TMI Blog2014 (1) TMI 1565X X X X Extracts X X X X X X X X Extracts X X X X ..... metic product classifiable under Chapter 33 of the Central Excise Tariff and there is no dispute in this regard. Merely because the same is supplied free-of-cost, it does not obliterate the liability to pay excise duty of the promotional pack. It is a well settled position in law that excise duty is on manufacture and not on sale of the goods. Therefore, irrespective of the fact whether the goods are sold or otherwise dispose of, liability to excise duty is attracted, the moment the goods are manufactured. Therefore, notwithstanding the fact that the promotional packs are given free, they are liable to excise duty - notwithstanding the non-availability of the normal sale price under Section 4(1)(a) of the Act, by reason of the goods being specified under Section 4A(1) making the retail sale price i.e. MRP as its deemed value, the appropriate rule governing the valuation of physician's samples would continue to be rule 4. Appellant cannot take the plea that they become aware of the correct position of law only in 2008 which does not stand to any reason. Since the legal position was settled way back in 2006 itself, the appellant could not have entertained any bona fide belief with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation was followed in pursuance to the Board's circular NO. 643/34/2002-CX dated 01/07/2002. This circular was superceded vide Circular No. 813/10/2005-CX dated 25/04/2005 wherein it was clarified that in the case of free samples, the valuation should be determined under Rule 4 of the Central Excise valuation (Determination of Price of Excisable Goods) Rules, 2000. However, the appellant continued to determine the assessable value of the out-of-pack promotional products as per Board's Circular dated 01/07/2002. 2.2 Based on information that the appellant was undervaluing the promotional products, DGCE, Pune, conducted investigation in September, 2008 and statements of Shri P.L. Mishra, Legal Head, and Shri Shailendra A Goel, Ex-Accounts Manager of the appellant's firm were recorded. Shri Mishra in his statement dated 10/02/2009 submitted that the catalogue products sold and the promotional products issued free-of-cost may differ in quantitative size and the promotional products are given free-of-cost as a marketing strategy to promote the catalogue products and they have been determining the value of the promotional products supplied free-of-cost under Rule 8 of the Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age by virtue of cross-declaration on both of them. Merely because they are not tied/bundled together they do not cease to be a combination package. It is his contention that the appellant cleared combination pack consisting of trade pack and a promotional pack and the declaration made on the trade and promotional packs are contractual obligations and they are binding between the parties i.e., the appellant, its dealers and the retailers, in law. The promotional pack cannot be sold separately. It is his contention that the assessable unit for the purpose of valuation is the combination pack consisting of a trade pack and promotional pack and the assessable units are not trade pack and promotional packs separately. The appellant has discharged duty on the MRP affixed on the trade pack, which is the MRP of the combination pack and, therefore, discharge of duty on the MRP of the trade pack would constitute discharge of duty on the combination pack. It is his further contention that the appellant has made excess payment of duty when excise duty is being discharged on the promotional pack under Rule 8 of the Central Excise Valuation Rules, 200 and, therefore, the demand of differential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the same kind and quality. Since the size of the promotion packs is different from its regular trade pack, they cannot be considered as such goods and reliance is placed o n the decisions in the case of Vinayak Mosquito Coil Manufacturing Co. vs. Commissioner of Central Excise 2004 (174) ELT 107; Savita Chemicals Ltd. vs. Commissioner of Central Excise - 2000 (119) ELT 394; Tata Liebert Ltd. vs. Commissioner of Central Excise 2003 (159) ELT 326; Rashtriya Ispat Nigam Ltd. vs. Commissioner of Central Excise 2005 (179) ELT 65; Procter Gamble India Ltd. vs. Commissioner of Central Excise 2006 (206) ELT 913 and ICI India Ltd. vs. Commissioner of Central Excise 2003 (151) ELT 629 The learned counsel further submits that the decision of the larger Bench of this Tribunal in Cadila's case should be considered as per incuriam. 3.3 It is his further contention that if the value of promotional pack cannot be determined directly under Section 4A then its value cannot be determined indirectly under the Section by resorting to statutory interpretation. It is his contention that whenever a thing is prohibited, it is prohibited whether it is done directly or indirectly and reliance is pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e imposition of redemption fine it is submitted that, since the goods are not available for confiscation, imposition of redemption fine is unsustainable. As regards the penalty imposed under Section 11AC and Rule 25, it is his contention that when the duty demand itself is not sustainable penalty cannot be imposed. In view of the above, it is prayed that the appeal be allowed by setting aside the impugned order. 