2004 (12) TMI 225 - AT - Central Excise

Valuation (Central Excise) - Medicines - physician samples - limitation - Penalty and interest - HELD THAT - It is observed that the issue of valuation of physician samples is no more res integra. The Tribunal both in the cases of Mayo India Ltd. 2000 (9) TMI 125 - CEGAT, MUMBAI and Cheryl Laboratories 1997 (3) TMI 206 - CEGAT, NEW DELHI has categorically held that value of physician samples should be determined in accordance with the principle laid down in Rule 6(b)(i) read with Rule 7 of the Central Excise Rules. Rule 6(b)(i) provides for determination of value of excisable goods on the value of comparable goods produced or manufactured by the assessee or by any other asscssee. Suitable adjustments, of course, need to be made while arriving at the value under this Rule. In the case of Cheryl Laboratories, the arguments were exactly the same as are put-forth by the learned advocate in the present case. The Tribunal after rejecting the various contentions held that the physician samples are comparable with the regular trade packs and therefore the value of the trade packs, after giving suitable adjustments can be adopted for the purpose of determining the value of physician samples. We, therefore, following the ratio of this decision, agree with the appellants that value cannot be determined under Rule 4. We have already observed that the Tribunal in Cheryl Laboratories case held that physician samples are comparable with trade packs. While saying so, the Tribunal also observed that no adjustments are called for arriving at the value of the samples. The Tribunal also held that while determining the value under Rule 7 of the Valuation Rules, one can adopt the method stated in Rule 6(b)(i). Except the fact that the Commissioner quoted a wrong rule (Rule 4), he determined the value correctly in accordance with the decision of the Tribunal in Cheryl Laboratories. We therefore uphold the method of valuation and confirm that the value is correctly determinable under Rule 6(b)(i) and not 6(b)(ii) as was done by the appellants. Limitation - The appellants have not suppressed the fact that they were determining the value of physician samples under Rule 6(b)(ii). Larger period is not invocable. We, however, confirm the demand for duty on goods cleared during the normal period of limitation. Consequently, penalty under Section 11AC is not imposable. So is the case in respect of interest under Section 11AB. We do not subscribe to the theory that penalty under Rule 173Q read with. Section 11 AC can be imposed in these circumstances. The issue pertains to valuation and not clandestine removal. The assessee may have entertained a genuine belief that the goods are assessable to duty after determining the value under Rule 6(b)(ii). Penalties on the director and administrative manager are set aside allowing their appeals. The appeals are allowed.

Summary

Issues Involved:
The issues involved in this case include the determination of the value of physician samples under the Central Excise Valuation Rules, 1975, the applicability of Rule 4 versus Rule 6(b)(i) for valuation, the imposition of differential duty, penalties under various sections, and the aspect of limitation in the case.

Valuation of Physician Samples:
The appellants manufactured medicines and cleared physician samples during a specific period, valuing them under Rule 6(b)(i) of the Central Excise Valuation Rules, 1975. The department later issued a show cause notice to redetermine the value under Rule 4, leading to a dispute regarding the correct valuation method for physician samples compared to regular packs. The appellants argued for valuation under Rule 6(b)(ii) based on costing method, while the department contended for Rule 4. The Tribunal, based on precedents, held that physician samples should be valued under Rule 6(b)(i) read with Rule 7, considering them comparable to regular trade packs.

Limitation and Penalties:
Regarding the limitation aspect, the appellants had been filing declarations under Rule 173C of the Central Excise Rules, which the department claimed lacked necessary details for valuation. However, the Tribunal found that the appellants had not suppressed the method of valuation under Rule 6(b)(ii) and rejected the claim of suppression. The Tribunal confirmed the demand for duty within the normal period of limitation, thereby ruling out penalties under Section 11AC and interest under Section 11AB. It was emphasized that penalties under Rule 173Q read with Section 11AC were not applicable in this valuation-related issue, as the appellants believed in the dutiability of the goods based on their valuation method.

Decision and Outcome:
The Tribunal partially allowed the appellant-company's appeal, upholding the duty demand within the normal limitation period, while setting aside penalties and interest. The appeals of the director and administrative manager were allowed in full, with penalties on them being set aside. The Tribunal affirmed the correct valuation method under Rule 6(b)(i) for physician samples, aligning with previous decisions and rejecting the department's invocation of Rule 4 for valuation. The method adopted by the Commissioner, though citing the wrong rule, was upheld as correct in determining the value of physician samples.

This comprehensive summary outlines the key issues, arguments presented, Tribunal's decision, and the final outcome of the case involving the valuation of physician samples under the Central Excise Valuation Rules, 1975.