2019 (3) TMI 786 - AT - Central Excise

Physician samples subject to Central Excise Duty based on transaction value, clarifies Tribunal

The Tribunal held that physician samples sold to distributors at a transaction value should be assessed for Central Excise Duty based on the selling ... Method of valuation - free physician samples sold to distributors - section 4A of Central Excise Act, 1944 or not - It is the case of the department that physician samples cannot be sold and the assertion that they are sold is incorrect because it violates the Drugs & Cosmetics Rules. Therefore, physician’s samples should be treated at par with the normal goods - Held that:- This question as to how to value physician samples which are sold and not supplied free was answered in the case of Parnax Lab. Pvt. Ltd. vs. CCE, Vapi [2012 (11) TMI 254 - CESTAT, AHMEDABAD], where it was held that the demand of the duty liability on the physician samples sold by the appellant to the principals, the assessable value as ascertained by the assessee and the duty liability discharged is correct and there is no reason for recalculating the assessable value based upon the value arrived at on pro rata basis of sales pack. Once the samples are sold and there is a transaction value, the price at which they are sold forms the assessable value and the assessment has to be done. Therefore, no differential duty can be charged, holding that Section 4A should be applied even in cases where the appellant has sold the physician samples. On the factual position whether the physician samples were actually sold or otherwise, the matter needs to be verified by the adjudicating authority after giving the appellant an opportunity to present the documents - appeal allowed by way of remand. Issues:Whether appellants are liable to pay Central Excise Duty on physician samples sold to distributors based on transaction value under section 4A of Central Excise Act, 1944.Analysis:The case involved two appeals against Orders-in-Appeal concerning the liability to pay Central Excise Duty on physician samples sold to distributors. The appellants, engaged in manufacturing P & P medicines, faced show cause notices for duty recovery and penalties under section 11 AC of the Central Excise Act, 1944. The Department argued that physician samples should be charged to Central Excise Duty based on the price of corresponding goods sold in the market. However, the appellants contended that they sold physician samples to distributors at a transaction value and paid service tax accordingly. The dispute centered on whether physician samples should be valued under Section 4A or Section 4 of the Act.The Department claimed that physician samples should be valued under Section 4A, citing legal precedents and circulars. The Tribunal, after considering arguments from both sides, analyzed the nature of the samples sold by the appellants. It was observed that physician samples were marked as such and sold to distributors, who then provided them free to doctors for marketing purposes. The Tribunal referenced a previous case involving physician samples sold by a manufacturer to a principal under contractual obligations, where the duty liability was discharged based on transaction value.In light of the legal principles established in previous cases and the factual scenario presented, the Tribunal held that when physician samples are sold and there is a transaction value, the price at which they are sold forms the assessable value for duty calculation. The Tribunal emphasized that where there is a transaction value, it cannot be ignored, and duty should be charged accordingly. The decision highlighted the need for verification by the adjudicating authority regarding the actual sale of physician samples and provided a framework for setting aside demands based on documentary evidence.In conclusion, the Tribunal modified the impugned order, setting aside demands where the appellants could substantiate the sale of physician samples with documentary evidence. Demands without substantiation were upheld, with interest, while penalties were set aside. The judgment provided clarity on valuing physician samples for Central Excise Duty purposes and emphasized the importance of transaction value in such cases.