2019 (2) TMI 747 - AT - Central Excise

Tribunal Rules Free Goods Not Subject to Central Excise Valuation

The Tribunal held that valuation under Section 4A of the Central Excise Act did not apply to goods supplied free of cost, as they were not intended for ... Method of valuation - section 4 or 4A of CEA - free soaps supplied - the wrappers clearly indicate that they are not meant for sale - MRP indicated but scored out, clearly indicating that the price is only for information and not for sale - Held that:- CBEC Circular No.673/64/2002-CX dated 28.10.2002 held that the scored out MRP should be ignored. However, where the multi pieces are packaged into single item with MRP printed on both individual items and multi pack, if individual items have MRPs printed on them but scored out, then the MRP printed on the multipack will be taken for the purpose of valuation. In the subsequent Circular No. 813/10/2005-CX dated 25.04.2005 on the question of samples which are distributed free as a part of marketing strategy or as gifts or donations CBEC clarified that in case of free samples, the value should be determined under Rule 4 of Central Excise Valuation Rules. The Hon’ble Supreme Court in the case of Jayanti Food Processing Pvt Ltd [2007 (8) TMI 3 - SUPREME COURT] has finally put to rest any doubts regarding valuation of excisable goods which are supplied free along with some other products holding that where goods are supplied free Sec.4A of the Central Excise Act will not apply - The present case is squarely covered by this decision - appeal allowed - decided in favor of appellant. Issues:Valuation under Section 4A of the Central Excise Act for goods supplied free of cost.Analysis:Issue 1: Valuation under Section 4AThe appellant, engaged in manufacturing Fa Aqua soap as a job worker, supplied the soaps free of cost for distribution along with other products. The dispute arose when the revenue demanded duty based on Retail Sale Price under Section 4A of the Central Excise Act. The appellant contended that since the soaps were not sold but given free, the valuation based on MRP should not apply. They relied on the judgment of Trishul Research Laboratories Pvt Ltd, emphasizing that the goods were not sold to the ultimate consumer. The appellant also argued that the MRP printed on the soaps was only for informational purposes, not for sale. The Commissioner's interpretation that retail sale does not necessitate a sale for money was contested. The appellant further claimed that since the soap was used for promotional purposes, it fell outside the scope of Chapter 2 of PC Rules, 1977, as a sale to institutional buyers.Issue 2: Penalty ImpositionThe appellant argued against the imposition of penalties, citing that they had informed the revenue before removing the soaps, demonstrating a reasonable belief. They referenced the judgment in Jayanti Food Processing Pvt Ltd case, where the Supreme Court clarified that the valuation of goods supplied free would not fall under Section 4A if not sold to the ultimate consumer.Judgment:After considering both sides' arguments, the Tribunal analyzed the provisions of Section 4A of the Central Excise Act. It noted that the soap in question was manufactured for free supply, not for sale, as indicated on the wrappers. Referring to CBEC Circulars and the Supreme Court's decision in Jayanti Food Processing Pvt Ltd case, the Tribunal concluded that where goods are supplied free, Section 4A does not apply. Therefore, the impugned order demanding duty based on MRP valuation was set aside, and the appeal was allowed. The Tribunal emphasized that the appellant's case aligned with the Supreme Court's ruling, leading to the dismissal of the penalty and the setting aside of the original order.This comprehensive analysis of the issues involved in the judgment highlights the legal arguments, interpretations, and precedents considered by the Tribunal in arriving at its decision.