| SooperKanoon Citation | sooperkanoon.com/40161 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Mumbai |
| Decided On | Sep-02-2005 |
| Judge | J Balasundaram, Vice-, A M Moheb |
| Appellant | Biochem Research Laboratories |
| Respondent | Cce and C |
1.7.2002 clarified that the value physicians' sample be determined under Rule 11 read with Rule 8 whereby the Value of physicians' samples would be 115% of the cost of production of such samples.
2. All the appeals pertained to valuation of Physician Samples. The periods involved are different though. With this preface we proceed to deal with the appeals. We have heard both sides and considered the various submissions made.
3. The appellants have been, during the period under dispute, filing price lists both for trade packs of medicines and physician samples.
They have arrived at the value of the physician samples' adopting cost construction method. The department was aware of this situation. The appellants therefore claim, that there was no suppression of facts in so far as the value of the physician samples is concerned. The department therefore cannot invoke larger period of limitation while demanding duty. It is argued that the departments contention that the appellants should have adopted the value of comparable/similar goods cleared by them for the purpose of determining the value of physicians samples even I has merit, the demand is time barred.
4. The period of dispute is February 1992 to May 1993. The show cause notice was issued on 7.4.1994 demanding differential duty of Rs. 7,04,588/-. In the impugned order the Commissioner confirmed this demand as well as a penalty of Rs. 1,75,000/- imposed by the lower authority.
5. It is clear from the records of the case that the appellants have been regularly filing price lists for their trade packs as well as physician samples' during the period under dispute indicating the method adopted (cost construction) to arrive at the value of physician samples'. The charge of suppression therefore cannot be pressed against them. The demand is time barred inasmuch as it is issued beyond six months from the date of payment of duty. The department seemed to have accepted the method of arriving at the value of physician samples. The appeal is allowed on the ground of limitation.
6. Issue pertains to Valuation of physician samples distributed free to medical practitioners. The period involved is March 2003 to January 2004.
7. The new Central Excise Valuation Rules 2000 were introduced w.e.f.
1.72000 the appellants case is covered under these Rules.
8. The CBEC vide its Circular No. 643/34/2002-CX dt. 1.7.2002 clarified that since physician samples are not sold Section 4(1)(a) will not apply and recourse will have to be taken to the Valuation Rules. It is clarified that no specific Rules in the new Central Excise Valuation Rules, 2000 covers a situation of this type as except Rule 8 all other Rules, cover contingencies where sale is involved in some form or the other. The Board therefore opines that the residuary Rule 11 will have to be adopted along with the spirit of Rule 8 to arrive at the value of physician samples. In other words the assessable value has to be arrived at 115% of the cost of production of the samples. This is what exactly the appellants were doing, while arriving at the value of physician samples. The Commissioner's order that the value should be arrived at on a basis other than the one contained in the CBEC Circular (supra) is totally unacceptable. Any demand worked out on the basis different from the one contained in Board's clarification in this regard does not have force of law.
9. The appeal is allowed. The order of the Commissioner is set aside.
E/587/2000 10. This one arises out of the order of Commissioner (Appeals) who while dealing with the Department's appeal against the order of lower authorities allowed the Departments' appeal. The Departments' contention before him was that the value of physician samples should be arrived at under Rule 6b(i) of Central Excise Rules 1957 and not under Rule 6b(ii) (Cost Construction Method has was ordered by the Assistant Commissioner. The Commissioner agreed with the Revenue's view citing two decisions of the Tribunal (OTO Motive Products 1997 (93) ELT 195 : 1997 (70) ECR 531 (T) and Magnachem Pharmaceuticals v. CCE, Pune 1997 (96) ELT 197 : 1998 (78) ECR 579 (T) wherein the Tribunal held that Rule 6b(i) is the correct Rule applicable in situations of this sort.
