2018 (3) TMI 988 - AT - Central Excise

Valuation - physician samples which are distributed free as part of marketing strategy, or as a gift or donation to doctors - The appellants are seeking to apply Rule 11 read with Rule 8 whereas Revenue is seeking to apply Rule 11 read with Rule 4 of the Central Excise Rules. Held that - the physician samples are not sold by the appellants but are cleared free cost. It is not the appellant s case that any of the Rule 4 to 10 of the Central Excise Valuation (determination of price of excisable goods) Rules 2000 are directly applicable. Since no transaction value available, the assessment cannot be done under Section 4 (1) (a) and the assessment has to be done under Section 4 (1) (b). The assessment cannot be done under Section 4A as the said goods are not marked with MRP. It is apparent that neither Rule 4 nor Rule 8 of the Central Excise Valuation (determination of price of excisable goods) Rules, 2000 are directly applicable to the situation and both the rules have to be applied as reasonable alternatives with suitable adjustments in terms of Rule 11 of the Central Excise Valuation (determination of price of excisable goods) Rules, 2000 - In the instant case, it is seen that identical goods different only in respect of size of packing and marking of MRP, are being assessed under Section 4A of the Central Excise Act and such comparable value after suitable adjustments can be adopted for the purpose of assessment of physician samples in terms of Rule 4 of Central Excise Valuation (determination of price of excisable goods) Rules, 2000. This does not amount to application of Section 4A of the Central Excise Act to physician samples. Appeal dismissed - decided against appellant.

Issues Involved:
1. Valuation of physician samples distributed free of cost.
2. Applicability of Rule 4 vs. Rule 8 of the Central Excise Valuation Rules, 2000.
3. Interpretation of relevant case laws and judicial precedents.
4. Application of Section 4(1)(b) of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Valuation of Physician Samples Distributed Free of Cost:
The core issue in this case revolves around the valuation of physician samples distributed free of cost by M/s. FDC Ltd. The appellant contested the confirmation of duty demand on these samples, arguing that they should not be subject to the same valuation rules as goods sold in the market. The tribunal referred to a previous decision in the case of Blue Cross Laboratories, which had addressed similar arguments.

2. Applicability of Rule 4 vs. Rule 8 of the Central Excise Valuation Rules, 2000:
The tribunal analyzed whether Rule 4 or Rule 8 of the Central Excise Valuation Rules, 2000, should be applied to determine the value of physician samples. The Bombay High Court in Indian Drugs Manufacturers Association held that Rule 4 is applicable for the valuation of physician samples, as these samples are not sold but distributed free of cost. Rule 4 provides that the value of excisable goods should be based on the value of similar goods sold at the nearest time to the removal of the goods in question. Rule 8, which pertains to goods not sold but used in the production of other articles, was deemed inapplicable since physician samples are not used for such purposes.

3. Interpretation of Relevant Case Laws and Judicial Precedents:
The tribunal examined various judicial precedents, including the Bombay High Court's decision in Indian Drugs Manufacturers Association and the Supreme Court's ruling in Biochem Pharmaceuticals Industries Ltd. The tribunal noted that the Supreme Court's decision in Biochem Pharmaceuticals was based on the Central Excise Valuation Rules, 1975, which differed from the 2000 Rules. The tribunal emphasized that the Bombay High Court's interpretation of Rule 4 as applicable to physician samples was consistent with the principles and general provisions of the 2000 Rules.

4. Application of Section 4(1)(b) of the Central Excise Act:
The tribunal affirmed that the valuation of physician samples must be determined under Section 4(1)(b) of the Central Excise Act, read with the 2000 Rules. Since physician samples are not sold and do not have a transaction value, the assessment cannot be done under Section 4(1)(a). The tribunal concluded that Rule 4, read with Rule 11, provides a reasonable means of valuing physician samples by using the value of similar goods sold in the market, with necessary adjustments.

Conclusion:
The tribunal dismissed the appeal, upholding the application of Rule 4 for the valuation of physician samples distributed free of cost. The tribunal reiterated that the valuation should be based on the value of similar goods sold at the nearest time to the removal of the physician samples, as per the principles outlined in the Bombay High Court's decision in Indian Drugs Manufacturers Association. The tribunal found no merit in the appellant's arguments for applying Rule 8 or other methods inconsistent with the established legal framework.

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