2018 (3) TMI 619 - AT - Central Excise

Method of Valuation - transaction value or MRP based value - physician samples cleared free of cost - revenue is seeking to demand duty on the value arrived at on pro rata basis depending on the assessable value arrived at for clearance of the same medicines on MRP basis. Held that - the physician samples are cleared free of cost for distribution to the physicians as samples. Other than the packing of the goods, the goods are identical in nature in respect of quality. Even the packing is similar in many cases although the physician samples would contain and indication to that effect and would not contain the MRP. The physician samples are not sold by the appellants but are cleared free cost. It is not the appellant s case that any of the Rule 4 to 10 of the Central Excise Valuation (determination of price of excisable goods) Rules 2000 are directly applicable. Since no transaction value available, the assessment cannot be done under Section 4 (1) (a) and the assessment has to be done under Section 4 (1) (b). The assessment cannot be done under Section 4A as the said goods are not marked with MRP - identical goods are different only in respect of size of packing and marking of MRP, are being assessed under Section 4A of the Central Excise Act and such comparable value after suitable adjustments can be adopted for the purpose of assessment of physician samples in terms of Rule 4 of Central Excise Valuation (determination of price of excisable goods) Rules, 2000. This does not amount to application of Section 4A of the Central Excise Act to physician samples. This is only a measure of taking an alternate value of similar goods for the purpose of Central Excise (Valuation) Rules, 2000 in terms of Rule 11 thereof. Larger Bench of the Tribunal in appellant own case BLUE CROSS LABORATORIES LTD. Versus COMMR. OF C. EX., MUMBAI 2006 (8) TMI 220 - CESTAT, MUMBAI has held that the physician samples cannot be assessed under Rule 4 of the Central Excise (Valuation) Rules 1975, after comparing the value with the normal trade pack. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Valuation of physician samples cleared free of cost.
2. Applicability of Rule 4 of the Central Excise (Valuation) Rules, 2000.
3. Comparison with previous judgments and valuation methods.

Detailed Analysis:

1. Valuation of Physician Samples Cleared Free of Cost:
The appellant, M/s. Blue Cross Laboratories Ltd., challenged the confirmation of demand, interest, and imposition of penalty concerning physician samples cleared free of cost. The appellant argued that they paid duty based on cost plus a 10% margin, while the revenue demanded duty based on a pro-rata value derived from the MRP of the same medicines. The appellant cited the Larger Bench decision in their own case, which held that physician samples cannot be assessed under Rule 4 of the Central Excise (Valuation) Rules, 1975, by comparing the value with the normal trade pack.

2. Applicability of Rule 4 of the Central Excise (Valuation) Rules, 2000:
The appellant contended that Rule 4 of the Central Excise Valuation Rules cannot be applied to physician samples. They relied on the Supreme Court decision in Biochem Pharmaceuticals Industries Ltd., which discussed Rule 6(b) of the 1975 Rules, stating that valuation should be based on comparable goods or the cost of production plus profits. However, the revenue argued that Rule 4 of the 2000 Rules is applicable, as supported by the Bombay High Court decision in Indian Drugs Manufacturer’s Association, which held that physician samples should be valued under Rule 4 of the 2000 Rules.

3. Comparison with Previous Judgments and Valuation Methods:
The revenue relied on the Bombay High Court decision in Indian Drugs Manufacturer’s Association, which comprehensively addressed the valuation of physician samples. The court held that Rule 4 of the 2000 Rules applies to physician samples, as these samples are not sold but are comparable to goods sold in the market. The court emphasized that Rule 8, which deals with captively consumed goods, is not applicable to physician samples. The court also clarified that adjustments can be made under Rule 4 to account for differences in packing and marking.

The appellant also cited the Gujarat High Court decision in Tuton Pharmaceuticals, which held that valuation under Section 4A cannot be applied to physician samples. However, the tribunal noted that this decision did not consider the Bombay High Court’s ruling in Indian Drugs Manufacturer’s Association, which is directly relevant to the current case.

Conclusion:
The tribunal concluded that the Bombay High Court’s decision in Indian Drugs Manufacturer’s Association is applicable and that Rule 4 of the Central Excise Valuation Rules, 2000, can be applied to physician samples. The tribunal dismissed the appeal, affirming the revenue’s method of valuation based on comparable goods under Rule 4, with necessary adjustments as per Rule 11 of the Central Excise Valuation Rules, 2000. The tribunal found no merit in the appellant’s arguments and upheld the impugned order.