2006 (7) TMI 30 - AT - Central Excise

Central Excise Penalty not imposable when appellant valued physician sample under Rule 11 of Central Excise Rules, 2000 In the absence of any evidence that sample packs and commercial packs are comparable Rule 4 not applicable Valuation and demand set aside

Summary

Issues involved:
Valuation of physician samples for duty demands based on CBEC circulars and relevant valuation rules.

Comprehensive Analysis:

1. Valuation under Rule 11 and Rule 8:
The issue in these appeals revolves around the valuation of physician samples for which duty demands were raised. The Appellants valued the samples at 115% of the cost of production in accordance with Rule 11 read with Rule 8 of the Central Excise Valuation Rules, 2000. However, the notices alleged that this valuation method was incorrect and that valuation should have been done under Rule 11 read with Rule 4, as Rule 4 takes precedence over Rule 8. The contention was that the spirit of Rule 8 was not applicable to physician samples' valuation.

2. CBEC Circular and Residuary Rule 11:
The CBEC circular dated 1-7-2002 clarified that in situations where goods are distributed free as part of marketing strategies, gifts, or donations, valuation rules must be applied as no specific rule covers such scenarios. The circular emphasized the application of Rule 11 along with the spirit of Rule 8, as Rule 8 only covers situations involving sales. Therefore, the assessable value in such cases should be 115% of the cost of production, necessitating valuation under Rule 11 along with the spirit of Rule 8.

3. Prevalence of CBEC Circular:
The judgment highlighted that the CBEC circular dated 1-7-2002 should prevail until its substitution by a subsequent circular. Reliance was placed on various judicial decisions to support the argument that valuation should be based on the provisions of the circular that were in force during the relevant period. It was emphasized that the department cannot retroactively change its valuation method based on a new circular.

4. Applicability of Rule 4:
The Revenue attempted to apply Rule 4 of the Valuation Rules, which is similar to the erstwhile Rule 4 of Valuation Rules, 1975. However, Rule 4 is applicable only when comparable goods' prices are known at different times, without differences in quality, quantity, or purpose. Previous decisions by the Tribunal and the Apex Court clarified the interpretation of "such" goods, indicating that Rule 4 cannot be invoked when there are differences in packing, as in the case of physician samples.

5. Penalty and Judicial Precedents:
The Tribunal found that the penalty imposed could not be upheld since the Appellants were following the CBEC directions dated 1-7-2002 for valuation. The judgment emphasized that penalties should not be imposed when the parties are acting in accordance with prevailing circulars and rules. Therefore, the penalties were set aside, and the appeals were allowed based on the findings.

In conclusion, the judgment delves into the intricate details of valuation rules, CBEC circulars, and judicial precedents to determine the correct method of valuing physician samples for duty demands, ultimately setting aside the penalties imposed by the Lower Authority.