lower authorities disagreed with this approach. The Tribunal referred to previous decisions where it was held that valuation under Section 4 of the CEA 1944 was justified for such cases. The Tribunal set aside the part of the order confirming the duty liability on physician samples sold based on transaction value, allowing the appeal on this aspect.

Penalty Issue:
The issue of penalty arose due to differing views on the valuation of physician samples for free distribution. The Tribunal cited a case where it was held that if two views were possible for valuation, choosing a particular view cannot be faulted. Therefore, the imposition of penalty was deemed unjustified, and it was set aside. The appeal was partly allowed based on these terms.

In conclusion, the Tribunal upheld the duty liability on physician samples distributed for free based on pro-rata valuation and set aside the duty liability on samples sold on a principal to principal basis. The penalty imposed was deemed unjustified and was set aside as well.