2025 (5) TMI 49 - AT - Central Excise

Physician Sample Valuation: Rule 4 Guides Excise Duty Assessment with Pro Rata Market Value Approach

M/s. Albert Davit Ltd. Versus Commissioner of Central Excise, Kolkata-I

M/s. Albert Davit Ltd. Versus Commissioner of Central Excise, Kolkata-I - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this matter are:What is the correct method for valuation of physician's samples supplied free of cost for the purpose of payment of central excise dutyRs.Whether the valuation should be determined under Rule 7 of the Central Excise Rules, 2002 based on cost of production plus margin, or under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, which involves valuation based on pro rata market valueRs.Whether the appellant's practice of provisional assessment and subsequent payment of differential duty based on cost audit reports complies with the legal requirementsRs.Whether any penalty is imposable under Rule 25 of the Central Excise Rules, 2002, considering the appellant's valuation method and the prevailing legal uncertaintyRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Correct Method of Valuation of Physician's Samples for Central Excise DutyRelevant Legal Framework and Precedents: The valuation of excisable goods for duty purposes is governed by the Central Excise Act, 1944, and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Rule 4 of the Valuation Rules, 2000, prescribes valuation based on the transaction value or, in absence thereof, on the value of goods sold in the domestic market. Section 4(1)(a) of the Central Excise Act, 1944, mandates valuation based on the price at which goods are sold or would be sold in the domestic market.Precedents include the Supreme Court decision in the case of Commissioner of Central Excise and Customs, Surat Vs Sun Pharmaceuticals Industries Ltd., which held that valuation of physician samples is to be done as per Section 4(1)(a) of the Central Excise Act, 1944, i.e., on the basis of market value rather than cost of production plus margin.Additionally, the Central Board of Excise and Customs (CBEC) issued Circular No. 813/10/2005-CX dated 25.04.2005 and a subsequent circular dated 19.02.2010, clarifying that valuation of physician samples should be done under Rule 4 of the Valuation Rules, based on pro rata market value of medicaments sold in the trade.Court's Interpretation and Reasoning: The Tribunal referred to its earlier decision in Klars Sehen Pvt. Ltd. vs. Commissioner of Central Excise, Kolkata, where it held that the issue is no longer res integra and that the Supreme Court and High Courts have consistently ruled that valuation of physician samples must be done under Rule 4 of the Valuation Rules, 2000, based on market value.The Tribunal emphasized that the appellant's method of valuation based on cost of production plus 10% or 15% margin, as per previous years' cost audit reports, does not align with the legal requirement of valuation based on market value under Rule 4.Key Evidence and Findings: The appellant was paying duty under provisional assessment based on cost of production plus margin and subsequently paying differential duty based on final cost audit reports. The Revenue initiated proceedings contending that valuation should be under Rule 4 of the Valuation Rules, 2000, which was upheld by the Commissioner (Appeals).Application of Law to Facts: The Tribunal found that the appellant's valuation method, while not strictly in accordance with Rule 4, was consistent with the CBEC Circular dated 25.04.2005, which was available during the relevant period. The appellant's payments were provisional and final assessments were made based on cost audit reports, with differential duty paid accordingly.Treatment of Competing Arguments: The Revenue argued for valuation strictly under Rule 4. The appellant relied on the CBEC Circular and their established practice of provisional assessment and payment of differential duty. The Tribunal acknowledged the legal position favoring Rule 4 valuation but also recognized the appellant's compliance with the circular and provisional assessment practice.Conclusions: The Tribunal concluded that while valuation under Rule 4 is legally correct, the appellant's provisional payment method under the CBEC Circular was acceptable for the relevant period. Hence, the show cause notice issued for non-compliance with Rule 4 was not sustainable.Issue 2: Imposition of Penalty under Rule 25 of the Central Excise Rules, 2002Relevant Legal Framework and Precedents: Rule 25 of the Central Excise Rules, 2002, provides for penalty in cases of suppression of facts or violation of provisions related to central excise duty.Tribunal decisions during the relevant period showed conflicting views on the correct valuation method for physician samples, causing confusion.Court's Interpretation and Reasoning: The Tribunal noted that the appellant's practice of valuation was known to the department and was based on the CBEC Circular. Given the contradictory judicial decisions and lack of clarity during the relevant period, the Tribunal held that there was no suppression or violation warranting penalty.Key Evidence and Findings: The appellant disclosed differential duty payments and followed a known practice. There was no attempt to evade duty or conceal facts.Application of Law to Facts: The Tribunal applied the principle that penalty cannot be imposed where there is no willful suppression or violation, especially amid legal uncertainty.Treatment of Competing Arguments: The Revenue sought penalty for incorrect valuation and non-compliance. The appellant argued absence of malafide or suppression and reliance on circulars.Conclusions: The Tribunal set aside the penalty imposed under Rule 25 of the Central Excise Rules, 2002.3. SIGNIFICANT HOLDINGSThe Tribunal reaffirmed the legal principle that 'valuation of physician samples is to be done as per Section 4(1)(a) of the Central Excise Act, 1944,' and that 'valuation of physician samples is to be done as per Rule 4 of the valuation rules, 2000 based on the pro rate value of medicaments sold in the trade and valued under Section 4A.'The Tribunal also held that 'there was no suppression or violation of any of the provisions of the Act involved and hence, no penalty imposable under Rule 25 of the Central Excise Rules, 2002.'Finally, the Tribunal concluded that the show cause notice issued against the appellant was not sustainable given the appellant's compliance with the CBEC Circular and provisional assessment practice, and accordingly set aside the impugned order and allowed the appeal with consequential relief.