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CX – Provisions of DPCO, 1995 are not attracted in respect of sales to institutional buyers which are not further offered for retail sale – goods correctly valued u/s 4 of CEA, 1944: CESTAT

2019-TIOL-2016-CESTAT-AHM

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH, AHMEDABAD
REGIONAL BENCH
COURT NO. III

Excise Appeal No. 779 of 2011-DB

Arising out of OIO-03/MP/DAMAN/2011
Passed by Commissioner of Customs, Central Excise and Service Tax -Daman

WITH

(i) Excise Appeal No. 780 of 2011 (Parvez K Kumana); (ii) Excise Appeal No. 781 of 2011 (Dilip A Pandit); (iii) Excise Appeal No. 791 of 2011 (CCE & ST Daman vs Usv Ltd.); (iv) Excise Appeal No. 655 of 2012 (Usv Ltd.); (v) Excise Appeal No. 656 of 2012 (Dilip A Pandit), (vi) Excise Appeal No. 657 of 2012 (Parvez K Kumana), (vii) Excise Appeal No. 14019 of 2013 (Usv Ltd.), (viii) Excise Appeal No. 14020 of 2013 (Dilip A Pandit) and (ix) Excise Appeal No. 14021 of 2013 (Jayesh K Vasavada)

Arising out of OIO-03/MP/DAMAN/2011
Passed by Commissioner of Customs, Central Excise and Service Tax -Daman

Arising out of OIA-CS/06-08/DMN/NDMN/2012-13
Passed by Commissioner of Customs, Central Excise and Service Tax -Daman

Arising out of OIA-DMN-EXCUS-000-APP-168-170-13-14
Passed by Commissioner of Customs, Central Excise and Service Tax -Daman

Date of Hearing: 17.01.2019
Date of Decision: 06.05.2019

M/s USV LTD
H-17/H-18, OIDC, MAHATMA GANDHI
UDYOG NAGAR, DABHEL, DAMAN 396 210 (UT)

Vs

COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX
DAMAN, 3RD FLOOR, ADARSH DHAM BUILDING
VAPI-DAMAN ROAD, VAPI


Appellant Rep by: Shri Medhavin Baxi, Adv.
Respondent Rep by: Shri Nitina Nagori, AR

CORAM: Ramesh Nair, Member (J)
Raju, Member (T)

CX – The assessee is engaged in supply of medicaments to institutional buyers like Railways, BHEL, NTPC and BARC – While assessee was paying excise duty on assessable value arrived at in terms of Section 4A of CEA, 1944 in respect of clearances to the market, they were adopting assessable value in terms of Section 4 of Central Excise Act in respect of clearance made to institutional buyers – Revenue under the belief that the supplies to the institutional buyers should also be valued in terms of section 4A of CEA, 1944 issued SCN demanding duty – Notices also sought to impose penalties on three persons namely, Parvej K Kumana, Dilip A Pandit and Jayesh K Vasavada – It is seen that investigations were extended to various customers/dealers and in impugned order the list of customers has been enumerated – The gist of investigation is reproduced in impugned order – The investigations confirmed that no evidence of printing of MRP on institutional supplies made through dealers was found – In fact whatever evidence was produced showed that the products contained the marking “hospital supply-not for sale” only – The impugned order has picked up the words “formulation intend for sale” appearing in the Drugs (Price Control) Order 1995 and come to the conclusion that it was mandatory to print the MRP – The argument in impugned order being that the goods intended for ultimate sale to institutional buyers, are first sold to dealer/distributors – Thus, when they are sold to dealers/distributors the provision of DPCO 1995 get attracted – It is seen that the DPCO 1995 mandates, printing of ‘retail sale price’ on ‘containers’ as well as on ‘minimum pack thereof offered for retail sale’ – It is apparent that what is covered in DPCO is only the items which are sold in retail – If a container is sold in retail, the container must contain retail sale price and if the content of such container are also sold in retail then each such pack sold in retail must have the MRP printed on it – It is apparent that the provisions are attracted only on goods ‘offered for retail sale’ – In the impugned order, it is seen that the words ‘offered for retail sale’ appearing in DPCO 1995 have been overlooked – The said order only relies on the word ‘sale’ and upholds the applicability of DPCO 1995 to all sales – The evidence brought on record does not dispute the claim that the goods sold to institutional buyers were not sold (or offered for sale) in retail sale – Provisions of of DPCO 1995 are not attracted in respect of sales to institutional buyers which are not further offered for retail sale – The demand, therefore, cannot be upheld – The penalties imposed are set aside: CESTAT

