TaxTMI 
TaxTMI 
2017 (10) TMI 1295
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....f patent or proprietary medicaments which are excisable goods falling under Chapter XXX of the Central Excise Tariff Act. Earlier, the petitioners would pay excise duty on such goods on ad valorem basis in terms of section 4 of the Act. The Parliament inserted section 4A to the Act w.e.f. 14.05.1997 enabling the Central Government to collect central exercise duty on valuation of the specified excisable goods with reference to retail sale price. The Central Government, in exercise of powers under section 4A, has been issuing various notifications from time to time notifying the goods to which such assessment on retail sale price would apply. By a notification No. 2 of 2005 dated 07.01.2005 PP Medicaments came to be notified for the purpose of section 4A of the Act. By virtue of this notification, the petitioner and other similar manufacturers of PP Medicaments would pay duty on such goods on the basis of maximum retail price, popularly referred to as MRP, as reduced by the abatement at the rate of 35% of the retail price, as provided in the said notification. The petitioner contends that the retail sale price or the MRP is not the price at which the manufacturer sells to his first p....
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....le value of goods. The petitioners pointed out that the department's appeal against the judgement of the Tribunal in case of Vinayak Mosquito Coil Manufacturing Company was dismissed by the Supreme Court." 5. The petitioners were also following the same practice of allowing discount by way of free goods on specified quantity of purchases. Both are shown separately in the accounts and clearances. The petitioner and other similar manufacturers, under letter dated 17.06.2005 informed the Excise authorities that they would be claiming deduction of quantity discount by way of free goods. The department, however, disputed such position and issued a show-cause notice dated 04.07.2006 for recovering excise duty of Rs. 2,59,618/- from the petitioner with penalty. This duty related to the clearances of the goods made by the petitioner by way of discount for free goods given by the petitioner for the period between June 2005 and July 2005. The case of the department was that such free goods also carried MRP printed on the boxes and the same would ultimately be sold to the consumers at the retail price. The department was of the view that the decision of the Tribunal in case of Vinayak ....
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....e prescribed on goods which are produced or manufactured in India at the rate set forth in the first schedule to the Central Excise Tariff Act, 1985 and the special duty of excise in addition to basic excise duty as specified under second schedule to the Central Excise Tariff Act, 1985. Section 4 of the Central Excise Act pertains to valuation of excisable goods for the purpose of charging of duty of excise. As per the provision contained prior to its amendment w.e.f 01.07.2000 the duty of excise would be computed on the value of the goods which would be the normal sale price i.e. the price on which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for such sale. However, when such sale is to a related person, the normal price of the goods sold by the assessee would be deemed to be the price at which the goods are ordinarily sold by the related person in the course of wholesale trade at the time of removal to the dealers. The term 'related person' was defined as under: "(c) "related person" means a pe....
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.... amount of abatement, if any, from such retail sale price as the Central Government may allow by notification in the Official Gazette. (3) The Central Government may, for the purpose of allowing any abatement under sub-section (2) take into account the amount of duty of excise, sales tax and other taxes, if any, payable on such goods. [(4) Where any goods specified under sub-section (1) are excisable goods and the manufacturer- (a) removes such goods from the place of manufacture, in without declaring the retail sale price of such goods on the packages or declares a retail sale price which is not the retail sale price as required to be declared under the provisions of the Act, rules or other law as referred to in sub-section (1); are excisable goods and the manufacturer; or (b) tampers with, obliterates or alters the retail sale price declared on the package of such goods after their removal from the place of manufacture, then, such goods shall be liable to confiscation and the retail sale price of such goods shall be ascertained in the prescribed manner and such price shall be deemed to be the retail sale p....
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....Rules of 2000' for short]. Rule 2 of the Rules which contains definitions defines the term "value" in clause (c) as to mean the value referred to in section 4 of the Act. Chapter 2 of the Rules pertains to determination of value. Rule 4 contained in the said chapter reads as under: "RULE 4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appeal reasonable." RULE 8 further provides as under: "[Where whole or part of the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value of such goods that are consumed shall be one hundred and ten per cent of the cost of production or manufacture of such goods]" 14. In the context of such facts and statutory provisions, learned counsel for the petitioners submitted that the duty of excise can be levied only on ma....
