2018 (3) TMI 1053 - AT - Central Excise

Valuation - physician samples which are distributed free as part of marketing strategy, or as a gift or donation to doctors - applicability of Rule 11 of the Central Excise (Valuation) Rules - 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 - it is seen that the physician samples are not sold by the appellants but are cleared free cost. It is not the appellants 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 - 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. This is only a measure of taking an alternate value of similar goods for the purpose of Central Excise (Valuation) Rules, 2000 in terms of Rule 11 thereof. Appeal dismissed - decided against appellant.

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

Detailed Analysis:

1. Valuation of Physician Samples Distributed Free of Cost:
The core issue revolves around the valuation of physician samples that are distributed free of cost as part of a marketing strategy. The dispute is whether the valuation should be done under Rule 4 or Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The Tribunal referred to the case of Blue Cross Laboratories, where it was established that physician samples, though not sold, are identical in quality to the goods sold in the market. The Bombay High Court in Indian Drugs Manufacturers Association held that physician samples must be valued under Section 4(1)(b) of the Central Excise Act read with Rule 4 of the 2000 Rules.

2. Applicability of Rule 4 versus Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000:
The Tribunal examined whether Rule 4 or Rule 8 should apply. Rule 4 is a general rule for valuing excisable goods not sold at the time and place of removal, based on the value of similar goods sold at the nearest time. Rule 8 applies to goods not sold but used in the production of other articles. The Tribunal concluded that Rule 8 is inapplicable as physician samples are not used in production but distributed free. Therefore, Rule 4, which considers the value of similar goods sold in the market, is appropriate.

3. Interpretation of Relevant Case Laws and Previous Judicial Decisions:
The Tribunal referenced multiple judicial decisions, including the Bombay High Court's decision in Indian Drugs Manufacturers Association and the Supreme Court's decision in Biochem Pharmaceuticals Industries Ltd. The Tribunal noted that the Supreme Court's decision did not consider Rule 4 of the 2000 Rules but focused on Rule 6 of the 1975 Rules, which provided a better alternative to Rule 4. The Tribunal emphasized that the 2000 Rules differ significantly from the 1975 Rules, and Rule 4 of the 2000 Rules should be applied.

4. Application of Section 4(1)(b) of the Central Excise Act:
The Tribunal affirmed that since no transaction value is available for physician samples, assessment must be done under Section 4(1)(b) of the Central Excise Act. The assessment cannot be done under Section 4A as the goods are not marked with MRP. The Tribunal concluded that Rule 4 read with Rule 11 of the Central Excise Valuation Rules, 2000, is applicable, allowing for reasonable adjustments to arrive at the assessable value.

Conclusion:
The appeal by M/s. Cosme Pharma Ltd. was dismissed. The Tribunal upheld the valuation of physician samples under Rule 4 read with Rule 11 of the Central Excise Valuation Rules, 2000, aligning with the Bombay High Court's decision in Indian Drugs Manufacturers Association. The Tribunal clarified that the valuation should be based on the value of similar goods sold in the market, with necessary adjustments, and not under Rule 8, which pertains to captive consumption.

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