4. The learned Special Consultant for the Revenue strongly refutes the arguments advanced by the learned counsel for the appellant. It is his submissions that the promotional products supplied free-of-cost to the customers along with the catalogue products of the appellant are subject to Central Excise levy and the appellants has been paying Central Excise duty since 2002 in accordance with Board's Circular No. 643/34/2002 dated 01/07/2002. The said circular provided that in case of valuation of samples which are distributed free-of-cost as marketing strategy, regards will have to be given to Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and no specific rule covers such a contingency except Rule 8. All other rules cover contingencies whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al products like any medicines sold in regular packs and therefore, the method of valuation provided in Rule 8 cannot be applied for valuation of physician samples. In the same decision, a question arose, as to what is the value defined in Rule 2(c) of the said Valuation Rules which can be taken for the purpose of Section 4 of the Central Excise Act and the hon'ble Tribunal held that the fact that medicines/medicaments are specified goods within the meaning of Section 4A of the Act would not make any difference for the MRP is to be treated as value of the goods i.e. deemed value in place of transaction value under Section 4 and this does not take the goods out of the pale of Rule 4. It is accordingly, contended that the value to be taken for determination of value of promotional packs under Rule 4 could be MRP of promotional products with suitable adjustments which has been done in the present case. 4.1 As regards the reliance placed by the learned counsel for the appellant in the case of Vinayak Mosquito Coil Manufacturing Co. vs. Commissioner of Central Excise 2004 (174) ELT 107;; Savita Chemicals Ltd. vs. Commissioner of Central Excise - 2000 (119) ELT 394; Tata Libert Ltd. vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accordingly submitted that the appeal fails both on merits as well as on limitation and therefore, the same deserves to be dismissed. 5. We have carefully considered the submissions made by both the sides. 5.3 As regards the contention of the assessee, that the promotional pack and trade pack constitute a combination packages by virtue of cross-linking declaration on both packages. This contention does not appear to be correct. The expression combination package has been defined in Rule 2(c) of the Packaged Commodity Rules, 1977 as under: "Combination package means intended for retail sale, containing two or more individual package, or individual pieces, of dissimilar commodities. Illustration: A package containing dissimilar commodities such as spoons, knives, forks, cups, napkins, or the like, is a combination package." 5.2 Therefore, to constitute a combination package it should be a package containing dissimilar commodities. In the present case, it is an undisputed fact that the trade packs and the promotional packs are packed separately and they are not packed in a single package. They are also dispatched to the dealers and the retailers separately. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in Indian Drugs Manufacturer's Association's case (supra) clearly lays down the legal position. The hon'ble High Court in the said case held as follows: "29. It was contended that the revenue, based on several judicial decisions of the Tribunal, has been valuing the physicians free samples for nearly three decades by applying the method applicable to captively consumed goods and, therefore, even under 2000 Rules the physicians samples are liable to be valued by applying the rule applicable to captively consumed goods. There is no merit in this contention, because, firstly, 1975 Rules and 2000 Rules are not identical. Under Rule 6 (b) of 1975 Rules, two methods were provided for valuation of captively consumed goods, namely valuation based on the value of comparable goods [Rule 6(b) (i)] and valuation based on the cost of production [Rule 6 (b) (ii)] whereas Rule 8 of 2000 Rules provides for only one method of valuation based on the cost of production. Secondly, even under the 1975 Rules, the decisions of the Tribunal were to the effect that the physicians samples are liable be to valued by applying the value applicable to comparable goods and not the method based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by the assessee. The fact that the physicians samples may be distributed in a different pack or in a different bottle would not make the physicians samples different from the goods sold in the open market. The difference in the size or quantity may entitle the assessee to some adjustment in the value, however, that would not make the physicians samples to be distinct from the goods sold in the open market. In other words, irrespective of the fact that the physicians samples are distributed in a pack different from the pack that is sold in the market, the valuation of the physicians free samples have to be determined under Rule 4 by applying the valuation of such goods sold in the open market . 