2019 (4) TMI 8 - AT - Central Excise

Valuation - Pharmaceutical products, Medicaments - whether the price charged by the appellant to the distributors be considered as transaction value or the price at which the goods are sold/supplied to the govt. authorities be considered as transaction value? - recovery under section 11D of the Central Excise Act, 1944. Held that - Undisputedly, the appellant had succeeded in the tender floated by the Govt. authorities for supply of various pharmaceuticals products, Medicaments during the relevant period 1999 to 2005 against rate contract for supply to various government hospitals and govt. agencies and state authorities. The medicines manufactured and cleared by the appellant as per the conditions of the said tender, was required to be embossed/affixed by putting the remark on packages as For Govt. Supply Only , Not for Sale . In the tender also it is mentioned that the appellants are free to appoint distributors for supply of the said medicines. The evidences collected by the Revenue by way of statement and reproduced in the impugned order by the lower authorities reveal that the distributors have been appointed to facilitate smooth transit of the goods from the factory of the appellant to the location of the govt. authorities where the orders are placed pursuant to the rate contract entered into between the appellant and the govt. authorities. The distributors are not free to affix the price on the packages nor they can in any manner independently deal with the said goods. Therefore, the Revenue s argument is that the transaction between the Appellant and the distributors are only on paper, which has been admitted also during the course of investigation by the distributors stating that the transaction is only on paper and the difference of price is their margin which attributes to various expenses. This Tribunal has already considered more or less similar facts and circumstances in Bright Drugs Industries Ltd. s case 2016 (7) TMI 298 - CESTAT NEW DELHI . In the said case, M/s Bright Drug Industries Ltd. was engaged in the manufacture of pharmaceuticals product and P&P medicaments, entered into rate contract with the Maharashtra Govt. as also with some other govt. agencies for supply of medicaments on an agreed price in response to the tender floated by the said govt. agencies. Medicaments were required to be floated by the appellants, which were clearly to be marked as Govt. supply only and Not for Sale . In these circumstances, analyzing the price charged by the Bright Drugs Industries to the distributors, this Tribunal observed that 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. Thus, The price charged by the appellant to the distributor cannot be considered as true transaction value within the scope of the definition of transaction value, therefore, the price at which the goods were ultimately sold/supplied to the govt. agencies against rate contract be the correct transaction value and duty is required to be paid on the same. Time limitation - penalty - Held that - It cannot be said that all the facts were within the knowledge of the department when the claim for commission as deduction from price was advanced by the appellant earlier - In these circumstances, invoking of the extended period of limitation and imposition of penalty on the appellant is justified. Confirmation of demand under Section 11D of Central Excise Act, 1944 - Held that - there was a request by the appellant for increase in the price due to revision of excise duty, but the same cannot be construed that the enhanced price represents excise duty and the same has been collected from the government agencies and not deposited with the Govt. Section 11D - the confirmation of the amount under section 11D of CEA, 1944 by the adjudicating authority cannot be sustained. For computation of the demand taking into consideration the apparent mistakes, the matter is remanded to the adjudicating authority. The penalty and interest be accordingly calculated after computing the demand. Appeal disposed off.

Issues Involved:
1. Determination of transaction value for excise duty purposes.
2. Applicability of Section 11D of the Central Excise Act, 1944.
3. Validity of extended period invocation for demand and penalty.
4. Correctness of demand computation.
5. Imposition of personal penalty under Rule 26 of the Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Determination of Transaction Value for Excise Duty Purposes:
The core issue was whether the transaction value should be the price at which the appellant sold the goods to the distributors or the rate contract price at which the goods were supplied to government agencies. The Tribunal concluded that the price charged to the distributors was not the true transaction value. Instead, the rate contract price with the government agencies should be considered the transaction value. The distributors were determined to be mere facilitators, and the transactions with them were deemed to be on paper only, not reflecting genuine sales.

2. Applicability of Section 11D of the Central Excise Act, 1944:
The Tribunal examined whether the appellant collected any excess amount from the buyers representing it as excise duty and did not deposit the same with the government. It was found that the provision of Section 11D was not applicable in this case. The Tribunal cited the case of Bright Drugs Industries Ltd., where it was held that the excess amount collected due to revision in excise duty rates did not invoke Section 11D, as it was not collected as duty of excise from the customers.

3. Validity of Extended Period Invocation for Demand and Penalty:
The appellant argued that the demand was barred by limitation since the department was aware of the supply through distributors. The Tribunal upheld the invocation of the extended period, stating that the role of the distributors was revealed only through investigation, and the transactions were found to be on paper only. Hence, invoking the extended period of limitation and imposition of penalty was justified.

4. Correctness of Demand Computation:
The appellant contested the computation of demand, highlighting errors in the deduction of amounts and inclusion of turnover under SSI exemption. The Tribunal found substance in the appellant's argument and remanded the matter to the adjudicating authority for recalculating the demand, penalty, and interest, considering the apparent mistakes.

5. Imposition of Personal Penalty under Rule 26 of the Central Excise Rules, 2002:
The Tribunal found no evidence of direct involvement of the director in the short payment of duty. No specific findings were recorded by the authorities below regarding the director's role. Consequently, the imposition of a personal penalty on the director was set aside.

Conclusion:
The appeals were disposed of with the determination that the transaction value should be the rate contract price with the government agencies. The invocation of Section 11D was set aside, and the extended period for demand and penalty was upheld. The matter was remanded for correct computation of demand. The personal penalty on the director was annulled.

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