IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, HYDERABAD
COURT NO. I
Appeal Nos. E/1293/2011 & E/1302/2011
Arising out of Orders-in-Appeal Nos. 90/2010 (H-I)CE, Dated: 30.12.2010 and 91/2010 (H-I)CE, Dated: 30.12.2010
Passed by CCCE&ST (Appeals-I), Hyderabad
Date of Hearing: 06.02.2019
Date of Decision: 13.03.2019
YELURI FORMULATIONS LTD
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX
Appellant Rep by: Shri B Seshagiri Rao, Adv.
Respondent Rep by: Shri C Mallikharjun Reddy, Superintendent AR
CORAM: M V Ravindran, Member (J)
P V Subba Rao, Member (T)
CX – Section 4 of the CEA, 1944 – Valuation of Physician samples – appellant sold the same to distributors who distribute it free of cost to the physicians in order to market the products and expand their own market – appellant discharging CE duty on the transaction value whereas Revenue alleges that the valuation should have been arrived at in terms of s.4A of the CEA, 1944 – appellant submitting that being small manufacturers they cannot afford to supply physician samples free of cost but sell them to distributors and such samples do not bear any retail sale price on them – demand confirmed, hence appeal before CESTAT.
Held: Present case is similar to the case of Parnax Lab Pvt. Ltd. – 2011-TIOL-1668-CESTAT-AHM in which there is a transaction value because the physician samples were sold by the manufacturer to the Distributor who in turn supplied them at free of cost to the Doctors – findings of the first appellate authority that selling physician samples is violative of Drugs & Cosmetics Rules, 1945 is an issue which may have to be looked into by the State Drugs Controller/Drug Controller of India but where there is a transaction value, the same cannot be ignored – Once the samples are sold and there is a transaction value, the price at which they are sold forms the assessable value and the assessment has to be done accordingly u/s 4 of CEA, 1944 – no differential duty can, therefore, be charged by applying s.4A of CEA, 1944 – where the appellant is able to provide documentary evidence to the adjudicating authority to substantiate their claim that physician samples were sold by them and not at free of cost, demand is set aside to the said extent and where the appellant is unable to substantiate their claim, demand along with interest is sustained – all penalties are set aside: CESTAT [para 8]
Appeals disposed of
Case laws cited:
Indian Drugs Manufacturers’ Association – 2006-TIOL-292-HC-MUM-CX… Para 3
Cadila Pharmaceuticals Limited vs. CCE, Ahmedabad-II – 2008-TIOL-1668-CESTAT-AHM-LB… Para 5
Parnax Lab. Pvt. Ltd. vs. CCE, Vapi – 2011-TIOL-1668-CESTAT-AHM… Para 7
FINAL ORDER NOS. A/30332-30333/2019
Per: P Venkata Subba Rao:
1. These two appeals are against Orders-in-Appeal as stated herein above. Both these appeals are on the same issue and hence are disposed of together.
2. Ld. Counsel for the appellant submits that the short point to be decided in both these appeals is whether the appellants are liable to pay Central Excise Duty on physician samples which they had sold to their distributors on the basis of transaction value under section 4A of Central Excise Act, 1944. The appellants herein are engaged in the manufacture of P & P medicines falling under Chapter 30. They were issued show cause notices proposing recovery of Central Excise Duty invoking the extended period of time and proposing penalties under section 11 AC of Central Excise Act, 1944. Ld. Counsel submits that they manufacture pharmaceuticals both on their own account and as job workers. As they are a small manufacturers they cannot afford to supply physician samples free of cost. However, their Dealers and Distributors find it necessary to distribute samples free of cost to the physicians in order to market the products and expand their own market. Therefore, they have an arrangement according to which they manufacture physician samples clearly marked as physician samples but these samples are sold by them to their distributors who, in turn, supply them free of cost to the doctors. They have discharged service tax on these physician samples as per the transaction value. There is no retail price on these samples because these samples cannot be sold. However, there is a price on which they have sold these samples to their dealers which is the transaction value on which they paid the Central Excise Duty.
3. It is the case of the Department that physician samples should be charged to Central Excise Duty as per the price of corresponding goods which are sold in the market, as has been held by Hon’ble High Court of Bombay in the case of Indian Drugs Manufacturers’ Association [2008(222)ELT 22 (HC-Mum.)] = 2006-TIOL-292-HC-MUM-CX and CBEC Circular No. 813/10/2005-CX, dated 25.04.2005. It is the case of the appellant that they are liable to pay Central Excise Duty as per the transaction value wherever the samples were sold by them. The Department demanded duty invoking the extended period, holding that they have not disclosed that they were clearing physician samples valuating them at Section 4 instead of Section 4A as required in their ER-1 returns, thereby they have deliberately suppressed their under valuation. The appellant contests this matter both on merits and on limitation.
4. Ld. DR reiterates the findings of the first appellate authority. He draws the attention of the Bench to paras 9 to 12 of the impugned order in which he clarified the reasons for not accepting the contentions of the appellant as follows:
(i) The purchase orders which were presented before him had the invoices which did not indicate that they were physician samples and not for sale.