33. Assuming that the petitioners are right in contending that the valuation of the physicians samples cannot be determined under any of the specific rules, even then, as per Rule 11 the value of physicians samples has to be determined by using reasonable means consistent with the principles and the general provisions of 2000 Rules and section 4(1) of the Act. As stated earlier, Rule 4 is the only general rule and, therefore, it is just and proper to hold that the valuation of physi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of chapter note 5 of Chapter 30, it cannot be said that the medicine was not manufactured before it was packed. The material characteristics of the medicine whether in physician's sample or in retail pack do not at all change by virtue of the provisions of note 5 of Chapter 30. Moreover, the medicine, having been already manufactured event before the packing, could be consumed as such medicine even before its removal. Once taken out of the packages it was difficult to relate medicine from one package to the medicine from the other type of package, as was amusingly demonstrated in the court. The only adjustments in such cases would therefore be in the context of the proviso to sub-clause (i) of rule 6(b), as discussed above." 5.6 The issue again came up for consideration before a Larger Bench of this Tribunal in the case of Cadila Pharmaceuticals Ltd. and it was held as follows: "29. In order to attract rule 4 there need not be another sale. The rule has been quoted above but in order to bring home the point, the relevant part of it may be quoted again as under: "The value of the excisable goods" (read physician's sample) "shall be based on the value of such goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, I am of the opinion that notwithstanding the non-availability of the normal sale price under Section 4(1)(a) of the Act, by reason of the goods being specified under Section 4A(1) making the retail sale price i.e. MRP as its deemed value, the appropriate rule governing the valuation of physician's samples would continue to be rule 4 and the decision of the Larger Bench in Blue Cross Laboratories Ltd.'s case (supra) mutatis mutandis continues to be good law. The reference is accordingly answered in the affirmative in favour of the Revenue and against the appellant/assessee." 5.7 In view of the decision of the hon'ble Bombay High Court read with Larger Bench decisions of the Tribunal (supra) it is Rule 4 of the Valuation Rules read with Rule 11 which would apply as far as the promotional packs which are distributed free-of-cost are concerned. 5.8 The Board's Circular dated 25/04/2005 also makes this position very clear. The decision relied upon by the counsel for the appellant are of Division Benches of this Tribunal and, therefore, in view of the decisions of the Larger Bench of this Tribunal and the hon'ble High Court, these decisions have no application whatsoever. 5.9 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val of the goods under assessement. There can be no more doubt that the words ' such goods' in Rule 4 means, goods which are similar or identical to and have same quality or character to the goods sold and delivered. Meaning thereby, valuation by taking the value of such goods sold and delivered at the time nearest to the time and place of removal of the goods in question. Therefore Rule 4 applies to carbide tools, tips and inserts cleared for trial and demonstration, since, not cleared for sale and delivery at the time and place of removal and 'such goods' are goods similar or identical to goods cleared trial and demonstration, as are sold and delivered at the time and place of removal. It is needless to state that goods cleared for trial and demonstration have to be strictly identical to the goods that are cleared for sale, since the edifice of trial and demonstration goods having the same physical properties, is in the direction of establishing them to be identical to those sold. Therefore goods cleared for trial and demonstration are liable to be valued under Rule 4 on the basis of the value of such goods sold and delivered at any other time nearest to the time and place or rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not at all in dispute. Secondly, we have also perused copied of few ER1 returns filed by the appellant during the material period. In these ER1 returns, there is no mention about free supply of any promotional products along with the trade pack at all and therefore, the contention of the appellant that the department was aware of the practice followed by them and they had declared this information to the department is completely incorrect. Even in the invoices issued, there is no mention of any free supply of promotional products. In view of the above it is clear that the appellant had suppressed the facts of determination of assessable value of the promotional products under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. In view of the above factual position, invocation of extended period of time for confirmation of duty demand is sustainable in law and we hold accordingly. 5.11 Reliance is placed on the decision of the hon'ble Gujarat High Court in the case of Neminath Fabrics Pvt. Ltd. and the Larger Bench in Union Quality Plastic Ltd. 2013 (294) E.L.T. 222 wherein it has been held that knowledge and awareness of the departm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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