TaxTMI 
TaxTMI 
2014 (9) TMI 29
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....before the Commissioner of Customs, Central Excise and Service Tax (Appeal II) for recovery of the refunded amount, on the ground that the rebate amounts refunded were in excess. It is in this background that the present petition has come before this Court. 2. The brief facts are that during the export period under consideration, Dr. Reddy's was granted the exclusive right to sell the drug Olanzapine, in 5, 10 and 20 mg formulations, in the United States (US) for a limited period of 180 days. Between October 2011 and January 2012, Dr. Reddy's exported the drug to its US subsidiary, Dr. Reddy's Laboratories Inc., New Jersey, USA ("the Jersey subsidiary') at a price of US $ 7, 3.65 and 2.20 for the 20, 10 and 5 mg tablets respectively, amounting to a total of approximately Rs. 411 crores through foreign exchange, which was received in India. According to that valuation, Dr. Reddy's paid excise duty - at the applicable rate of about 5% of Rs. 21,18,36,11 on the 20 mg tablets, and Rs. 64,66,041 on the 5 and 10 mg tablets. A rebate application was then made - since excise duty on exported products is nil - under Rule 18 of the Central Excise Rules, 2002 ("2002 Rules'). The rebate cla....
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....bate was sanctioned in accordance with Section 11B of the Central Excise Act, and Rule 18 of the Central Excise Rules, 2002, use of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 ("2007 Rules') was "a contradiction'. It was reasoned that even if the 2007 Rules were applicable, under Rule 3, the sale value can be accepted between related parties only if it had not influenced the transaction. The "huge difference' between the cost of production and the transaction value in this case, and the absence of any findings on this aspect whilst granting the rebate, according to the revenue, rendered the finding questionable. Second, it was noted that: "[o]n verification of the prices on the Internet, it is observed that though Zyprexa (branded product of Olanzapine 20mg) is available for $15, the Generic product is available for US$ 0.69. Therefore, the export price of US$7 quoted by M/s. Dr. Reddy's Laboratories Ltd., for its generic product appears to be abnormally high. Thus, prima facie, the DRL resorted to overvaluation of goods and this appears to be with an intention of encash the Cenvat credit by way of rebate.' Similarly, the generic prices for tabl....
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.... correct valuation - according to the Commissioner - was recorded in these orders. In reaching a valuation, the following issues were noted: the 2000 Rules, and not the 2007 Rules, are applicable, the innovator's price (which was much higher) is affected by other considerations and need not be looked into, a manifest increase in the cost price and the sale price implies that there is an influence on the transaction value on account of the link between the related parties. Relying on Rule 11 of the 2000 Rules, it was observed that "the impugned goods are required to be valued as per best judgment using reasonable means consistent with the general principles and provisions under Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.' In this manner, the valuation was reached on the basis of cost plus a ten percent markup. This exercise resulted in the cost production value coming to Rs. 16148102, with a 10% markup returning the value Rs. 17762815. Based on this, the rebate claims of Rs. 8,91,295 and Rs. 23,4911 respectively in respect of Olanzapine 20 mg tablets and Olanzapine 10 mg and 5 mg tablets were held admissible as against the rebate ....
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....l order is premised on the validity of these orders that can only be challenged through the writ jurisdiction of this Court. No other alternative remedy is available to challenge this reversal of the decision to grant rebate and change the valuation of the goods. 11. Learned senior standing counsel next argued that the Revenue retains the authority to appeal - through Section 35E(2) - an incorrect valuation for the purposes of rebate, which was done in this case. Moreover, reliance is placed on Notification 19/2004 to argue that in this case the amount claimed as rebate (Rs.21 crores and Rs. 1.75 crores) far exceeded the market value of the goods, calculated either by reference to alternatives available in the Indian market or on the basis of a best value judgment. It is argued - in support of the approach of the revisionary authority - that since the declared value far exceeded the cost, it was reasonable to conclude that the transaction value between Dr. Reddy's and the Jersey subsidiary, two related parties, could not be taken at face value. In such case, other means of valuation that were ignored by the sanctioning authority were rightly taken into consideration and detailed....
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....dia. This is recognized in Notification 19/2004, which notes that "the Central Government hereby directs that there shall be granted rebate of the whole of the duty paid on all excisable goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), exported to any country other than Nepal and Bhutan, subject to the conditions, limitations and procedures specified hereinafter.' The underlying objective is thus clear: to ensure that any amount paid towards excise duty is recovered. However, to ensure that this provision for rebate is not abused, condition (e) states that "the market price of the excisable goods at the time of exportation' should not be "less than the amount of rebate of duty claimed.' Thus, to ensure that an exporter does not receive a net benefit from the rebate of the duty, a ceiling on the rebate is placed in terms of the market price at which the exporter actually sells the goods. In this case, the two Orders-in- Original, dated 30.9.2011 and 13.1.2012, granted the rebate on the following grounds: "10. On examination of the rebate claim, it is noticed that the assessee have cleared the said goods for export vide ARE-I: No.....
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.... Certificate on receipt of export proceeds. In view of these facts, the declared value is acceptable. 12. I am satisfied with the documents produced and the exportation of the goods cleared under the said ARE-I. The assessee is therefore, eligible for a rebate-under Rule 18 of the Central Excise Rules, 2002 read with Notification No.19/2004- C E (N T) dated 06.09.2004, as amended. However, .as the duty is calculated and paid on the value declared in ARE.1 for arriving at transaction value the actual freight amount, Insurance, commission and local freight, if any paid are to be deducted from CIF Value. Therefore, basing on the information furnished, the duty has been re-worked put and arrived at the rebate to be given in cash. The details of ARE.1, the Values, the net F.O.B values, rebate sanctioned in cash and credit allowable as CENVAT Credit are reflected In the table annexed to this order.' 15. Independent of the difference between the sanctioning authority in the order-in-original and the appellate authority subsequently on the applicability of the 2007 Rule to cases arising under Section 11B of the Central Excise Act- read with Rule 18 of the 2002 Rules, the appellate/re....
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....dy's receive a net benefit from the transaction. If the Revenue's argument is to be accepted, a higher price is accepted by it at the time of payment of excise duty on the basis of the price in the foreign market, but a different (and lower) price is mandated on revaluation for the purposes of refunding that very amount. Far from meeting the purpose of Rule 18, this approach results in a net positive for the Revenue on the basis of differential valuation at different points of the same process. A consistent value based on a distinct principle is to be followed during the entire process. This value - the „market price' - must be the value in the market to which goods are exported. Whilst undoubtedly there may be cases where the valuation ought to be considered more closely if the transaction is between related parties, this case does not present any difficulty. The generic price of $0.69 relied upon by the revisionary authority is the price prevailing in the United States market after the expiry of the 180 day window period. The exports however were made during that window period, when the patent was manufactured by only 3 bodies (Eli Lily, Prasco Labs and Dr. Reddy's) and the....