Assessee’s appeal allowed

Case laws cited:

Stadmed Pvt. Ltd. 2017 (349) ELT 312 (Tri.All.)… Para 2.2

Exac Alloys Ltd. vs UOI – 2011-TIOL-924-HC-KAR-CX… Para 2.2

Monsanto Manfacturers Pvt. Ltd. 2006 (193) ELT 495 (Tri. Del.)… Para 2.2

Jayanti Food Processing Pvt. Ltd – 2007-TIOL-150-SC-CX… Para 3

FINAL ORDER NOS. A/10790-10799/2019

Per: Raju:

These appeals have been filed by M/s Usv Ltd., Parvej K Kumana, Dilip A Pandit, Jayesh K Vasavada and one appeal filed by Revenue.

1.1 M/s USV Ltd. are engaged in manufacture and clearance of medicaments. The appellants are, inter alia, engaged in supply of medicaments to institutional buyers like Railways, BHEL, NTPC, BARC etc. While M/s USV Ltd. were paying excise duty on the assessable value arrived at in terms of Section 4A of the Central Excise Act, 1944 in respect of clearances to the market, they were adopting assessable value in terms of Section 4 of Central Excise Act in respect of clearance made to institutional buyers. Revenue under the belief that the supplies to the institutional buyers should also be valued in terms of section 4A of the Central Excise Act, 1944 issued SCN demanding duty. Notices also sought to impose penalties on three persons namely, Parvej K Kumana, Dilip A Pandit and Jayesh K Vasavada. The demands were confirmed by lower authorities and penalties against the aforesaid persons were also imposed. Aggrieved by the confirmation of demand, interest and imposition of penalties M/s USV and three persons namely Parvej K Kumana, Dilip A Pandit and Jayesh K Vasavada have filed appeals. Revenue has also filed an appeal against extension of the benefit of 25% penalty in terms of Section11AC on the ground that the penalties was imposed under rule 25(1) of Central Excise Rules 2002,and not under Section 11AC of Central Excise Act, 1944.

2. Ld. Counsel for M/s USV Ltd. pointed out that they are manufacturers of Pharmacy products and sell their products through distributors for retail sale as well as sale to institutional buyers. He pointed out that sales through distributors which are intended for ultimate retail sale and on such product the MRP is printed were assessed in terms of Section 4A of Central Excise Act, 1944. He pointed out that in case of sale to Distributors for further sale to institutional buyers there is no MRP printed, as the goods supplied were not meant for retail sale but for use by the said institutional buyers or their employees/ families. He argued that there is no requirement in the Drug (Price Control) Order 1995 to affix the MRP on the bulk pack in which the said medicines were being supplied to institutional buyers. He argued that the provisions of Section 4A are invoked only in the circumstances when there is a mandatory requirement of affixing of MRP on the pack. He argued that the provisions of Notification 2/2005-CE(NT) are not attracted in the facts of the case in respect of the clearances made to institutional buyers. He argued that in such circumstances Section 4A of the Central Excise Act, 1944 cannot be invoked for assessment of goods on MRP basis in respect of supplies made to institutional buyers. He pointed out that bulk packs and the containers clearly had a marking ‘Hospital supply-not for sale”. He pointed out that Commissioner has solely relied on the fact that the purchase order of the institutional buyers did not mention that the goods are not intended for resale or for the free distribution. The impugned order also relies on the fact that such orders of institutional buyers have been obtained through dealers/ distributors.

2.1 During investigation it was found that the primary packing of the supplies intended sale to institutional buyers contained marketing such as ‘railway supplies’, ‘BHEL supplies’ etc. It was also found that the MRP was not printed in respect of supplies meant for institutional buyers.

2.2 Ld. Counsel further pointed out that they were not required to print the MRP on the supplies made to institutional buyers as the said supplies were not intended for retail sale. He pointed out that para 14(2) and 15(1) of the Drug (Price Control) Order 1995 mandates printing of retail sale price only when the goods are intended for retail sale. He pointed out that in the instant case the goods were not intended for retail sale and therefore, there was no need to print the MRP on the said goods supplied to institutional buyers. Ld. Counsel relied on the decision of Stadmed Pvt. Ltd. 2017 (349) ELT 312 (Tri.All.), Exac Alloys Ltd. vs UOI 2012 (275) ELT 193 (Kar.) =2011-TIOL-924-HC-KAR-CX and Monsanto Manfacturers Pvt. Ltd. 2006 (193) ELT 495 (Tri. Del.).

