2006 (9) TMI 94 - HC - Central Excise

Court Upholds Rule 4 for Valuing Physicians' Free Samples, Dismisses Challenge to Circular No. 813 on Excise Valuation.

The petition challenging the validity of Circular No. 813 dated 25/4/2005 is dismissed. The court upholds the circular, determining that physicians' free ... Valuation of excisable goods - transaction value - valuation under Rule 4 of the 2000 Rules - valuation under Rule 8 of the 2000 Rules (captively consumed goods) - residuary or fallback valuation under Rule 11 of the 2000 Rules - clearances not amounting to sale (physicians' free samples)Valuation under Rule 4 of the 2000 Rules - valuation under Rule 8 of the 2000 Rules (captively consumed goods) - residuary or fallback valuation under Rule 11 of the 2000 Rules - clearances not amounting to sale (physicians' free samples) - Method of valuation to be applied to physicians' free samples cleared for distribution - HELD THAT: - The court held that physicians' free samples are not sold and therefore fall within section 4(1)(b) of the Act insofar as valuation must be determined under the 2000 Rules, but they are not cleared for use or consumption in the production or manufacture of other articles and hence do not fall within Rule 8 which applies exclusively to captively consumed goods. Rule 4 of the 2000 Rules is a general rule providing that where goods are not sold and delivered at the time and place of removal their value shall be based on the value of such goods sold and delivered at a time nearest to the removal; the phrase 'such goods' contemplates goods similar or identical in character and quality. By their nature physicians' samples are representative of and identical to the goods sold in the wholesale trade, so Rule 4 squarely applies. The court rejected the submission that Rule 4 is confined to goods sold but not delivered at the time and place of removal, observing that nothing in Rule 4 restricts its application in that manner and that adjustments permitted by Rule 4 are discretionary 'if necessary.' The 1975 Rules and decisions under them do not require a different outcome under the 2000 Rules because the schemes differ (notably Rule 6(b)(i) of the 1975 Rules is not identically reproduced in the 2000 Rules). Finally, if any doubt remained as to applicability of a specific rule, Rule 11 permits determination by reasonable means consistent with the principles of the Rules and the Act, and read with Rule 4 it furnishes a lawful fallback; conversely, Rule 11 read with Rule 8 is inappropriate because Rule 8 governs captively consumed goods which physicians' samples are not. The Board's earlier circular adopting Rule 11 with the spirit of Rule 8 could therefore be withdrawn and replaced by the clarification that valuation is to be determined under Rule 4 (or, if necessary, under Rule 11 read with Rule 4). [Paras 25, 27, 28, 29, 33]Physicians' free samples are to be valued under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000; alternatively, valuation may be determined under Rule 11 read with Rule 4, and Rule 8 is inapplicable.Final Conclusion: The petition challenging Circular No.813 dated 25/4/2005 fails. The Board's clarification that physicians' free samples are to be valued under Rule 4 (or, if necessary, under Rule 11 read with Rule 4) is upheld; Rule 8 (for captively consumed goods) does not apply. The petition is dismissed and the rule is discharged, with no order as to costs. Issues Involved:1. Validity of Circular No. 813 dated 25/4/2005.2. Appropriate method for valuing physicians' free samples under Central Excise Valuation Rules, 2000.Issue-wise Detailed Analysis:1. Validity of Circular No. 813 dated 25/4/2005:The petition challenges the validity of Circular No. 813 issued by the Central Board of Excise and Customs, which directs that the valuation of physicians' free samples should be made under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The petitioners argue that this circular contradicts the earlier Circular No. 643 dated 1/7/2002, which valued such samples under Rule 11 read with Rule 8. They contend that the new circular is contrary to judicial decisions and established practices of over three decades.2. Appropriate Method for Valuing Physicians' Free Samples:The petitioners argue that physicians' samples are not sold but distributed freely, and thus, should be valued under the method applicable to goods not sold, specifically Rule 8. They assert that historically, such samples were valued using methods for captively consumed goods, and this practice should continue under the 2000 Rules. They cite various judicial decisions supporting this view and contend that Rule 4, applicable to sold goods, is inappropriate for free samples.The respondents argue that physicians' free samples are identical to goods sold in the wholesale market and should be valued under Rule 4, which is a general rule for valuing excisable goods not sold at the time and place of removal. They assert that Rule 8, which applies to goods used in the production of other articles, is not applicable to final products like physicians' samples. They also argue that the earlier circular was erroneous and the new circular correctly aligns with the Act and Rules.Analysis and Judgment:Historical Context and Legislative Framework:- Prior to 1/7/2000, the valuation of excisable goods was based on deemed value under Section 4(1)(a) of the Central Excise Act, 1944. Post-amendment, the valuation is based on transaction value under Section 4(1)(a) of the amended Act.- For goods not sold, Section 4(1)(b) and the 2000 Rules apply. Rule 4 is a general rule for valuing goods based on the value of similar goods sold at a time nearest to the removal of the goods under assessment. Rule 8 applies to goods used in the production of other articles, and Rule 11 is a residuary rule for cases not covered by other rules.Court's Findings:- Physicians' samples are not sold and thus fall under Section 4(1)(b) and the 2000 Rules.- Rule 8 is not applicable as it pertains to goods used in production, not final products like physicians' samples.- Rule 4, being a general rule, is applicable for valuing physicians' samples based on the value of similar goods sold at the nearest time of removal.- The court rejects the argument that Rule 4 applies only to goods sold but not delivered at the time and place of removal, stating that Rule 4 is general and does not warrant such a restricted interpretation.- The court finds no merit in the petitioners' argument that historical valuation practices should continue, noting differences between the 1975 and 2000 Rules and the consistent judicial view that physicians' samples should be valued using comparable goods.- The court upholds the validity of Circular No. 813, stating that it aligns with the Act and Rules and corrects the erroneous earlier circular.Conclusion:The petition is dismissed, and Circular No. 813 dated 25/4/2005 is upheld. The valuation of physicians' free samples should be determined under Rule 4 of the 2000 Rules, not Rule 8. The court finds that this method is reasonable and consistent with the principles and provisions of the Act and Rules.