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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 ..... as 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 provisions of Section 4A of the Central Excise Act, which provides for payment of duty of excise on the basis of maximum retail price printed on the pack, in relation to which it is required to print the MRP under provisions of Standards of Weights and Measures Act, 1976, subject to abatement allowed by the Central Government. Inasmuch as, physician's samples are not being sold by the appellants, there is no requirement of affixing any MRP on the same, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rule 11, inasmuch as admittedly neither Rule 4 nor Rule 8 strictly apply to clearance of physician's samples. However, Rule 11 does not provide any specific method to be adopted for determining the assessable value and for arriving at the value of the goods in terms of the said rule is to be made to the foregoing Rules itself and using reasonable means. As such, for determining the value in terms of Rule 11, the two contending, and Rule 8 have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 the assessable value of the physician's samples in terms of the said Rules. Admittedly, the value in terms of the main Section 4 is not required to be determined for the retail sale packs for the purpose of payment of duty. Such determination would be only for the purpose of adopting the same so as to arrive at the value of physician's samples in terms of Rule 4. Whether such indirect method of first determining the value of the retail packs on deemed or notional and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 governed under the provisions of Standards of Weights and Measures Act (PC) Rules. By applying the above observation to the facts of the present case, it can be safely observed and held that if there is no normal price of the retail packs (except MRP), there can be no value as per definition of value in terms of provisions of Rule 2(c) of the Valuation Rules, 2000 and if there is no value, the provisions of Rule 4 will not be attracted and hence cannot be applied. 15. Having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 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 appeal. (Pronounced in the open Court on . ..-9-2008) &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acteristics and though they are not sold, the value of medicines kept in physician's samples has to be worked out on the basis of value of the medicines which are sold as per rule 4 of the Valuation Rules subject to adjustment on account of difference in the dates of delivery. The Larger Bench also held that where the physician's sample differs in quantity (though identical in essential characteristics of the medicine), they would nevertheless be governed by rule 4 being 'comparable goods'. It, however, clarified that in such cases, adjustments may be allowed as per proviso to Rule 6(b)(i) as the manufacturing process has an extended meaning by virtue of Chapter Note 5 of Chapter 30 of the Central Excise Tariff. The Bench disapproved the costing method as provided in Rule 6(b) (ii) of the Valuation Rules. 19. The Referral Bench noted that the decision in Blue Cross Laboratories Ltd. (supra) was rendered before 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 determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessable value of physician's samples which are not sold in market and are supplied free of cost. Since the physician's samples are not sold and they do not have MRP mentioned on them, the assessable value has to be determined in accordance with the provisions of the Valuation Rules - as per the m of Section 4(1) (b) of the Act. There is no dispute between the parties on this score. 23. As mentioned above, Rules 4 to 11 of the Valuation Rules contain provisions as to the manner of determination of values. However, learned advocate for the appellant and learned SDR for the Revenue fairly agreed that none of the rules - from Rule 4 to Rule 10 (Rule 10A was inserted later in 2007) - covers the case of free supply of goods by manufacturers and, therefore, aid has to be taken of the residuary rule i.e.; Rule 11 of the Valuation Rules. Rule 11 lays down: "If the value of any excisable 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be mentioned that the decision was rendered in the context of challenge to the validity of a circular of the Central Board of Excise & Customs, being Circular No. 813, dated 25-4-2005, clarifying that the valuation of physician's free samples should be determined under Rule 4 instead of Rule 8 of the 2000 Rules. Earlier, by Circular No. 643, dated 1-7- 2002 the Board had held that the valuation be done under rule 11 read with rule 8 of the Rules. 25. The Bombay High Court noticed that prior to 1-7-2000 the concept of valuation of excisable goods was based on the deemed value. The deemed value as per Section 4(1)(a) of the Act, as it stood prior to 1-7-2000, was the normal price at which such goods were ordinarily sold for delivery at the time and place of removal to a buyer who was not a related person and price was the sole consideration. Where, however, the normal price could not be ascertained for the reason 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 (Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of the two sets of rules that Rule 4 of the 2000 Rules corresponds to Rule 4 of the 1975 Rules, in fact, the same as the other one, and similarly Rule 8 and Rule 11 of the 2000 Rules correspond to Rule 6(b) (ii) and Rule 7 of the 1975 Rules. 27. On consideration of the relevant provisions, referred to above, the Bombay High Court held as follows: "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 where the excisable goods are sold after their clearance from the place of removal or where the goods are sold through a related person or sold through an inter-connected undertaking. Rule 8 provides for the method 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an's free samples in terms of Rule 4, but where such value is not available, the value of regular retail price in terms of Section 4A cannot be applied for the purpose of Rule 4. Learned Member (Judicial), with due respect, overlooked that in terms of Section 4A, the retail sale price i.e. MRP is treated as the deemed value of the goods. To quote the relevant part of Section 4A (2), "such value shall be deemed to be the retail sale price declared on such goods". In my opinion, the restricted meaning of the term 'value' based on Rule 2(c) of the Valuation Rules would militate against the express mandate of Section 4A. It is well known that the words "deemed to be" are used to create legal fiction and on a plain reading it is clear that Section 4A(2) creates a legal fiction to treat the retain sale price i.e. MRP on the value of the goods. Legal fiction is created for a purpose and it is the duty of Courts to, first, ascertain the purpose and, then, give full effect to the fiction assuming all facts and consequences 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. - 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 4 are found lacking, it would make no difference, for, by virtue of Rule 11 of the Valuation Rules, it is the principle underlying the rule which needs to be applied consistent with other statutory provisions. The situation contemplated in Rule 8 on the other 11And is completely different and alien. Rule 8 applies to cases where goods are cleared for use and consumption in the production' or manufacture of other articles i.e. for captive consumption. Physician's samples are not supplied for being captively used for production or manufacture of any article; they are final products like any 'medicine' sold in regular packs, and, therefore, the method of valuation provided in Rule 8 cannot be applied for valuation of physician's samples. 30. The fact that medicines/medicaments 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 k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; President 33. [Order per: B.S.V. Murthy, Member (T)]. - I agree with Hon'ble President. & ..... X X X X Extracts X X X X X X X X Extracts X X X X
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