11. The appellants' grouse is that the same Commissioner (Appeals) in the earlier round of litigation passed an order dt. 30.6.1998 to the effect that the correct rule applicable is Rule 6b(ii) and remanded the matter to the lower authority to determine the value of physician samples under it by adding the element of profit as required under that Rule. No appeal was filed by the Revenue on this order of the Commissioner (Appeals). In the remand proceedings the hapless Assistant Commissioner, following the directions of Commissioner (Appeals) added the profit element to the cost of production of physician samples and determined the value under Rule 9b(ii). It is contended by the appellant, that the Revenue preferred an appeal against this order of the Assistant Commissioner to Commissioner (Appeals), this time on a new ground that the value should have been determined under Rule 6(b)(i). The commissioner accepted this contention little realizing that he himself earlier directed the Assistant Commissioner to adopt Rule 6(b)(ii). The Ld. Advocate pleads that the first order of the Commissioner dated 30.6.1998 had not been appealed against and had therefore became final. It is argued that the Commissioner should not have entertained the appeal of the Revenue against the order of the Assistant Commissioner who was merely following the directions given to him by Commissioner (Appeals). The Department, it is argued, after having failed to file any appeal against the order dated 30.6.1998 of Commissioner (Appeals) wanted to achieve the same effect by filing an appeal against the order of Assistant Commissioner. This cannot be allowed, accordingly to them.
12. We have considered the rival contentions in this regard. In the impugned order the Commissioner has discussed the implications of Rule 6b(i) and 6b(ii) and finally held that it is the former that should prevail. He cited Tribunal's decision in support. He however does not refer to his own order in respect of the same assessee and the same case held that Rule 6(b)(ii) is applicable and to the fact that he remanded the same matter to the Assistant Commissioner with direction to follow Rule 6b(ii). Thus what the Assistant Commissioner had done was to follow the direction of a higher appellate authority. The Department having failed to appeal against the remand order of the Commissioner cannot achieve the same result in an indirect way. The Commissioner was entertaining an appeal against his own order in this case. It is not permissible. The impugned order needs to be set aside on this ground without going into the merits of the case. We accordingly set aside the order of the Commissioner on this limited ground.
13. This appeal is against the order of Commissioner (Appeals) who dismissed the appeal before him on the ground that it is time barred.
The order-in-original was received by the appellant on 27.6.2001.
Appeal against this should have been filed within 60 days of receipt of the order by 25.8.2001. The appellant however filed the appeal before the Commissioner on 21.9.2001 i.e. after a further delay of 27 days.
The lower appellate authority considered the pleadings of the appellants put forth before him and refused to condone the delay. He accordingly dismissed the appeal as time barred.
14. The appellants contended that the Commissioner has discussed the merits of the case while rejecting their appeal thus it is not a case of dismissal of an appeal as time barred. We perused the order. We do not agree with the appellants contention that the Commissioner discussed, the merits of their appeal before him. He rejected the appeal on the issue of limitation. We do not see any infirmity in his order. The reasons given by the appellant for the delay in filing the appeal are flimsy as observed by the Commissioner. We see no reason to disagree with him. We accordingly reject the appeal and uphold the order of Commissioner (Appeals).
15. The issue is one of valuation of physician samples. The period involved in all the appeals is prior to 2000 when Central Excise Valuation 1975 were in vogue. The appellants arrived at the value of physician samples by cost construction method the department however contends that proportionate value of trade packs of medicines should be the basis for assessment under Rule 6b(ii). Hence these appeals.
16. The appellants contended that (a) Cost of Physician Samples is included in the trade pack and therefore the cost of physician samples should be zero; (b) Alternatively value arrived at on Cost Construction basis should be accepted; (c) Proportionate value ascribed to the physician samples is irrational (d) Cost of advertisement and other expenses are not incurred in the case of physician samples (e) By arriving at the value of physician samples under Rule 6(b)(i) the Department seeks to tax the same goods twice (f) The ratio of Cheryl Labs decision cannot be applied as that case was decided on the basis of an admission by the appellant that Valuation is required to be done under Rule 6 of Central Excise Valuation Rules, 1975 and (g) In any case no penalty should have been imposed when the issue pertains to one of valuation of excisable goods.
17. We have given careful consideration to the various contentions raised and the Ld. DR's contention in support of the Revenue's case.
Some of the contentions raised by the Ld. Advocate go to the root of this issue. We have therefore dealt with them in their order of importance.
18. Under Section 3 duties specified in the First Schedule and the second Schedule to Central Excise Tariff Act, are to be levied. The goods produced by the appellants are one of those mentioned in the first Schedule. They are not exempt from payment of duty under any notification. They are therefore leviable to duty at the rate specified. The appellants call their goods as physician samples. Under Drug Price Control order the samples are forbidden from being sold.There is no dispute that the samples in question are distributed free to medical practitioners who experiment them on patients who happen to visit them or prescribe them if they are impressed with the literature accompanying the free samples. The issue pertains to valuation of these physician samples.
