Valuation of Physician Samples

PJ/Case Laws/2012-13/1011

Case: M/S PARNAX LAB PVT LTD V/S CCE, VAPI

Citation: 2011-TIOL-1668-CESTAT-AHM

Issue:- Valuation of Physician samples cleared of own product and of other principle manufacturers – whether on cost production basis or pro rate basis? – held: Transaction value applicable – Appeal dismissed on merit & limitation.

Brief Facts:- Appellant were engaged in the manufacture of excisable goods P&P medicaments for which they had obtained central excise registration. They were also availing benefit of cenvat credit. Appellants were also manufacturing and clearing physicians sample packs for free distribution. The final product i.e. sale pack of the appellant was covered under provisions of Section 4A of the Central Excise Act, 1944 for the sale pack but for clearances of “physicians sample”, they used to discharge the duty liability based upon the value arrived at on cost of production.

The Lower Authorities felt that the valuation of the “physician’s samples” has to be done on the basis of pro-rata value of such goods sold by the assessee i.e. on pro rata basis of MRP of the said products as per the provisions of Rule 4 of Central Excise Valuation Rules. Thus a show cause notice was issued by invoking extended period of limitation demanding differential duty with interest and also for imposing penalty. Demand was confirmed.

Appellant is now before the Tribunal.

Appellant’s Contention: - Appellant submitted that valuation of the physicians sample has to be done based upon the cost construction method. It was also submitted that the appellants manufacturing activity consists of “physician’s sample” on their own account i.e. for the products manufactured by them for which physicians sample are cleared and outright sale of the physicians sample to the customers. With regard to outright sale of physician samples by them to the customers, they have discharged duty liability based upon the invoice price i.e. its transaction value. The said price cannot be rejected by Revenue without any basis. For the issue of discharge of duty liability of physician samples sold by the appellant, the coordinate bench of the Tribunal in the case of CCE, Daman v/s Sidmak Laboratories (India) Ltd [2008-TIOL-2855-CESTAT-AHM] has clearly held that provisions of Section 4 will be applicable i.e. the transaction value should be applied.

It was submitted that the entire demand is for the period from 07.01.05 to 31.12.06 which is blatantly time barred but show cause notice was issued in November 2007. That in their ER-1 monthly returns appellants have specifically mentioned in the returns that they are also clearing physician samples and have declared value in the said returns and if there was any query, why Revenue has not rejected the assessable value of said physician samples at the relevant time and now they cannot claim that there is suppression or mis-declaration of the value.

Respondent’s Contention:-Revenue contended that the Larger Bench decision of this Tribunal in the case of Blue Cross Laboratories Ltd v/s CCE, Mumbai [2006-TIOL-1142-CESTAT-MUM-LB] and Cadila Pharmaceuticals Ltd v/s CCE, Ahmedabad [2008-TIOL-1668-CESTAT-AHM-LB] have laid down the law which clearly states that the physician sample to be valued based upon the pro rata price of the sale pack of the very same said products. It was submitted that the appellant has not followed the law as has been laid down by the Larger Bench for the period in question and hence has mis-declared the value.

On Limitation, it was submitted that larger period was correctly invoked as the appellant did not indicate in the monthly returns whether duty on such clearance of sample was being paid on pro-rata basis of the value of the MRP of the identical goods or otherwise.

Reasoning of Judgement: -The Tribunal noted that as regards the physician samples manufactured by the appellant for other principals and sold to them under contractual obligations, Revenue has not challenged the said contracts. Also the transaction value declared by the appellant while clearing the goods from their factory premises has not been rejected. It is also not disputed that appellant have been discharging the duty liability on physician samples as per the invoices raised from his factory and cleared to the principal manufacturer who in turn distributes the very same to the medical profession. On this background, the Tribunal found that the ratio laid down by the bench for the case of M/s Sidmak Laboratories Ltd is squarely on the point. In that case on facts, it was held that value of samples should be in terms of Section 4. The said judgment was upheld by the Apex Court [Order dated 27.07.2009 in Civil Appeal No. 1456 of 2009]. Hence, the Tribunal that the demand of the duty liability on the physicians sample sold by the appellant to the principals, the assessable value as ascertained by the assessee and the duty liability discharged is correct and there is no reason for re-calculating the assessable value based upon the value arrived at on pro rata basis of sales pack.

With regard, to physician samples manufactured and cleared by appellant on their own product, the issue was covered by Larger bench decision of Cadila Pharmaceuticals Ltd v/s CCE, Ahmedabad.

On Limitation, the Tribunal found that in monthly returns, appellant had clearly mentioned the products cleared as physician samples and all details were given. In the absence of any objection from Revenue, appellant was justified in holding that the assessable value computed by them was correct. There is no suppression. Demand is time barred. Impugned order set aside.

Decision:- Appeals allowed.

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PJ/Case Laws/2012-13/1011

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