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 Excise Valuation Rules, 2000, not Rule 8. Following SC precedent in Medley Pharmaceuticals, samples require pro-rata valuation based on retail sale price of similar goods. Differential duty demand with interest was confirmed. However, penalty under Rule 25 was set aside as the matter involved interpretation of valuation rules rather than willful default. Appeals disposed of with partial relief to appellant.

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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 Samples
The 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 Penalty
The 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.

Conclusion
The 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.

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