19. This Tribunal in the case of the appellants Cross Land Research Laboratory 2002 (150) ELT 212 : 2002 (104) ECR 729 (T) dealt with issue of valuation of physician samples in the remand proceeding when a contention was raised, before the Hon'ble Supreme Court by the said appellants in their Civil appeals that the Cost of Physician Samples manufactured and cleared already forms a part of the sale price of the Commercial Packs of the medicines. In support of this contention the appellants in that case filed a certificate of their Chartered Accountant who certified that the cost of physician samples was in built into the assessable value of the various formulation manufactured by the firm on which excise duty is paid.
20. The Tribunal dealt with that contention in par 9 of their order reproduced below: What is to be seen therefore is whether in such a factual situation excise duty is chargeable on the actual removal of physician samples. The appellants relied upon the decisions of the Hon'ble High Court of Delhi in the case of Commissioner of Sales Tax, Delhi Administration v. Prem Nath Motors (P) Ltd. 1979 (43) STC 52 (Del.) and Geo Motors v. State of Kerala 2001 (122) STC 285 (Ker.) in respect of their submission that duty is not chargeable on the physician samples as this would amount to double levy which is not legally permissible. We have considered the decisions cited supra.
In the case of Commissioner of Sales Tax, Delhi Administration v. Prem Nath Motors the Hon'ble Delhi High Court held that the warranty was to replace the defective part or parts free of cost; that consideration for replacement under the warranty was not separately specified because it was included in the price fixed and paid for the car at the time of the sale; that the transfer of property in the part or parts replaced pursuant to a warranty is a part of the original sale of the car for the price fixed and received from the buyer. It is evident from the above that under the Sales Tax law what is relevant for levy of tax is ale, unlike the Central Excise Act where duty is levied on goods manufactured. Therefore this decision is distinguishable. As regards the Kerala High Court decision cited supra since it follows the Hon'ble Delhi High Court decision of Commissioner of Sales Tax, Delhi Administration v. Prem Nath Motors it is also not applicable to the present case for the same reason. On the other hand there is a direct decision of the Tribunal in the context of the Central Excise Act, in the case of Bharat Heavy Electricals Ltd. v. CCE Tribunal has held that in the absence of any exemption from duty for replacement supplied by a manufacturer under a warranty clause irrespective of the fact that contract price includes an added element to cover such replacements the duty demand in respect of such replacement is sustainable. Following the ratio of the Tribunal's decision in the case or" Bharul Heavy Electrical Ltd. v. CCE (supra) we hold that duty demand on physician samples is sustainable and accordingly uphold the same. Penalty imposed for contravention of the Rules by removal of goods without payment of duty thereon is also sustainable and is upheld.21. The Tribunal rejected the contention of the appellant that the value should be arrived on the basis of cost of production and upheld the Department's contention that as prices for the big packs for the same products for sale at the factory gate are available the price of physician samples are to be worked out on pro-rata basis for the samples as per Section 4(1)(b) of the Central Excise Act, read with Rule 7 and 6(b) of Central Excise Valuation Rules, 1975. The reasoning given and the conclusion arrived at in that case have to be followed as the appellants in the present case have not came out with any decision upsetting the decision in Cross Land Laboratories case cited supra.
22. The appellants' contention that it results in double taxation if comparative price envisaged in Rule 6(b)(i) is followed cannot be considered by us so long as the duty is levied and collected in accordance with law. It would perhaps be in the legislative competence of the legislature to consider that the cost of samples is already included in the trade packs and therefore no further duty should be changed on them when they are cleared from the factory of production.
23. The appellants contention that value arrived at by them under Cost Construction Method (Rule 6(b)(ii) in the most appropriate way of determining the value is not supported by either Cheryl Labs, decision or by the decision in Cross Lands Research Laboratories cited supra. We cannot therefore accept the contention of the Ld. Advocate that Cost Construction method is the least absurd method of arriving at the value of physician samples whose cost is any way included in the trade packs. While on the subject we may mention that several manufacturers supply goods free of charge for a charitable cause. Even in such case value is ascribed to those goods and duty is collected if such free donation are not exempt from duty. Surely a manufacturer cannot argue that the cost of free gifts has been taken into consideration while costing the goods for sale and therefore nominal cost of free gifts or the cost of production should be the basis for arriving at the accessible value of the free gifts.
24. We see no merit in the appeals on merits. We however hold that there is merit in the appellants plea that no penalty is called for under Rule 173Q in a case where debatable issues of Valuation are included. We accordingly set aside the penalties wherever imposed. The appeals are disposed off in the manner indicated above.