1998 (9) TMI 187 - AT - Central Excise

Summary

Issues:
Classification of excisable goods under specific tariff items, compliance with exemption notification for free samples, application of natural justice rules, interpretation of exemption notification conditions, inclusion of expenses in assessable value, applicability of extended period for duty determination.

Classification of Excisable Goods:
The appellant, engaged in manufacturing excisable goods like medicines, classified their products under specific headings for exemption from excise duty on clearances intended as free samples. The jurisdictional Asstt. Collector approved these classification lists unconditionally.

Compliance with Exemption Notification:
The appellant claimed exemption from excise duty on clearances for free samples supplied to hospitals, clinics, etc., under a specific notification. The appellant argued strict compliance with exemption conditions and challenged the Additional Collector's order for lack of natural justice and misapplication of Rule 9(2) of the Central Excise Rules, 1944.

Interpretation of Exemption Notification Conditions:
The Revenue contended that the appellant issued debit notes to distributors for expenses related to sales promotion materials and raw materials, indicating non-compliance with the exemption notification. The Revenue cited a statement and agreement to support their claim that the samples were not free as they were intended for sales promotion and not distinctly marked as physician's samples.

Inclusion of Expenses in Assessable Value:
The Revenue argued that expenses related to sales promotion, advertising, and raw materials should be included in the assessable value based on a Supreme Court judgment. They contended that recoveries against promotion expenses should be chargeable to duty, and the extended period for duty determination was applicable due to willful suppression of facts by the appellant.

Applicability of Extended Period for Duty Determination:
The Tribunal observed that the appellant failed to prove that the samples were supplied free for the intended purpose, while the Revenue demonstrated recovery of charges through agreements and debit notes. Due to willful suppression of facts, the extended period for duty determination was rightly applied. The Tribunal remanded the matter to recheck the duty calculation and reconsider penalty proportionality.

In conclusion, the Tribunal upheld the Additional Collector's order on merits but remanded the matter for reevaluation of duty calculation and penalty aspects. The judgment emphasized the importance of proving compliance with exemption conditions and the consequences of willful suppression of facts in duty determination.