2017 (12) TMI 548 - AT - Central Excise

Penalty u/s 11AC - Valuation - whether the valuation of physician samples supplied free of cost is governed by Rule 8 of Central Excise Valuation (Determination of price of excisable goods) Rules, 2000 i.e. 110% of cost of manufacture or pro rata of MRP of trade pack? - Held that - there is no dispute that issue on valuation of free supply of physician s samples was contentious and interpretation of valuation of provision was involved. The board circular dated 1-7-2002 also clarified that valuation of physician samples should be in terms of Rule 8 - the suppression of facts or malafide intention to evade duty cannot be alleged on the appellant, therefore penalty under Section 11AC was wrongly imposed upon them - appeal allowed - decided in favor of appellant.

Summary

Issues involved: Valuation of physician samples supplied free of cost under Central Excise Valuation Rules and imposition of penalty under Section 11AC.

Valuation of physician samples: The issue revolved around whether the valuation of physician samples supplied free of cost should be based on Rule 8 of Central Excise Valuation Rules, which stipulates 110% of the cost of manufacture or pro rata of the Maximum Retail Price (MRP) of the trade pack. The appellant did not contest the duty liability, citing a Larger Bench decision and a board circular in their favor. They sought relief only in waiving the penalty under Section 11AC, arguing that they believed in good faith that the duty paid based on Rule 8 valuation was correct and legal. The appellant emphasized the lack of suppression of facts or malicious intent to evade duty as reasons for penalty waiver.

Penalty under Section 11AC: The Revenue, represented by the Assistant Commissioner, maintained the findings of the impugned order, advocating for upholding the penalty. However, the Tribunal, after considering both sides' submissions and reviewing the records, acknowledged the contentious nature of the valuation issue regarding physician samples. They noted the board circular clarifying the valuation method and the resolution of the matter by a Larger Bench. The Tribunal concluded that since there was no evidence of suppression of facts or malicious intent on the part of the appellant, the penalty under Section 11AC was wrongly imposed. Consequently, the Tribunal upheld the duty and interest demand while setting aside the penalty under Section 11AC, ultimately allowing the appeal in favor of the appellant.

This judgment highlights the significance of adherence to valuation rules in excise matters, the impact of relevant precedents and circulars, and the criteria for imposing penalties under Section 11AC, emphasizing the absence of fraudulent intent or factual suppression as crucial factors in penalty decisions.