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....Limited reported in (1973) 3 SCC 503. 19. With respect to charging duty even on the medicines supplied to the purchasers by way of trade discount, the counsel relied on the following decisions: "i. Commissioner of Central Excise, Chennai v. Hindustan Lever Ltd. reported in 2002 (142) ELT 513 Supreme Court; ii. In case of Goodlass Nerolac Paints Ltd. v. Union of India reported in 1993 (65) ELT 186 (Bom); iii. In case of POND's (India) Ltd. v. Commissioner of Central Excise, Chennai reported in 2000 (124) ELT 202 (Tribunal)." These judgements however were rendered in the background of section 4 of the Central Exercise Act 1944. 20. After thus arguing the question of collection of duty under section 4A of the Act on the extra medicines provided to the dealers by way of trade-discount, counsel for the petitioners clarified that he is not pressing this issue and confines the challenge to the collection of duty on such supply/sales on the anvil of the validity of section 4A of the Act alone. He however, submitted that the issue of free samples provided to the doctors would stand on an entirely different footing. Such free samples do not carry MRP a....
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....In case of Jayanti Food Processing (P) Ltd. v. Commissioner of Central Excise, Rajasthan reported in (2007) 8 SCC 34 in which however, the question was when the MRP was voluntarily displayed on the ice-cream packs not meant for retail sale whether duty could be charged under section 4A of the Central Excise Act or under section 4 thereof? In this context, the Supreme Court held that the duty would be appropriately charged under section 4 and not 4A. (ii) In case of Government of India and ors v. Madras Rubber Factory Ltd. and ors reported in: (1995) 4 SCC 349 in which the Supreme Court referring to the decision in case of Bombay Tyre International Ltd. and ors observed that the expression "post removal expenses" must be understood as a convenient expression rather than a precise expression with a definite connotation. (iii) Reliance was placed on the decision of Supreme Court in case of Medley Pharmaceuticals Ltd. v. Commissioner of Central Excise and Customs, Daman reported in (2011) 2 SCC 601 in the context of charging excise duty on physician's samples in which it was observed that the prohibition on sale of physician's samples intended for distribution....
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....payable on such goods. Section 4A was introduced w.e.f. 14.05.1997 to levy duty on excisable goods with reference to retail sale price on the notified goods. As noted, under sub-section (1) of section 4A, the Central Government could specify any goods by a notification in relation to which under the provisions of the Standards of Weights and Measures Act, 1976 or the Rules made thereunder it was necessary to declare on the package, the retail sale price of such goods, to which sub-section (2) would apply. Under sub-section (2) of section 4A where goods specified under sub-section (1) are excisable goods and are chargeable to duty of excise with reference to value, notwithstanding anything contained in section 4, such value would be deemed to be the retail sale price declared on such goods less the amount of abatement, from such retail sale price as the Central Government may allow in the notification. Subsection (3) of section 4A provides that the Central Government may, for the purpose of allowing any abatement under subsection (2) take into account the amount of duty of excise, sales tax and other taxes, if any, payable on such goods. 28. In terms of the said section 4A thus, ....
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....ula is provided for providing such abatement and it may be that in a given case the abatement that the Government may permit under the notification may not entirely neutralize of such costs, the question is would that by itself render the provision unconstitutional? 29. The concept, that the duty of excise is to be charged on manufacturing costs and manufacturing profits is all too well settled and recognized. However, its application to every case may have a different element. In case of Cibatul Limited. P.O. Atul (supra) the Division Bench of this Court considered the constitutionality of an amendment in section 4 of the Act through which the Parliament introduced the concept of a related person for charging of duty of excise. In case the seller and buyer were found to be related persons, as per the definition contained therein, the excise duty would be charged not on the price which the manufacturer charges his buyer but on the price which the buyer would charge from his ultimate customers. For the purpose of the said section, it was provided that the persons shall be deemed to be related if (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst the....
