2017 (2) TMI 308 - AT - Central Excise

Tribunal excludes royalty payment from assessable value, dismisses duty demand on control samples

The Tribunal held that the royalty amount paid by the appellant to Abbott, USA, was not includible in the assessable value as no actual payment was made. ... Valuation - royalty - Whether royalty as per the agreement between the buyer of the goods and Abbott, USA is includible in the assessable value of the appellant, who is manufacturer supplier? - Held that: - there is an agreement between the Pharmacia and Abbott, USA with regard to payment of royalty of 2% of sale of the goods, but the fact is that no such payment/transactions were made either between Abbott USA and Pharmacia or even with the appellant. Therefore, even though there is a clause of royalty payment but since payment transaction was not made, there is no question of inclusion of any amount in the assessable value of the goods - no addition on account of royalty in the assessable value of the goods is sustainable - duty demand set aside. Levy of duty - control samples - Whether the control sample is liable to excise duty? - Held that: - control sample drawn from the production stock and preserved for check for purpose of market complaint or the complain from the patient, is not liable for excise duty - the issue has been decided by the Tribunal in the case of Dabur India [2005 (2) TMI 166 - CESTAT, NEW DELHI], where it was held that the drawal of control sample is not liable to duty. Demand set aside - penalty set aside - appeal allowed - decided in favor of appellant. Issues:1. Whether royalty as per the agreement between the buyer and Abbott, USA is includible in the assessable value of the appellantRs.2. Whether the control sample is liable to excise dutyRs.Analysis:Issue 1:The appellant, engaged in manufacturing SELSUN, had a Registered User Agreement with Abbott Laboratories, USA, where M/s Pharmacia Healthcare Ltd. was to pay a royalty of 2% of gross sales to Abbott, USA. The department alleged that the transaction value was suppressed by the royalty amount. The appellant argued that no royalty was actually paid, and they were not part of the royalty agreement between Pharmacia and Abbott, USA. The Tribunal held that since no payment was made, the royalty amount cannot be included in the assessable value. Referring to Rule 6 of the Central Excise Valuation Rules, the Tribunal ruled in favor of the appellant, setting aside the duty demand related to royalty.Issue 2:Regarding the duty demand on control samples, the appellant contended that these samples, required by law for post-expiry investigations, were not subject to excise duty. Citing a precedent (Commissioner of Central Excise, Chandigarh Vs. Dabur India Ltd.), the appellant argued that control samples are exempt from duty. The Tribunal agreed, stating that control samples preserved for market or patient complaints are not liable for excise duty. Consequently, the duty demand on control samples was dismissed.In conclusion, the Tribunal found the impugned order unsustainable and set it aside entirely. Since the demands were not justified, the penalties imposed were also deemed unsustainable. Therefore, the appeals were allowed, and the impugned orders were overturned on 13.01.2017.