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TMI Blog2008 (9) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Bench that the dispute stands decided by the Larger Bench of the Tribunal in the case of Blue Cross Laboratories v. C.C.E., Mumbai - 2006 (202) E.L.T. 182 (Tri.-LB), laying down that assessment of free supplied physician's samples is required to be done on the basis of pro rata value of the regular sale pack of the medicines, in terms of the provisions of Rule 6(b)(i) of the erstwhile Cent Excise Valuation Rules, 1975. However, a doubt was expressed as to whether the said decision would be applicable in the context of the new Valuation Rules and especially for the period post January, 2005, when the normal assessable value of the regular sale packs, in terms of Section 4 of the Central Excise Act was not available, such medicines having been specified with effect from the said date under the provisions of Section 4A and attracting duty on the basis of the maximum retail sale price. 2. We have heard Shri V. Sridharan, learned Advocate appearing for the appellants and Shri Sameer Chitkara, learned SDR appearing for the Revenue. 3. There is no dispute on the facts that the regular sale pack medicines, stand specified under the Notification issued in terms of the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Rules - Rule 4 and Rule 8 for our consideration so as to arrive at the correct value in terms of Rule 11. 6. For better appreciation and ready reference, we reproduce the relevant Rules 4, 8 and 11. 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 hundred and ten per cent) of the cost of production or manufacture of such goods. Rule 11. If the value of any excisable goods cannot be detent the foregoing rules, the value shall be determined using reason consistent with the principles and the general provisions of these rules and sub-section (1) of Section 4 of the Act. 7. We make it clear that value of physician's samples is to be determined in terms of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the other excisable goods so cleared. The value as referred in the said Rule 4 stands defined in Rule 2(c) of the Valuation Rules, 2000 - as the value means 'the value under Section 4 of the Act' . As such it can be reasonably concluded that if the value of excisable goods under Section 4 of the Act is available, the same has to be picked up for arriving at the value of the physician's samples, in terms of Rule 4. However, the question arises that if the said value is not available whether the value of regular retail pack in terms of Section 4A can be picked up and applied in terms of Rule 4 of the Valuation Rules. The mandate of the law as contained in Rule 4 read with Rule 2(c) defining the value as contained in Section 4, is to the contrary. As such, it becomes clear that the value of the retail packs as arrived at in terms of the provisions of Section 4A cannot be adopted for the purpose of Rule 4. 11. The next question that arises is as to whether the value of regular retail packs is required to be first arrived at not for the purpose of payment of duty on such regular sale packs, but for the purpose of adopting the same terms of Rule 4, so as to arrive at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the value of physician's samples. It may not be justifiable and reasonable. 14. In view of our foregoing discussion, we are of the view that for the period post January 2005 when the retail sale, pack medicines were specified under Section 4A and their normal sale price in terms of Section 4 was not available, the provisions of Rule 4 cannot be resorted to. For arriving at the above conclusion, we may take support from the Hon'ble Supreme Court decision in the case of Jayanti Food Processing (P) Ltd. v. C.C.E., Rajasthan -2007 (215) E.L.T. 327 (S.C.). Though the issue before the Hon'ble Supreme Court was different, the support can be drawn from the observation made by their Lordship in para 29. While dealing with the issue as to whether package of Kitkat chocolates when supplied free of cost with bottle of Pepsico and without any MRP printed on the same, the duty is required to be paid under Section 4A or under Section 4, it was observed that if there is no sale involved of the packages, there was no question of Rule 6(1)(f) being attracted. Unless there is an element of sale as contemplated in Section 2(v), Rule 6(1)(f) will not be attracted and such package would not be go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of issuance of various Circulars. Reference in this regard is made to Board's Circular No. 643/34/2002-CX., dated 1-7-2002, which provides for assessment of duty in respect of free - supplied items on the basis of 115% of cost of production. Though the above Circular was subsequently withdrawn and new Circular providing applicability of Rule 4 was issued (which was the subject matter of Mumbai High Court's decision), but as the same was for the period prior to January, 2005 and having held as not applicable, support can be drawn from the earlier Circular. As such, we are of the view that adoption of the assess able value of the physician's samples based upon the cost of production along with margin of profit, in terms of the said Rules (now quantified at 10%) is the reasonable method and consistent with the principles of valuation as reflected in Section 4 and various Rules. We accordingly hold that the assessable value of physician's samples supplied free of cost is to be arrived at in terms of the provisions of Rule 8 of Central Excise Valuation Rules, 2000. 