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TMI Blog2014 (1) TMI 1565X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the same pack i.e., for example, with catalogue product of 400ml, shampoo, the appellants offered promotional pack of 90 ml. of conditioner. The package of shampoo bears a declaration that "Free:90 ml. conditioner with this pack". The package of conditioner would bear a declaration such as "Free Pack"and "Free: Not for Retail Sale." 2.1 The appellant was determining the assessable value of the promotional products under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 by taking into account its cost of production plus 10% notional profit. This method of valuation was followed in pursuance to the Board's circular NO. 643/34/2002-CX dated 01/07/2002. This circular was superceded vide Circular No. 813/10/2005-CX dated 25/04/2005 wherein it was clarified that in the case of free samples, the valuation should be determined under Rule 4 of the Central Excise valuation (Determination of Price of Excisable Goods) Rules, 2000. However, the appellant continued to determine the assessable value of the out-of-pack promotional products as per Board's Circular dated 01/07/2002. 2.2 Based on information that the appellant was undervaluing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 11AC of the Central Excise Act, 1944 apart from penalty of Rs. 10 lakhs under Rule 25 of the Central Excise Rules, 2002. Goods valued at Rs. 19,31,521/- seized during investigation was allowed to be redeemed on payment of a fine of Rs. 5 lakhs under Section 34 of the Central Excise Act. Aggrieved of the same, the appellant is before us. 3. The learned counsel for the appellant made the following submissions. The promotional pack and the trade pack constitute a combination package by virtue of cross-declaration on both of them. Merely because they are not tied/bundled together they do not cease to be a combination package. It is his contention that the appellant cleared combination pack consisting of trade pack and a promotional pack and the declaration made on the trade and promotional packs are contractual obligations and they are binding between the parties i.e., the appellant, its dealers and the retailers, in law. The promotional pack cannot be sold separately. It is his contention that the assessable unit for the purpose of valuation is the combination pack consisting of a trade pack and promotional pack and the assessable units are not trade pack and promotional packs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ahmedabad II 2008 (232) ELT 245 would also not apply as it dealt with physician samples offered free. 3.2 The learned counsel further argues that application of Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 in the present case is incorrect since Rule 4 prescribes adoption of value of such goods sold for valuing the promotional packs. The expression 'such goods' has a particular connotation and would apply only in respect of the goods of the same kind and quality. Since the size of the promotion packs is different from its regular trade pack, they cannot be considered as such goods and reliance is placed o n the decisions in the case of Vinayak Mosquito Coil Manufacturing Co. vs. Commissioner of Central Excise 2004 (174) ELT 107; Savita Chemicals Ltd. vs. Commissioner of Central Excise - 2000 (119) ELT 394; Tata Liebert Ltd. vs. Commissioner of Central Excise 2003 (159) ELT 326; Rashtriya Ispat Nigam Ltd. vs. Commissioner of Central Excise 2005 (179) ELT 65; Procter & Gamble India Ltd. vs. Commissioner of Central Excise 2006 (206) ELT 913 and ICI India Ltd. vs. Commissioner of Central Excise 2003 (151) ELT 629 The learned counsel fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been discharging excise duty on the MRP declared on the combination package and the Revenue is not disputing the same and, therefore, the appellant cannot be alleged to have suppressed information from the revenue with an intent to evade payment of duty. 3.6 Lastly, it is submitted that the entire issue revolves on interpretation of law and when such interpretation is involved, demand of duty made beyond the normal period of limitation is not sustainable. 3.7 As regards the imposition of redemption fine it is submitted that, since the goods are not available for confiscation, imposition of redemption fine is unsustainable. As regards the penalty imposed under Section 11AC and Rule 25, it is his contention that when the duty demand itself is not sustainable penalty cannot be imposed. In view of the above, it is prayed that the appeal be allowed by setting aside the impugned order. 