2016 (4) TMI 323 - AT - Central Excise

Valuation of physician samples - Duty paid on the basis of 110% of the cost of production but revenue demanded duty at the value to be determined under rule 4 of the CER Valuation Rules - Revenue contended that applicant manufactured physician samples and distributes or sells for distribution free of cost - Held that - the physician samples are not being distributed free of cost by CRL. They are being manufactured on the job work basis for the principal manufacturer and they are being sent back to the principal manufacturer. Therefore, in view of the decision of Tribunal in the case of Omni Protech Drugs Pvt. Ltd. vs CCE, Pune 2011 (6) TMI 532 - CESTAT, MUMBAI , arrived at as per formula laid down by the Hon ble Apex Court in the case of Ujagar Prints et. etc. vs. Union of India & others 1989 (1) TMI 124 - SUPREME COURT OF INDIA , it is not open to the revenue to demand duty on the value arrived at in terms of rule 4 of the Central Excise Valuation rules. Demand of excise duty - Duty paid on the basis of 110% of the cost of production but revenue demanded duty at the value to be determined under rule 4 of the CER Valuation Rules - Applicant manufacturing physician samples for itself and selling the same to Cosmae Farma Laboratories - Held that - the goods are not being distributed free of cost. By following the decision of Hon ble Supreme Court in the case of CCE vs. Sun Pharmaceuticals Industries Ltd. 2015 (12) TMI 670 - SUPREME COURT which squarely covers the present case, since there is a transaction value available at which the goods are sold by the assessee to the distributors, and the same has not been challenged, the same should be assessable value under Section 4(1)(a) of the Central Excise Act. - Decided against the revenue

Issues Involved:
1. Valuation of physician samples for excise duty purposes.
2. Applicability of Rule 4 of the Central Excise Valuation Rules, 2000.
3. Assessment of duty on physician samples manufactured on job work basis.
4. Penalty reduction.

Issue-wise Detailed Analysis:

1. Valuation of Physician Samples for Excise Duty Purposes:
The primary issue was the valuation method for physician samples manufactured by CRL, which were not meant for sale but distributed free as part of a marketing strategy. The revenue, relying on CBE&C Circular No. 813/10-2005-CX dated 25/04/2005, argued that the value should be determined under Rule 4 of the Central Excise Valuation Rules, 2000. The original adjudicating authority confirmed a demand of Rs. 4,21,311/-, which was challenged by CRL before the Commissioner (Appeals).

2. Applicability of Rule 4 of the Central Excise Valuation Rules, 2000:
The Commissioner (Appeals) differentiated between physician samples manufactured by CRL for themselves and those manufactured on a job work basis for other companies. For samples sold to Cosme Farma Laboratories Ltd., the Commissioner (Appeals) noted that these could not be treated as goods distributed free since a sale transaction existed between CRL and Cosme Farma Laboratories Ltd. Therefore, the price under Section 4 was applicable, and the demand was dropped for these samples. However, for samples manufactured on a job work basis, the Commissioner (Appeals) relied on the Bombay High Court's order in Writ Petition No. 246/06, determining that valuation under Rule 4 was appropriate.

3. Assessment of Duty on Physician Samples Manufactured on Job Work Basis:
CRL contended that the valuation should follow the Ujagar Prints Ltd. decision and Circular No. 619/10/02-CX, which were not adhered to by the Commissioner (Appeals). The Tribunal noted that the revenue's appeal argued for valuation under Rule 4, but since the physician samples were not distributed free by CRL, this was not applicable. The Tribunal referenced the decision in Omni Protech Drugs Pvt. Ltd., which supported valuation based on transaction value (cost of raw materials + job charges), aligning with the Ujagar Prints decision.

4. Penalty Reduction:
The Commissioner (Appeals) reduced the penalty from Rs. 4,21,311/- to Rs. 5,000/-. Both CRL and the revenue were aggrieved by this order and appealed.

Judgment:
The Tribunal considered various precedents and submissions. It distinguished the current case from others where physician samples were distributed free by the manufacturer. The Tribunal found that the decision in Sun Pharmaceuticals Industries Ltd. by the Supreme Court, which involved selling physician samples to distributors who then distributed them free, was applicable. The Tribunal held that since there was a transaction value available for the physician samples sold by CRL to Cosme Farma Laboratories, the valuation should be under Section 4(1)(a) of the Central Excise Act. Consequently, the appeal of CRL was allowed, and the revenue's appeal was dismissed.

Conclusion:
The Tribunal concluded that the valuation of physician samples sold by CRL to Cosme Farma Laboratories should be based on the transaction value under Section 4(1)(a) of the Central Excise Act, and not under Rule 4 of the Central Excise Valuation Rules. The penalty reduction by the Commissioner (Appeals) was upheld. The judgment emphasized the importance of distinguishing between samples distributed free by the manufacturer and those sold to distributors for further distribution.

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