2018 (11) TMI 810 - AT - Central Excise

Valuation - physician samples not sold but given free to the doctors - comparable price under Rule 4 of the Central Excise Valuation Rules - time limitation - Held that - In view of the position now settled that the physician samples should be valued at the same rate at which similar goods are sold in the market even if the packing size is different, there is no infirmity on merits in the impugned order. The demand is therefore sustainable on merits. Time limitation - Held that - It is evident from the two circulars issued by the Board, that there was sufficient confusion and even the Board was of the opinion initially that the valuation has to be done on cost construction basis. In such scenario, the assessee cannot be faulted for following such a practice even if it is incorrect as per the subsequent directions of the Board and the judicial pronouncements. There was a reasonable cause for the appellant to mistakenly value the goods on cost construction basis instead on the basis of comparable price under Rule 4 - the extended period of limitation cannot be invoked in this case and the demand for the extended period does not survive. The demand for duty within the normal period along with interest is upheld - Appeal allowed in part.

Summary

Issues: Valuation of physician samples for duty calculation under Central Excise Valuation Rules.

Analysis:
1. Facts of the Case: The appellant, a pharmaceutical manufacturer, cleared physician samples to doctors without sale, paying duty based on cost construction. A show cause notice demanded duty based on market price for physician samples from January 2005 to July 2008, proposing penalties and interest.

2. Valuation Dispute: The main issue was whether physician samples should be valued at the market price of similar goods, as per Rule 4 of Central Excise Valuation Rules, or on a cost construction basis. The appellant argued for valuation under Rule 11, citing conflicting CBEC circulars and judicial precedents.

3. Judicial Interpretation: Referring to CBEC Circulars and court decisions, the Tribunal analyzed whether physician samples should be treated as identical to goods sold in the market or as a distinct class of products. The Tribunal noted that previous rulings indicated physician samples should be valued at the market price of similar goods.

4. Decision on Merits: The Tribunal held that physician samples should be valued at the market rate of similar goods, even if the packaging size differs. Consequently, the demand for duty based on market price was deemed valid, upholding the order on merits.

5. Limitation and Penalties: Considering the confusion caused by conflicting circulars and the absence of malafide intent, the Tribunal found the extended period of limitation inapplicable. Accordingly, the demand for the extended period was set aside, and penalties were also waived due to the appellant's reasonable cause for the valuation method used.

6. Final Ruling: The Tribunal upheld the duty demand within the normal period, along with interest, while setting aside the demand for the extended period and the penalties. The appeal was disposed of accordingly, with the operative part of the order pronounced in open court.