By TIOL News Service

MUMBAI, JULY 04, 2016: THE appellant is a manufacturer of pharmaceutical goods and in order to promote their business is manufacturing and clearing physician samples.

For discharging central excise duty on such physician samples, the appellant arrives at the valuation on pro rata basis of the sale pack cleared by them. There is no dispute as to discharge of central excise duty on the sale pack as also on the physician samples pack on pro rata basis but the dispute is related to non-inclusion of the value of extra packing charges which is in the form of "catch covers".

The lower authorities confirmed the demands along with interest and also imposed penalties.

Before the CESTAT with an appeal filed in the year 2007, the appellant submitted that an identical issue in respect of their own sister unit was decided by the Tribunal in their favour and which is reported as - 2009-TIOL-41-CESTAT-MUM. It is also statedthat there was no mala fide intention as the appellant has discharged the duty liability as per their understanding and, therefore, the demand raised by invoking extended period is incorrect.

The AR submitted that the extra cost of the packing material and catch cover is not included in the valuation of the physician sample for discharging duty liability and, therefore, the demand is justified. Reliance is placed on the decision in Biochem Pharmaceuticals Ind. Ltd - 2015-TIOL-320-SC-CX wherein it is held that as per Rule 7 of the Valuation Rules, best judgment method is to be applied and accordingly, the best judgment method has been applied in this case.

The CESTAT observed that the appellant had made out a case in their favour for more than one reason -

++ firstly, we find that the appellant's claim before the lower authorities that the value of the catch covers is already included in the value of the sale pack when cleared for home consumption is not controverted;

++ secondly, we find that the issue in respect of their own sister unit wherein this Bench has held in paragraph 3 is in their favour;

++ thirdly, we do find strong force on the question of limitation also as the appellant had discharged the duty liability on pro rata basis is not disputed and the dispute, if any, is only regarding non-inclusion of the catch cover's value/cost. This cannot be considered as intent to evade duty and hence invoking of extended period is also incorrect.

In the matter of the reliance placed by the AR on the apex court decision in Biochem Pharmaceuticals Ind. Ltd. (supra), the Bench observed that the apex court had categorically laid down that the valuation of physician samples which are distributed free to the physicians has to be done on pro rata basis relying upon their own judgment in the case of Medley Pharmaceuticals vs.CCE, Daman - 2011-TIOL-09-SC-CX. And moreover, paragraph 8 of the judgment helps the appellant as the appellant has valued the physician sample based upon pro rata basis with the comparable goods available, the comparable goods being sale pack of the physician sample, the Bench added.

Holding that the impugned order is unsustainable, the CESTAT set aside the same and allowed the appeal with consequential relief.

(See 2016-TIOL-1614-CESTAT-MUM)