2015 (9) TMI 312 - SC - Central Excise

Court rules valuation of free samples for excise duty, grants relief through rectification orders.

M/s. Biochem Pharmaceuticals Ind. Ltd. Versus Commnr. of Central Excise, Daman, Vapi

The Court rejected the appellant's argument to value free distributed samples at zero cost for excise duty purposes, citing the need for valuation on a ... Valuation of free samples - samples are distributed free to the physicians - Held that:- CESTAT has accepted that the method of valuation would be `cost of production or manufacture of the goods'. To this extent the grievance of the appellant herein stands redressed. Insofar as the present case is concerned, since substantial relief is already granted to the appellant in the rectification orders passed by the CESTAT, it is not necessary to deal with the remaining period which shall be covered the order passed by the Tribunal in the instant case. - Decided against the assessee. Issues: Valuation of free distributed samples for excise duty purposesAnalysis:The judgment dealt with the issue of the valuation of samples distributed for free by a Pharmaceutical Company to physicians for excise duty purposes. The appellant argued that the samples should be valued at zero cost as their manufacturing cost was already included in the medicines sold in the market. However, the Court rejected this argument citing previous judgments. The Court referred to the case of Medley Pharmaceuticals Ltd. vs. Commnr. Of Central Excise and Customs, Daman, where it was held that the valuation of physicians' samples for excise duty should be done on a pro rata basis.The Court analyzed the relevant provisions of the Central Excise (Valuation) Rules, 1975. Since the provisions of Section 4(i)(a) did not apply, the valuation had to be determined as prescribed in the Rules. The Court discussed Rule 6(a) & (b) which provides for valuation based on retail price or cost of production if the value cannot be determined under other rules. The Court clarified that Rule 6 did not apply in this case, and Rule 7, allowing valuation based on the best judgment of the proper officer, was applicable.The Court emphasized that the proper officer could choose between two methods under Rule 6(b) for valuation: using comparable goods or cost of production. The Court noted that the samples were comparable to the goods sold in the market, allowing the pro rata method to be applied. The discretion of the proper officer was highlighted, emphasizing the need to consider all relevant material in determining the value.Subsequent developments in the appeals were discussed, where rectification applications were allowed, limiting the period for which excise duty was payable. The Court also referred to a circular clarifying the valuation of free distributed samples, which accepted the method of valuation based on the cost of production or manufacture of the goods. As substantial relief was already granted to the appellant in rectification orders, the Court disposed of the appeals accordingly, limiting the valuation issue to a specific period.In conclusion, the judgment provided a detailed analysis of the valuation of free distributed samples for excise duty purposes, highlighting the application of relevant rules and previous judgments to determine the appropriate valuation method.