2.3 Ld. Counsel also argued that extended period of limitation cannot be invoked in these circumstances as the dispute is of matter of interpretation and no malafide can be attached to the appellant.

3. Ld. AR relies on the impugned order. He pointed out that the goods were supplied through dealers/ distributors and not directly to the institutional buyers. He argued that there is no evidence that the goods were exclusively meant for free distribution. He argued that even if the goods were sold to distributor, and thereafter from distributor to the institutional buyers, the provisions of DPCO 1995 are attracted in respect of initial sales made to dealer. Ld. AR relied on the decision of Hon’ble Apex Court in case of Jayanti Food Processing Pvt. Ltd. 2007 (215) ELT 327 (SC) = 2007-TIOL-150-SC-CX. He pointed out that in terms of the said decision the nature of sale is irrelevant. The only thing that matters is the need of printing MRP on the goods cleared. Ld. AR further pointed out that the impugned order has wrongly extended the benefit of the first proviso to Section 11AC in respect of penalty imposed under Rule 25(1) of Central Excise Rules, 2002. He argued that the benefit of the said proviso cannot be extended to penalties imposed under Rule 25 of the Central Excise Rules 2002.

4. We have gone through rival submissions. We find that these products were brought into the fold of section 4A assessment by notification No. 2/2005-CE(NT) dated 07.01.2005 which reads as under:

“Medicaments – Assessments on basis of retail sale price (MRP)

In exercise of the powers conferred by sub-section (1) and sub-section (2) of section 4A of the Central Excise Act, 1944 (1 of 1944), the Central Government hereby specifies the goods mentioned in column (3) of the Table below and falling under Chapter or Heading No. or Sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) mentioned in the corresponding entry in column (2) of the said Table, as the goods to which the provisions of the said sub-section (2) shall apply, and allows as abatement the percentage of retail sale price mentioned in the corresponding entry in column (4) of the said Table :-

TABLE

S. No.Chapter or Heading No. or Sub-heading No.DescriptionAbatement as a percentage of retail sale price
(1)(2)(3)(4)
1.3003. 10Patent or proprietary medicaments, other than those medicaments which are exclusively Ayurvedic, Unani, Siddha, Homoeopathic or Biochemic35%
2.3003. 20Medicaments (other than patent or proprietary) other than those which are exclusively used in Ayurvedic, Unani, Siddha, Homoeopathic or Biochemic systems35%

This notification 2. shall come into force on the 8th day of January, 2005.

Explanation. – For the purposes of this notification, “retail sale price” means the retail price displayed by the manufacturer under the provisions of the Drugs (Prices Control) Order, 1995.”

It is noted that for the purpose of this notification, the retail sale price means the retail sale price displayed the manufacturer under the provision of Drugs (Price Control) Order 1995. The Drug (Price Control) Order 1995 in para 14 and 15 mandates as follows:-

“14. Carrying into effect the price fixed or revised by the Government, its display and proof thereof :

1. Every manufacturer or importer shall carry into effect the price of a bulk drug or formulation, as the case may be, as fixed by the Government from time to time, within fifteen days from the date of notification in the Official Gazette or receipt of the order of the Government in this behalf by such manufacturer or importer.

2. Every manufacturer, importer or distributor of a formulation intended for sale shall display in indelible print mark, on the label of container of the formulation and the minimum pack thereof offered for retail sale, the retail price of that formulation, notified in the Official Gazette or ordered by the Government in this behalf, with the words ‘retail price not to exceed’ preceding it, and “local taxes extra” succeeding it, in the case of Scheduled formulations. Provided that in the case of a container consisting of smaller saleable packs, the retail price of such smaller pack shall also be displayed on the label of each smaller pack and such price shall not be more than the prorata retail price of the main pack rounded off to the nearest paisa.

15. Display of prices of non-Scheduled formulations and price list thereof :

1. Every manufacturer, importer or distributor of a non-Scheduled formulation intended for sale shall display in indelible print mark, on the label of container of the formulation and the minimum pack thereof offered for retail sale, the retail price of that formulation with the words “retail price not to exceed” preceding it “local taxes extra” succeeding it, and the words “Not under Price Control” on a green strip:

Provided that in the case of a container consisting of smaller saleable packs, the retail price of such smaller pack shall also be displayed on the label of each smaller pack and such price shall not be more than the prorata retail price of the main pack rounded off to the nearest paisa.”

