2024 (3) TMI 689 - AT - Central Excise

Physician samples to principal manufacturer must be valued under Rule 4 with Rule 11, not Rule 8 per precedent

CESTAT Bangalore held that physician samples cleared by appellant to principal manufacturer must be valued under Rule 4 read with Rule 11 of Central ... Valuation - physician samples cleared by the appellant to the principal manufacturer or manufactured and cleared on job work basis - applicability of Rule 4 read with Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 or Rule 8 of the said Rules - levy of penalty under Rule 25 of the Central Excise Rules - HELD THAT:- The Hon’ble Supreme Court in MEDLEY PHARMACEUTICALS LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE [2011 (1) TMI 13 - SUPREME COURT] has laid down This Court has upheld the conclusion of the Tribunal that the physician’s samples have to be valued on pro-rata basis. The physician samples cleared to their principal manufacturer are assessable under Rule 4 read with Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Also, the physician samples manufactured and cleared on job work basis for free distribution also be assessed on the value of retail sale price of similar goods and not under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, since the same were not cleared for captive consumption as observed by the Tribunal in the case of GOA ANTIBIOTICS & PHARMACEUTICALS LTD, GOA VERSUS GOA ANTIBIOTICS & PHARMACEUTICALS LTD, GOA VERSUS [2013 (12) TMI 390 - CESTAT MUMBAI] - the demand of differential duty with interest confirmed in the impugned orders does not warrant interference. Penalty u/r 25 of the Central Excise Rules, 2002 - HELD THAT:- Since the issue relates to interpretation of valuation rules, there are no merit in imposing penalty on the appellant under Rule 25 of the Central Excise Rules, 2002. The impugned orders are modified to the extent of setting aside the penalty, while upholding the demand of differential duty with interest in all the appeals. Appeals are disposed of. Issues Involved:1. Whether the physician samples cleared by the appellant to the principal manufacturer or manufactured and cleared on job work basis should be assessed under Rule 4 read with Rule 11 or Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.2. Whether penalty is imposable under Rule 25 of the Central Excise Rules.Summary:Issue 1: Assessment of Physician SamplesThe appellants, engaged in the manufacture of P & P medicaments, cleared physician samples without payment of duty on retail sale price basis but discharged duty on 110% of the cost of production. The Revenue argued that the value should be determined under Rule 4 read with Rule 11 of the Central Excise Valuation Rules, 2000, as these samples are not different from trade packs in quality/characteristics. The appellants contended that since there was no retail sale, the provisions of Section 4A of the Central Excise Act were not attracted, and they correctly determined the value under Section 4(1)(a) of the Central Excise Act, 1944.The Tribunal, referencing the Supreme Court's decision in Medley Pharmaceuticals, held that physician samples should be valued on a pro-rata basis. The Tribunal also cited the Larger Bench decision in Cadila Pharmaceuticals Ltd., which stated that the assessable value of physician samples should be determined under Rule 4, not Rule 8, as Rule 8 applies to goods cleared for captive consumption, which is not the case for physician samples.Issue 2: Imposition of PenaltyThe Tribunal found that the issue related to the interpretation of valuation rules, and thus, imposing a penalty under Rule 25 of the Central Excise Rules, 2002, was not warranted. Consequently, the demand for differential duty with interest was upheld, but the penalty was set aside.ConclusionThe appeals were disposed of by upholding the demand for differential duty with interest while setting aside the penalty. The physician samples are to be assessed under Rule 4 read with Rule 11 of the Central Excise Valuation Rules, 2000, and not under Rule 8.