2019 (5) TMI 43 - AT - Central Excise

Valuation - supply of designated medicines to various hospitals at rate contract - price escalation clause - the medicines were sold by the assessee to their distributors at a lower rate and thereafter the distributors supplied the goods to hospitals at higher rates as per the rate contract - Section 4 of CEA - HELD THAT - The invoices were issued by the appellant on their distributors, which has a transaction value. In turn, the distributor sold the medicines to DMER at higher transaction value. The question of normal price under Sec.4 as it stood prior to 2000 does not apply when there is a transaction value. The show cause notice is entirely based on old Sec.4 which does not apply to the period in question. Therefore, the demand under Sec.11A has to fail on this ground alone. Demand u/s 11D of CEA - HELD THAT - Prior to Finance Act, 2008, only such persons who are liable to pay duty had to deposit any amount collected as representing duty. This left persons who were not required to pay excise duty and still collected some amount as excise duty scot free - Since the entire period is prior to 2008 and the allegation is that the amounts were collected by the distributors of the assessee and not by the assessee themselves as representing excise duty, the demand under Sec.11D does not sustain against the appellant/assessee. The demand also does not sustain against the distributors because prior to 2008, persons who are not liable to pay excise duty were not covered by Sec.11D. The entire demand under Sec.11A and Sec.11D along with interest and penalties need to be set aside - penalty on the Managing Director of the assessee also needs to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Differential duty demand under Sec.11A
- Demand under Sec.11D
- Interest, penalties, and invoking extended period of limitation

Differential duty demand under Sec.11A:
The appellant, a pharmaceutical company availing SSI exemption, participated in a tender to supply medicines to hospitals. The revenue issued a show cause notice demanding differential duty for undervaluing goods. The adjudicating authority confirmed the demand under Sec.11A, partially allowed the claim under Sec.11D, and imposed interest and penalties. The first appellate authority upheld the demand under Sec.11A and penalties but set aside the penalty under Sec.11D. The appellant argued that the show cause notice was based on an old section of the Central Excise Act and that the transactions were at a transaction value with appointed distributors. The department argued that the distributors were a sham to evade duty, but the tribunal found the demand under Sec.11A unsustainable due to the misapplication of the old section and upheld the appellant's arguments regarding transaction value.

Demand under Sec.11D:
The revenue alleged that distributors collected amounts as excise duty and should deposit it under Sec.11D. The department argued that the distributors were appointed to evade duty. The tribunal found that prior to 2008, only persons liable to pay duty had to deposit collected amounts, and since the allegation was against distributors who were not liable to pay duty, the demand under Sec.11D did not sustain. The tribunal set aside the demand under Sec.11D, interest, penalties, and penalties on the Managing Director.

Interest, penalties, and invoking extended period of limitation:
The adjudicating authority imposed interest under Sec.11AB and Sec.11DD, along with penalties under Sec.11AC. The first appellate authority upheld penalties but set aside one penalty. The tribunal set aside all demands under Sec.11A and Sec.11D, including interest and penalties, and allowed the appeals, concluding that the impugned order be set aside.