A perusal of the aforesaid provisions shows that the requirement of printing the MRP is in respect of products “offered for retail sale”. Therefore, if the product is not offerred for retail sale, the said provision of Rule 14 & 15 will not apply. In the present facts and circumstances, we need to examine whether if the provisions of Rule 14 or 15 could be attracted.

4.1 It is seen that investigations were extended to various customers/ dealers and in para 9 of the impugned order the list of customers has been enumerated. The gist of the investigation is reproduced in para 10, 11, 12 and 13 of the impugned order. The investigations confirmed that no evidence of printing of MRP on institutional supplies made through dealers was found. In fact whatever evidence was produced showed that the products contained the marking “hospital supply-not for sale” only.

4.2 The impugned order has picked up the words “formulation intend for sale” appearing in para 14 and para 15 of the Drugs (Price Control) Order 1995 and come to the conclusion that it was mandatory in the facts and circumstances of the case to print the MRP. The arguments is summarized in para 4.3.4 of the impugned order in following words.

“4.3.4 Now, deliberate on the said DPCO, 1995. I observe that as per its para no. 14(2), every manufacturer of distributor of a ‘formulation intended for sale’ shall display in indelible print mark, on the label of the container of the formulation and the ‘minimum pack there offered for retail sale’, the retail price of that formulation, notified in the official Gazette or referred to by the Govt. in this regard, with the words ‘retail price not to exceed’ similar type of provisions have also been made in the para 15(1) of the said order in respect of non-scheduled formulations the only difference being that the words ‘retail price not to exceed’ preceding it. And local taxes extra” succeeding it, in the case of scheduled formulations. Similar type of provisions have also been made in the para no. 15 (1) of the said order in respect of non-scheduled formulations, the only difference being that the words ‘retail price not to exceed’ preceding it, and ‘local taxes extra’ succeeding it, have been replaced by the words ‘maximum retail price’ preceding it and the words ‘inclusive of all taxes’ succeeding it.

4.3.4.1 After the detailed analysis of the said para no.s 14(2) and 15(1) of the said DPCO, 1995, the following facts are extracted there-from;

4.3.4.1.1. Who is required to adopt it? : Every manufacturer or importer or distributor of a scheduled or non-scheduled formulation.

4.3.4.1.2. When are the said formulations intended for sale?

4.3.4.1.3 What action is required to be taken? : shall display in indelible print mark;

4.3.4.1.4. On which shall such action be taken? : (i) On the label of a container of the formulation & (ii) On the minimum pack thereof offered for retail sale.

4.3.4.1.5. What will be displayed thereon? : (i) ‘retail price not to exceed’ & local taxes extra applicable for scheduled formations & (ii) ‘maximum retail price’ (MRP) inclusive of all taxes in respect of non-scheduled formulations.

4.3.4.2. As discussed at para 4.3.4.1.1-4.3.4.1.5 hereinabove I come to the conclusion that as and when a manufacturer or distributor or importer of scheduled or non-scheduled formulations intends to sell the said formulations, he shall display, in indelible print mark, on the label of the container of the formation as well as on the minimum pack thereof offered for retail sale, the retail price or maximum retail price thereof.”

The argument in the impugned order being that the goods intended for ultimate sale to institutional buyers, are first sold to dealer/ distributors. Thus, when they are sold to dealers/ distributors the provision of DPCO 1995 get attracted. It is seen that the DPCO 1995 mandates, printing of ‘retail sale price’ on ‘containers’ as well as on ‘minimum pack thereof offered for retail sale’. From above it is apparent that what is covered in DPCO is only the items which are sold in retail. If a container is sold in retail, the container must contain retail sale price and if the content of such container are also sold in retail then each such pack sold in retail must have the MRP printed on it. From above it is apparent that the provisions are attracted only on goods ‘offered for retail sale’. In the impugned order, it is seen that the words ‘offered for retail sale’ appearing in DPCO 1995 have been overlooked. The said order only relies on the word ‘sale’ and upholds the applicability of the DPCO 1995 to all sales. We find that the sale appearing in para 14 and 15 of DPCO 1995 is only to be read in respect of the goods ‘offered for retail sale’. In the instant case the evidence brought on record does not dispute the claim that the goods sold to institutional buyers were not sold (or offered for sale) in retail sale. In these circumstances, we hold that provisions of para 14 and 15 of DPCO 1995 are not attracted in respect of sales to institutional buyers which are not further offered for retail sale. The demand, therefore, cannot be upheld. The appeals of USV is allowed. The penalties imposed are set aside and consequently the appeals of other appellants are also allowed. The appeal of revenue is dismissed.

(Order pronounced in the open court on 06.05.2019)

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