'Reference is answered accordingly. The appeal papers may be transferred to the original Bench for disposal of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the goods came to be notified under Section 4A of the Central Excise Act in January, 2005. The Bench observed that Rule 4 can be applied only when value under Section 4 is available. As there is no concept of 'deemed value' in the Valuation Rules, the Revenue cannot determine the value on deemed basis for the purpose of arriving at the assessable value of the physician's sample. Taking such view, the Referral Bench referred the case to the Larger Bench for decision on the issue as indicated above. 20. The general rule of valuation of excisable goods under clause (a) of sub-section (1) of Section 4 of the Central Excise Tariff Act is the 'transaction value' rule - as defined in clause (d) of sub-section (3) of Section 4 - subject to fulfilment of the conditions, namely, that goods are sold for delivery at the time and place of removal; that the assessee and the buyer are not related and that the price is the sole consideration for sale. Valuation "in any other case, including the case where the goods are not sold" shall be the value determined in the pre scribed manner - vide clause (b) of sub-section (1) of Section 4. The manner is prescribed in the Central Excise Valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods cannot be determined by the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of section 4 of the Act." On a plain reading, it would appear that where the value of any excisable goods cannot be determined under the preceding Rules i.e. rules 4 to 11 which are the substantive rules laying down the manner or formula for determination of value, that is, if none of the substantive rule is per se applicable, the value is to be determined as per the principles and general provisions of the Rules as well as Section 4(1) of the Act. In other words, when no particular rule or rules can be strictly applied per Se, the value shall be determined using reasonable parameters consistent with the express provisions of the Rules and sub-section (1) of Section 4 of the Act. However, the rule itself does not contain any formula and, therefore, cannot be applied independently de hors the provisions of Rules 4 to 10 and Section 4(1) of the Act. 23 . Both sides, again, very fairly agreed that the provisions of Rules 5, 6, 7, 9 10 are not applicable and, therefore, the answer has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son that such goods were not similar or for any other reason, the value was to be determined in the manner prescribed - as laid down in Section 4(1)(b). For determining the value of excisable goods under Section 4(1)(b), the Central Government had framed Central Excise (Valuation) Rules, 1975. (I shall refer to the relevant rules a little later.) The concept of valuation underwent a drastic c11Ange with the amendment of clause (a) of Section 4(1) with effect from 1-7-2000. The concept of deemed value was done away with and substituted by the concept of the transaction value as the basis of valuation. With the introduction of the concept of valuation based on transaction value, the Central Government framed new rules in 2000, namely, Central Excise Valuation (Determination of Price of the Excisable Goods) Rules, 2000 with which we are concerned in this case. 26. We have noticed Rules 4 and 8, besides Rule 11 of the 2000 Rules above. We may at this stage notice the corresponding rules of the 1975 Rules. "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 goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of valuation in respect of goods that are not sold but are cleared for use and consumption in the production or manufacture of other articles. Rule 11 provides that if the value of any excisable goods cannot be deter mined under the above rules, then the value shall be determined by using reasonable means consistent with the principles and general provisions of 2000 Rules and Section 4(1) of the Act. 24. In our opinion, the physicians samples cannot be valued under Rule 8, because physicians samples are not cleared for use and consumption in the production or manufacture of other articles. Rule 8 applies to cases, where - the goods are not sold but are cleared exclusively for use and consumption - in the production or manufacture of other articles. Admittedly, the physicians samples are cleared for free distribution to the medical practitioners and are not cleared for use and consumption in the production or manufacture of other articles and, therefore, the method of valuation provided under Rule S cannot be applied for the valuation of physicians free samples. 27. In our opinion, Rule 4 squarely applies to the clearances of physicians free samples, because, physicians samples ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are incidental or inevitable corollaries to its giving effect. I am tempted to quote the off-quoted observations of Lord Asquith in East End Dwelling Co. Ltd. - 1951 (2) All ER 587 as under: "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequence and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it - . The statute says that you must imagine a certain state of affairs; it is does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs". It is clear that purpose of creating the legal fiction in Section 4A (2) of the Act was to provide the basis of valuation of the 'specified' goods - being their MRP. If thus the MRP is regarded, statutorily, as deemed value of the goods, then, certainly, the value has to be understood in the wider sense as including 'deemed value' as per Section 4A (2) of the Act. It cannot be given a meaning in conflict or inconsistent with Section 4A (2). In any case, it is well settled th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 25-4-2005, 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 of the Revenue and against the appellant/assessee. 32. The appeal may now be listed before the regular Division Bench for disposal on merits. (Order pronounced in the open Court on …-9-2008) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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