2024 (6) TMI 1004 - AT - Central Excise

Physician samples to manufacturers assessable under Rule 4 with Rule 11, not Rule 8 at 110% production cost

CESTAT Bangalore held that physician samples cleared to principal manufacturers are assessable under Rule 4 read with Rule 11 of Central Excise Valuation ... Method of valuation - clearance of physician samples discharging duty on the value arrived adopting Rule 8 of the Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000 i.e. 110% of the cost of production - extended period of limitation - penalty. Method of valuation - HELD THAT:- The issue has been considered by this Tribunal in WALLACE LABORATORIES P. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, BELGAUM [2024 (3) TMI 689 - CESTAT BANGALORE] where it was held that '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.' Extended period of limitation - penalty - HELD THAT:- The demand for the normal period of limitation has to be recalculated in the light of the principle of law referred to in the said judgment. However, since the issue relates to determination of assessable value which rests on interpretation of law and the appellant had disclosed the assessable value at the time of clearance of goods from the factory and reflected in the ER1 returns periodically; therefore invocation of extended period of limitation is unwarranted and also imposition of penalty on the appellant is unjustified. The matter is remanded to the adjudicating authority for redetermination of the duty and interest for the normal period following the principles of law laid down, after observing principles of natural justice - Appeal allowed by way of remand. Issues Involved:1. Method of determination of value of goods.2. Invoking extended period of limitation.3. Imposition of penalty.Summary:1. Method of Determination of Value of Goods:The primary issue was whether the assessable value of physician samples should be determined under Rule 4 read with Rule 11 or Rule 8 read with Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The adjudicating authority and Commissioner (Appeals) upheld the assessment under Rule 4 read with Rule 11, rejecting the appellant's contention for valuation under Rule 8. The Tribunal cited precedents, including the Supreme Court's decision in Medley Pharmaceuticals, which upheld that physician samples should be valued on a pro-rata basis. The Tribunal concluded that physician samples cleared to the principal manufacturer are assessable under Rule 4 read with Rule 11, not under Rule 8.2. Invoking Extended Period of Limitation:The appellant argued against the invocation of the extended period of limitation, asserting that duty was paid based on the prevailing law and no facts were suppressed or misdeclared. The Tribunal agreed, noting that the issue related to the interpretation of valuation rules and the appellant had disclosed the assessable value in ER1 returns periodically, making the invocation of the extended period unwarranted.3. Imposition of Penalty:The Tribunal found no merit in imposing a penalty under Rule 25 of the Central Excise Rules, 2002, as the issue pertained to the interpretation of valuation rules. Consequently, the penalty imposed by the lower authorities was set aside.Conclusion:The Tribunal modified the impugned order by setting aside the demand for the extended period and the penalty. It remanded the matter to the adjudicating authority for redetermination of duty and interest for the normal period, following the principles of law laid down and observing the principles of natural justice. The appeal was disposed of accordingly.