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TMI Blog2006 (9) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... pplying the method applicable to the goods which are not sold. It is contended that for more than three decades, the revenue has been valuing the physicians samples by applying the method applicable to goods which are used for captive consumption as per the judicial decisions rendered to that effect. Even after the 2000 Rules were framed, the Board had issued a circular No.643 dated 1/7/2002 directing that the valuation of physicians free samples should be made by applying the method applicable to the goods cleared for captive consumption. Therefore, the impugned circular No.813 dated 25/4/2005 which seeks to value the free samples by applying Rule 4 (applicable to goods that are sold) instead of Rule 8 (applicable to goods that are not sold) is contrary to the judicial decisions holding the field for more than three decades and, hence the said circular No.813 dated 25/4/2005 is liable to be struck down as illegal and contrary to law. 4. The petitioner No.1 Association is a society registered under the Societies Registration Act, 1860. Members of the petitioner No.1 association are engaged in the manufacture of drugs which are cleared on payment of excise duty either for sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; xxx (b) where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based - (i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee: Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed of the comparable goods. (ii) if the value cannot be determined under sub - clause (i), on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods; (c) xxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods." 9. With the introduction of the concept of valuation of excisable goods based on transaction value, the Central Government has issued 2000 Rules for valuation of goods covered under section 4(1) (b) of the Act. Rules 4, 8 & 11 of the 2000 rules read thus : "Rule 4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable. Rule 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be [one hund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime and place other than the time and place of removal as also to the goods which are not sold. As the physicians samples are not sold but distributed freely to the medical practitioners, the valuation of physicians free samples have to be made under section 4(1)(b) of the Act. (b) Since 1975 the physicians free samples are valued under section 4 (1)(b) of the Act read with Rule 6(b) of 1975 rules which is applicable to the goods used or captively consumed in the manufacture of other articles. As Rule 8 of 2000 Rules is similar to Rule 6(b) of 1975 Rules, the physicians free samples are liable to be valued by applying Rule 8 of 2000 Rules. (c) The fact that Rule 6 (b) of 1975 Rules provided for two methods of valuation of excisable goods covered under section 4 (1)(b) of the Act namely, valuation based on the value of comparable goods and the valuation based on the cost of production, whereas, Rule 8 of 2000 Rules provides for only one method of valuation based on cost of production, makes no difference, because of the change in the concept of valuation of excisable goods from deemed value to the transaction value. The submission is that in view of the concept of valuation based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time and place of removal of the goods under assessment. Since the Physicians free samples are neither sold and delivered at the factory gate nor sold and delivered at any other time, Rule 4 of 2000 Rules cannot be applied and Rule 8 being the only rule applicable to the goods which are not sold, the proper rule to value the physicians free samples is Rule 8 of 2000 Rules. (f) Relying upon the decisions in the case of Sunflag Iron & Steel Co. Ltd. v. Additional Collector of Central Excise reported in 2003 Bom.) (162) E.L.T. 105 (Bom.), Raymon Glues & Chemicals v. Union of India reported in 2000 (117) E.L.T.29 (Guj.) and Indichem v. Union of India reported in 1996 (88) E.L.T. 35 Guj.) (Guj.), it is submitted that the circular No.813 dated 25/4/2005 which is in conflict with the various orders of the Tribunal and which is in conflict with the circular No.643 dated 1/7/2002 is liable to be quashed and set aside. (g) Physicians samples are goods distinct from the goods which are sold in commercial pack. As per Rule 96(ix) of the Drugs & Cosmetics Rules, 1995, every drug intended for distribution to the medical practitioners as a free sample is required to contain a label on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods cleared for captive consumption would be governed by Rule 8 of 2000 Rules framed under section 4 (1)(b) of the Act. As the physicians free samples are not sold and Rule 8 is the only rule which deals with the goods that are not sold, the physicians free samples are liable to be valued under Rule 11 read with Rule 8 of 2000 Rules. Accordingly, it is submitted that the circular No.813 dated 25/4/2005 which is illegal and contrary to law be quashed and set aside. 14. Mr. Rana, learned senior advocate appearing on behalf of the respondents submitted that the physicians free samples are physically, chemically and functionally same as those goods which are sold in the wholesale market and, therefore, the contention of the petitioners that the physicians free samples are different from the goods sold in the wholesale trade is without any merit. 15. Relying upon the decision of the Apex Court in the case of Ranbaxy Laboratories Ltd. reported in 109 (2003) 9 S.C.C. 109, Mr. Rana submitted that the physicians free samples are excisable goods and being the final product, the physicians free samples cannot be considered on par with the goods which are captively consumed in the prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee. In all other cases, the valuation of excisable goods is to be determined under section 4 (1)(b) of the Act read with 2000 Rules. In other words, what section 4 (1)(a) of the Act provides is that where the goods are sold and delivered at the time and place of removal, the basis of valuation would be the transaction value at each removal and in respect of all other clearances, the valuation shall be determined under section 4 (1)(b) of the Act read with 2000 Rules. 21. Physicians free samples are admittedly not sold and delivered at the time and place of removal or at any time thereafter and, therefore, the valuation of physicians free samples have to be determined under section 4 (1)(b) of the Act read with 2000 Rules. 22. Rule 4 of 2000 Rules is a general rule and it provides that the value of excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment. Rules 5,6,7,9 & 10 of 2000 provide for the method of valuation in respect of goods sold and delivered at a place other than the place of removal or where the price is not the sole consideration for sale or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the goods are not sold and delivered at the time and place of removal, its valuation is to be made 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. 26. The above method of valuation contained in Rule 4 can be best understood by the following illustration. Suppose on 1/4/2006 the goods manufactured by the assessee are sold and delivered to different parties from the factory gate / warehouse at 10.00 a.m., 12.00 noon and 4.00 p.m. respectively. If on the same day, similar goods are cleared otherwise than by sale at 1.00 p.m., then as per Rule 4, the value of goods cleared at 1.00 p.m. shall be determined by taking the value of the goods sold and delivered at 12.00 noon being the nearest to the time of the removal of the goods in question. 27. In our opinion, Rule 4 squarely applies to the clearances of physicians free samples, because, physicians samples are not clearances by way of sale and delivery at the time and place of removal and such goods meaning thereby goods similar or identical to physicians samples are also sold and delivered at the time and place of removal. By the very natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the method based on the cost of production. Thirdly, as held by the Tribunal in the case of Medley Pharmaceuticals Ltd. (supra), Rule 4 and Rule 6(b) (i) of 1975 Rules being similar, the result would be same if Rule 4 is substituted by Rule 6 (b) (i). In other words, the fact that rule similar to Rule 6 (b)(i) of 1975 Rules is not to be seen in 2000 Rules would not preclude the revenue from valuing the physicians samples under Rule 4 especially when rule 4 of the 2000 Rules is similar to Rule 4 of 1975 Rules. Therefore, valuation of physicians samples under Rule 4 of 2000 Rules would be reasonable and in consonance with the principles consistently followed in the last three decades. 30. Various decisions relied upon by the counsel for the petitioners do not support the case of the petitioners because in none of those cases the scope of Rule 4 of 2000 Rules has been considered. Decisions rendered under the 1975 Rules as stated above, in fact, do not support the case of the petitioners. The contention that Rule 8 is the only rule which deals with the instances where the goods are not sold and, therefore, Rule 11 with the spirit of Rule 8 have to be applied to the physicians ..... X X X X Extracts X X X X X X X X Extracts X X X X
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