2019 (8) TMI 1233 - AT - Central Excise

Tribunal upholds decision on 'physician samples' valuation dispute under Central Excise Act

Commissioner of Central Excise Thane – II Versus Korten Pharmaceuticals Pvt Ltd

The Tribunal upheld the first appellate authority's decision, dismissing the Revenue's appeal regarding the valuation of 'physician samples' under the ... Valuation - job-work - clearance of ‘physician samples’ to the ‘principal manufacturer’ - period between January 2005 and November 2006 - HELD THAT:- There is no doubt that, prima facie, ‘physician samples’ are not covered by the prescription in section 4A of Central Excise Act, 1944 and, therefore, subject to the default scheme envisaged under section 4 of Central Excise Act, 1944. The appellant has been discharging duty liability on the transaction value at which goods are cleared to M/s Novartis India Ltd on ‘principal-to-principal’ basis. Such transaction value may be market determined or on ‘cost plus’ basis and adoption of either does not detract from being transaction value. It would also appear that the clarification issued by Central Board of Excise & Customs, in circular no. 813/10/2005-CX dated 25th April 2005 has been misconstrued by the central excise authorities inasmuch as it pertains to the clearance of ‘physician samples’ by the manufacturers themselves. In Commissioner of Central Excise & Customs, Surat v. Sun Pharmaceuticals Industries Ltd [2015 (326) ELT3 (SC)], the Hon’ble Supreme Court approved the decision of the Tribunal that as long as physician samples are sold and the characteristics for the transaction conform to the enumeration in section 4(1)(a) of Central Excise Act, 1944, acceptance of the invoice price is not flawed. Appeal dismissed - decided against Revenue. Issues: Valuation of physician samples under Central Excise Act, 1944.Analysis:1. The dispute in this case revolves around the clearance of 'physician samples' to the 'principal manufacturer' between January 2005 and November 2006. The first appellate authority set aside the duty liability confirmed by the original authority under section 11A of Central Excise Act, 1944, and imposed penalties under rule 25 and 26 of Central Excise Rules, 2002.2. The central excise officers objected to the clearance of 'patent and proprietary medicines' as 'physician samples' on a cost construction basis, arguing that they should be liable to duty based on the 'retail selling price' under section 4A of Central Excise Act, 1944. The appellant's contention was based on circulars directing the valuation of 'free samples' under rule 4 of Central Excise Valuation Rules, 2000. The relationship between the respondent and the principal manufacturer was highlighted, emphasizing the application of rule 4 for valuation.3. The respondent argued that 'physician samples' are not subject to the Drugs (Price Control) Order and should be valued under section 4 of Central Excise Act, 1944. They emphasized the absence of evidence supporting the portrayal of the transaction as 'dictated price.' Reference was made to a Tribunal decision supporting their stance.4. The issue of valuation of 'physician samples' was analyzed in light of previous judgments. The Tribunal noted that as long as the samples are sold and conform to section 4(1)(a) of Central Excise Act, 1944, acceptance of invoice price is valid. The decision in a specific case highlighted the forced assessable value by the principal manufacturer, leading to valuation based on M.R.P. of similar goods.5. The clarification by the Central Board of Excise & Customs was misinterpreted by central excise authorities regarding 'physician samples' clearance. Previous judgments were cited to distinguish between different scenarios of sample distribution, emphasizing the need for written agreements and genuine transactions to avoid duty evasion.6. Considering the precedents and decisions, the Tribunal found no reason to interfere with the first appellate authority's order. The issue of valuation of 'physician samples' was deemed settled, leading to the dismissal of the Revenue's appeal.