4. The learned Special Consultant for the Revenue strongly refutes the arguments advanced by the learned counsel for the appellant. It is his submissions that the promotional products supplied free-of-cost to the customers along with the catalogue products of the appellant are subject to Central Excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal in the case of Cadila Pharmaceuticals ltd. vs. Commissioner of Central Excise 2008 (232) ELT 245, relying on the decision of the hon'ble Bombay High Court in the case of Indian Drug Manufacturer's Association (supra) held that Rule 4 is the general rule and unless found to be inapplicable would govern the valuation of physician samples. It was further held that physician samples are not supplied for captive use for production or manufacture of any articles. They are final products like any medicines sold in regular packs and therefore, the method of valuation provided in Rule 8 cannot be applied for valuation of physician samples. In the same decision, a question arose, as to what is the value defined in Rule 2(c) of the said Valuation Rules which can be taken for the purpose of Section 4 of the Central Excise Act and the hon'ble Tribunal held that the fact that medicines/medicaments are specified goods within the meaning of Section 4A of the Act would not make any difference for the MRP is to be treated as value of the goods i.e. deemed value in place of transaction value under Section 4 and this does not take the goods out of the pale of Rule 4. It is accordingly, contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, the extended period of time has been correctly invoked in the show cause notice dated 06/04/2009. The other two show cause notices dated 03/03/2009 and 03/07/2009 are well within the normal period of limitation. Since it is a case of deliberate violation of the provisions of the Central Excise Act, 1944 read with Rules made thereunder, imposition of mandatory penalty under Section 11AC is warranted and penalty under Rule 25 is also sustainable in law. 4.3 It is accordingly submitted that the appeal fails both on merits as well as on limitation and therefore, the same deserves to be dismissed. 5. We have carefully considered the submissions made by both the sides. 5.3 As regards the contention of the assessee, that the promotional pack and trade pack constitute a combination packages by virtue of cross-linking declaration on both packages. This contention does not appear to be correct. The expression combination package has been defined in Rule 2(c) of the Packaged Commodity Rules, 1977 as under: "Combination package means intended for retail sale, containing two or more individual package, or individual pieces, of dissimilar commodit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... packs are given free, they are liable to excise duty. 5.4 The next question is what should be the value on which excise duty liability has to be discharged on the promotional packs. Inasmuch as the goods are not sold but are given free, resort has to be made to Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 to determine the value of the promotional packs for the purpose of excise levy. As regards the rule applicable in respect of the goods sold, the decision of the hon'ble Bombay High Court in Indian Drugs Manufacturer's Association's case (supra) clearly lays down the legal position. The hon'ble High Court in the said case held as follows: "29. It was contended that the revenue, based on several judicial decisions of the Tribunal, has been valuing the physicians free samples for nearly three decades by applying the method applicable to captively consumed goods and, therefore, even under 2000 Rules the physicians samples are liable to be valued by applying the rule applicable to captively consumed goods. There is no merit in this contention, because, firstly, 1975 Rules and 2000 Rules are not identical. Under Rule 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as erroneous and issue a circular which is in consonance with the Act and the Rules made thereunder. 32. The argument of the petitioners that the physicians samples are distinct from the goods sold in the market is without any merit. As noted earlier, the physicians free samples must be similar or identical to the goods that are sold in the wholesale trade. If the physicians samples are not similar or identical to the goods that are sold in the wholesale trade, then the consequences will be disastrous, because, the physicians prescribe medicines based on the free samples supplied by the assessee. The fact that the physicians samples may be distributed in a different pack or in a different bottle would not make the physicians samples different from the goods sold in the open market. The difference in the size or quantity may entitle the assessee to some adjustment in the value, however, that would not make the physicians samples to be distinct from the goods sold in the open market. In other words, irrespective of the fact that the physicians samples are distributed in a pack different from the pack that is sold in the market, the valuation of the physicians free sample ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racteristics of the medicine, keeping in view chapter note 5 of Chapter 30 which includes labeling, repacking etc. in the manufacturing process these nonetheless would be "comparable goods" within the meaning of rule 6(b)(i) of the said rules and there would be no scope for adopting the costing method contemplated by sub-clause (ii) (of sub-clause (b) of rule 6 in respect of such physician's samples. The material characteristics of the goods are virtually identical because the identical medicine which is packed in the retail packs is packed in the physician's sample. Though manufacturing process gets an contended meaning by virtue of chapter note 5 of Chapter 30, it cannot be said that the medicine was not manufactured before it was packed. The material characteristics of the medicine whether in physician's sample or in retail pack do not at all change by virtue of the