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....need not in point of time synchronize with the completion of the manufacturing process. While the levy in India has the status of a constitutional concept, the point of collection is located where the statute declares it will be. The Court then referred to the commentary by Sirvai in the Constitutional law of India stating that the amount (of excise) may be measured in any way there is a clear distinction between the subject-matter of a tax and the standard which amount of tax is measured. The Court then observed as under: "It is apparent, therefore, that when enacting a measure to serve as a standard for assessing the levy the Legislature need not contour it along lines which spell out the character of the levy itself. Viewed from this standpoint, it is not possible to accept the contention that because the levy of excise is a levy on goods manufactured or produced the value of an excisable article must be limited to the manufacturing cost plus the manufacturing profit. We are of the opinion that a broader based standard of reference may be adopted for the purpose of determining the measure of the levy. Any standard which maintains a nexus with the essential charact....
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....ition is subject to the terms of the three provisos to sub-section (1)(a) of section 4; (ii) Where the price of excisable goods in the course of wholesale trade for delivery at the time and place of removal cannot be ascertained for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in the manner prescribed by the Central Excise (Valuation) Rules, 1975 should be taken as representing the excisable value of the goods; (iii) Where wholesale price of any excisable goods for delivery at the place of removal is not known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price; (iv) Of course, these principles cannot apply where the tariff value has been fixed in respect of any excisable goods under sub-section (2) of section 3; (v) On a proper interpretation of the definition of "related person" in sub-section (4)(c) of section 4, the words "a relative and a distributor of t....
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....o account not only the taxes but also other charges which may not be related to the manufacturing costs, profits and other expenditure such as the advertisement, transportation and other costs. 35. The purpose for bringing in such legislative changes have not been brought on record. However, an article by Shri Daya Sagar published in Volume 91 ELT A3 produced before us by counsel for the Revenue would give some insight. It is explained that previously, a similar regime was introduced for patent or proprietary medicines through a notification under which the duty was charged at 7 1/2% of the value calculated after the allowing the discount at specified percentage. This continued to be in operation for nearly 30 years. The option was left open to the assessee to avail of such exemption notification or pay duty in terms of section 4 of the Act. With this background, the purpose of introduction of section 4A was explained as under: "11. It is common knowledge that in case of a number of commodities the company who itself may not be manufacturing that goods, farm out production of the goods to some small scale manufacturers. In such cases the excise duty on such goods ....
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....se duty is leviable on the value in the hands of the job workers which would not include the element of other post-manufacturing expenses incurred by the buyer or the marketing company such as advertisement expenses, marketing expenses and other expenses like freight etc. and thus, the element of duty brought on such goods would be much less than what it would have been if the marketing company was engaged in the manufacturing activity. While doing so, the legislature consciously provided for neutralizing the element of taxes and other add-ons to the MRP by authorizing the Government to provide for abatement. In the present case, the abatement notified is @ 35%. Under the circumstances, the contention of the counsel for the petitioner that the levy of duty under section 4A of the Act is outside the legislative competence of the union parliament cannot be accepted. The change to the vires must fail. 38. This brings us to the question of levy of duty on free samples provided to the doctors. There is no dispute that such samples provided to the doctors by way of marketing strategy are not charged. As per sub-rule (1) of Rule 96 of the Drugs and Cosmetic Rules, it is mandatory for t....
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....rdance with the said Rules. Rule 5 applies to the case where excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 the Act except in the circumstances in which excisable goods are sold for delivery at a place other than the place of removal. Rule 6 applies where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except where the price is not the sole consideration for sale. There are other Rules which also refer to the various situations envisaged in section 4 of the Act. From such provisions, it is absolutely clear that the Valuation Rules of 2000 would apply in a case where the duty of excise is levied under section 4 of the Act. The respondents cannot seek to levy duty under section 4A but apply the method of computation of the value of the goods which is devised for the purpose of section 4 of the Act. Clarificatory instructions dated 25.04.2005 do not lay down correct position in law. 39. It is, however, not perhaps the argument of the counsel for the petitioner that no duty of excise can be levied on such free samples. Counsel for the respondents had relied on ....