CX - Rebate on goods exported to overseas subsidiary - Delhi HC holds Revenue cannot restrict rebate on value u/s 4 - Market Price under condition 'e' of Notifn No 19/2004 is export market price - Not Indian Market price - Allows rebate of Rs 23 Cr to Dr Reddy's Labs
By TIOL News Service
NEW DELHI, SEPT 19, 2014: THIS petition relates to two rebate claims of Rs.21,18,36,117 and Rs.1,75,57,537, made under the Central Excise Act, 1944 before the Deputy Commissioner of Customs and Central Excise. The petitioner, Dr. Reddy's Laboratories Ltd. claimed this rebate for refund of excise duty paid earlier by it on the export of certain pharmaceutical products to their overseas subsidiary. The refund was allowed by the Deputy Commissioner. Later, proceedings were initiated 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. The Commissioner (Appeals) allowed the appeal by revenue and the Revision Application filed by the exporter was dismissed by the Revisional Authority. Hence this Writ Petition was filed.
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 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 at a price 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 under Rule 18 of the Central Excise Rules, 2002. The rebate claimed was granted.
The Appellate Commissioner held that the refund granted was in excess of the market price of the products exported. Relying on Notification No. 19/2004-CE (NT), dated 6.9.2004, which states that the rebate cannot be in excess of the total market price of the exported goods at the time of export, the rebate amount was thus reduced to Rs.8,91,295 and Rs.23,491 based on an independent valuation of the market price on a cost plus basis. Dr. Reddy's filed a revision application, which was dismissed. It is the case of revenue that the export value was abnormally high and as per condition (e) of the Notification No 19/2004-CE(NT), the market price shall not be less than the amount of rebate and the rebate amount has to be restricted to the value determined under Rule 11 of the Central Excise (Determination of Price of Excisable Goods) Rules, 2000.
After hearing both sides, the High Court held:
Under Rule 18 which contemplates return of the excise duty paid in cases of exported goods, the market price must necessarily refer to the market where the goods are sold, - in this case, the United States market. The goods in question are neither meant for, nor did they ever enter, the Indian market. If this were not to be the position, the valuation of goods meant for export (in cases of export to countries with a stronger currency valuation; or simply, "developed" countries) would always be incongruous even bizarre. In such cases, the actual value of goods sold abroad would likely exceed the value domestically. Following the Revenue's logic, unless the exporter decides to export the goods at the lower domestic price, he or she may never recover the entire excise duty paid on the higher international price. This extinguishes the purpose of Rule 18 of the 2002 Rules, and the policy of ensuring competitive exports.
In the present case, approximately Rs.411 crores was received in India in foreign exchange from the sale of these drugs. On this basis, excise duty was paid and later recovered. At no point did Dr. Reddy'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. Condition (e) itself notes that the relevant time is "at the time of exportation", and the comparison of generics - who did not exist in the market at the time of export - violates that condition. Similarly, the price that allegedly prevailed in India - Rs.104.50 for 10 tablets - is again irrelevant, since that refers to the domestic market.
Accordingly, the High Court restored the orders in original allowing the rebate.
(See 2014-TIOL-1616-HC-DEL-CX)