provisions of note 5 of Chapter 30. Moreover, the medicine, having been already manufactured event before the packing, could be consumed as such medicine even before its removal. Once taken out of the packages it was difficult to relate medicine from one package to the medicine from the other type of package, as was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aments are specified goods within the meaning of Section 4A of the Act since January, 2005, does not appear to have been brought to the notice of the Bombay High Court but this would hardly make any difference, for, the MRP is to be treated as value of the goods i.e. deemed value in place of the transaction value under Section 4(1)(a) and it does not take the goods out of the pale of rule 4. Besides, it is to be kept in mind that the Bombay High Court was seized of a legal issue in the context of challenge to the validity of a circular issued on 25.04.2005, that is, in the aftermath of the notification under Section 4A(1). 31. In view of the above discussions, I am of the opinion that notwithstanding the non-availability of the normal sale price under Section 4(1)(a) of the Act, by reason of the goods being specified under Section 4A(1) making the retail sale price i.e. MRP as its deemed value, the appropriate rule governing the valuation of physician's samples would continue to be rule 4 and the decision of the Larger Bench in Blue Cross Laboratories Ltd.'s case (supra) mutatis mutandis continues to be good law. The reference is accordingly answered in the affirmative in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engineers of the petitioner- Company make a request for trial and demonstration purpose, at different locations in the country and not cleared for consumption in the production or manufacture of other articles, the method of valuation under Rule 8 is inapplicable to such goods. 22. Viewed thus, what remains is the applicability of Rules 4 and 11 to goods cleared for trial and demonstration. A bare reading of Rule 4, what can de deciphered is that, it is, a general rule for valuation of excisable goods not sold and delivered at the time and place of removal to be based on the value of such goods sold and delivered at any other time nearest to the time and removal of the goods under assessement. There can be no more doubt that the words ' such goods' in Rule 4 means, goods which are similar or identical to and have same quality or character to the goods sold and delivered. Meaning thereby, valuation by taking the value of such goods sold and delivered at the time nearest to the time and place of removal of the goods in question. Therefore Rule 4 applies to carbide tools, tips and inserts cleared for trial and demonstration, since, not cleared for sale and delivery at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to Mr. Rehal Satnam Singh (All India Accounts Head) and Mr. B.K. Krishna (Despatch Head of the appellant firm). In his statement Shri Goel has also admitted that, he had discussed this matter with Shri Karl Shroff, the Company Advocate, who was also of the same opinion. Even during the course of cross-examination, this matter with Shri Karl Shroff, the Company Advocate, who was also of the same opinion. Even during the course of cross-examination, this position has been reconfirmed by the Shri Shailendra Goel, Ex-Accounts manager of the appellant. Thus, the fact that the Board's Circular dated 25/04/2005 was in the knowledge of the top officials of the appellant's firm is not at all in dispute. Secondly, we have also perused copied of few ER1 returns filed by the appellant during the material period. In these ER1 returns, there is no mention about free supply of any promotional products along with the trade pack at all and therefore, the contention of the appellant that the department was aware of the practice followed by them and they had declared this information to the department is completely incorrect. Even in the invoices issued, there is no mention of any free supply of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason. Since the legal position was settled way back in 2006 itself, the appellant could not have entertained any bona fide belief with regard to their liability to discharge excise duty under Rule 4 read with Rule 11. This is all the more so when the appellant company's advocate Mr. Karl Shroff has also advised that duty liability has to be discharged in terms of Board's Circular dated 25/04/2005 as admitted by Shri Shailendra Goel in his statement before the investigating agency. Thus, the alibi of bona fide belief fails flat on its face. 5.13 In view of the above, we uphold the imposition of penalty under Section 11AC. When the law stipulates imposition of mandatory penalty on account of suppression of facts, the same cannot be set aside or waived as held by the hon'ble apex Court in the case of Rajasthan Spinning & Weaving Mills [2009 (238) ELT 3 (SC)] case. For the same reason, imposition of penalty under Rule 25 of the Central Excise valuation (Determination of Price of Excisable Goods) Rules, 2000 is also upheld. 5.14 As regards the confiscation of goods and imposition of fine, the appellant has pleaded that the goods are not available for confiscation and hence impositio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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