(ii) There is no cross reference between the invoices and payments as indicated in the Ledgers. He concluded that physician samples were actually not being sold but were distributed free to their Distributors. He however observed that appellant was statutorily prohibited from selling physician samples under Rule 65(18) and Rule 95 and Rule 96(1)(ix) of Drugs & Cosmetics Rules and therefore their contention that they were selling physician samples is a complete mis-representation of the facts.
5. He relied upon the Larger Bench decision of the Tribunal in the case of Cadila Pharmaceuticals Limited vs. CCE, Ahmedabad-II [2008(232) ELT 245 (Tri.-LB)] = 2008-TIOL-1668-CESTAT-AHM-LB and held that physician’s samples have to be valued as per Section 4A of Central Excise Act, 1944.
6. We have considered the arguments on both sides and perused the records. The question to be answered is how physician’s samples should be valued when the free samples are sold by the appellant to their distributors and for which there is an invoice value. It is the case of the department that physician samples cannot be sold and the assertion that they are sold is incorrect because it violates the Drugs & Cosmetics Rules. Therefore, physician’s samples should be treated at par with the normal goods and duty has to be charged proportionately as is applicable. Since the pharmaceutical goods are covered under Section 4A of the Central Excise Act, 1944 as has been decided by Hon’ble High Court of Mumbai in the case of Indian Drugs Manufacturers’ Association (supra), Central Excise duty should be charged under section 4A. The first appellate authority also observed that appellant has not produced invoices to show that they are actually sold physician samples. Learned Counsel for the appellant produced a letter dated 25.01.2006 from Sriven Pharma to M/s Yeluri Formulations Pvt. Ltd. detailing the payments made with respect to invoices covering physician samples.
7. We find that this question as to how to value physician samples which are sold and not supplied free was answered in the case of Parnax Lab. Pvt. Ltd. vs. CCE, Vapi [2012(278) E.L.T. 95 (Tri.-Ahmd.)] = 2011-TIOL-1668-CESTAT-AHM (in which one of us Shri M.V. Ravindran was a Member), paras 7 to 9 of this order are reproduced:
“7. As regards the physician samples manufactured by the appellant for other principals and sold the same to them under contractual obligations, it is seen that the said contracts have not been challenged by the Revenue in the proceedings initiated by the show cause notice. It is also noticed that the transaction value which has been declared by the appellant while clearing the goods from their factory premises has not been rejected. It is also not in dispute that the appellant has been discharging the duty liability on the said 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 back ground, we find that the judgment of this Bench in the case of Sidmak Laboratories (India) Ltd. is squarely on the point. The issue involved in that case was the first appellate authority has held that the samples cleared from the factory premises of the assessee therein were not being cleared for free distribution but are being sold at factory gate and the whole sale price is available at the factory gate. It is also seen that in that case there was no dispute about the factual position that the samples were being sold, this bench held that the value of the sample should be in terms of Section 4. Aggrieved by such an order, the Revenue preferred Civil Appeal before the Apex Court in appeal No. D/1456/09. The said appeal was dismissed by Apex Court [2011 (270) E.L.T. A90 (S.C.)] by recording as under :
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. OF 2009
(D. NO. 1456 OF 2009)
COMMISSIONER OF CENTRAL EXCISE, DAMAN
M/S. SIDMAK LABORATORIES (I) LTD.
The Civil Appeals are dismissed.
July 27, 2009
8. It can be said that the ratio laid down by the Bench for the case of M/s. Sidmak Laboratories (I) Ltd. is upheld by the Apex Court hence we are of the considered view that the demand of the duty liability on the physician samples 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 recalculating the assessable value based upon the value arrived at on pro rata basis of sales pack.
9. As regards the physician samples manufactured and cleared by the appellant of their own product, we agree with the learned DR that on merits the issue is covered against the assessee by the Larger Bench decision of this Tribunal in the case of Cadila Pharmaceuticals Ltd. (supra).”
8. The circular issued by the Board relied upon by the Department as well as the Case laws on Indian Drug Manufacturers’ Association and others shows that physician samples were not sold but were supplied free of cost and hence there was no transaction value. The present case is similar to the case of Parnax Lab Pvt. Ltd. (supra) in which there is a transaction value because the physician samples were sold by the manufacturer to the Distributor who in turn supplied them at free of cost to the Doctors. We have also considered the findings of the first appellate authority that selling physician samples is violative of Drugs & Cosmetic Rules, 1945. This is an issue which may have to be looked into by the State Drugs Controller/Drug Controller of India but where there is a transaction value, the same cannot be ignored. Once the samples are sold and there is a transaction value, the price at which they are sold forms the assessable value and the assessment has to be done. Therefore, no differential duty can be charged, holding that Section 4A should be applied even in cases where the appellant has sold the physician samples. On the factual position whether the physician samples were actually sold or otherwise, the matter needs to be verified by the adjudicating authority after giving the appellant an opportunity to present the documents. In view of the above, the appeal is disposed of as below:
The impugned order is modified to the extent setting aside the demand in respect of the invoices where the appellant is able to provide documentary evidence to the adjudicating authority to substantiate their claim that physician samples were sold by them and not at free of cost. The demand in respect of those cases where the appellant is not able to substantiate their claim along with interest is sustained. All penalties are set aside.
(Pronounced in open Court on 13.03.2019)