Tribunal dismisses appeal over penalty for under-valuation of physician samples

The Tribunal dismissed the Revenue's appeal challenging the penalty under Section 11AC of the Central Excise Act, 1944, for under-valuation of physician samples. The Tribunal found no established mens rea against the respondent, aligning with past decisions where Section 11AC was deemed inapplicable without mens rea. The respondent, engaged in manufacturing medicaments, had paid duty on physician samples based on cost of production rather than valuation rules, leading to duty demand. Despite confirming the duty demand, the Tribunal waived the penalty, emphasizing the absence of intent to evade duty.

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Issues involved: Appeal against penalty u/s 11AC of Central Excise Act, 1944 for under-valuation of physician samples.

Summary:
The appeal was filed by the Revenue challenging the order that held penalty u/s 11AC cannot be levied on the respondent for under-valuation of physician samples. The respondent, engaged in manufacturing medicaments, availed Cenvat credit on inputs and cleared physician samples for free distribution. The issue arose when the respondent paid duty on physician samples based on cost of production, contrary to Circulars mandating valuation under Rule 4 of Valuation Rules, 2000. The Revenue contended willful suppression by the respondent, leading to under-valuation and duty evasion.

The Department found discrepancies in duty payment by the respondent on physician samples, leading to a duty demand for the period 25.04.2005 to 31.08.2006. The respondent was accused of not paying duty as per Circulars, intending to under-value products and pay less duty. The Commissioner (A) confirmed the demand but waived the penalty, prompting the Revenue's appeal. The main contention was the mandatory imposition of penalty u/s 11AC when duty demand is confirmed.

The learned JDR argued for penalty imposition citing relevant case laws. On the other hand, the respondent's counsel emphasized lack of mens rea to evade duty, attributing the issue to interpretation of statutes and Circulars. The respondent promptly deposited the duty post the High Court's judgment challenging the Circular. The Tribunal noted the absence of mens rea against the respondent, aligning with precedent where Section 11AC was deemed inapplicable without mens rea.

Ultimately, the Tribunal dismissed the appeal, citing the lack of established mens rea against the respondent, similar to previous rulings. The decision was pronounced in court by Member (Judicial) Shri Ashok Jindal.

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