CESTAT upholds Valuation of Physician Samples Based on Transaction Value under Section 4 of Central Excise Act [Read Order]
The Department contended that as the physician samples were intended for free distribution to doctors, the transaction value could not be accepted and valuation should be based on MRP under Section 4A of the Central Excise Act.
physician - sample - taxscan
physician - sample - taxscan
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore Bench, has ruled in favour of M/s Srushti Pharmaceuticals Pvt. Ltd., holding that the valuation of physician samples sold on a principal-to-principal basis must be determined under Section 4 of the Central Excise Act, 1944, and not under Section 4A.
Srushti Pharmaceuticals, engaged in manufacturing physician samples for other pharmaceutical companies under a principal-to-principal contract, discharged excise duty based on transaction value under Section 4.
The Department contended that as the physician samples were intended for free distribution to doctors, the transaction value could not be accepted and valuation should be based on MRP under Section 4A of the Central Excise Act. Consequently, show-cause notices were issued and demands were confirmed by the adjudicating authority, which were later upheld in appeal.
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Counsel for the appellant, Mr. Rajesh Chandra Kumar Rohra, assisted by Ms. Sakhee Mehta, contended that the issue is no longer res integra in view of the Supreme Court’s decision in CCE, Surat v. Sun Pharmaceutical Industries Ltd. [2015], which categorically held that where goods are sold to another manufacturer on a principal-to-principal basis for a price, valuation must be under Section 4, regardless of the buyer’s subsequent use.
It was argued that as per CBEC Circular No. 625/16/2002-CX dated 28.02.2002, physician samples are exempt from MRP declaration under the Standards of Weights and Measures Act, 1976. Hence, valuation under Section 4A was inapplicable. The counsel further relied on several precedents including Meghdoot Chemicals Ltd. [2022], Medley Pharmaceuticals Ltd. [2011], and Bal Pharma Ltd. [2010].
The Department, represented by Mr. Rajesh Shastry, Superintendent (AR), argued that since the samples were meant for free distribution, transaction value could not be the correct basis of assessment.
The Tribunal observed that the issue was squarely covered by the Supreme Court’s decision in Sun Pharmaceutical Industries (supra), which held that valuation under Section 4 applies where goods are sold on a principal-to-principal basis, irrespective of the buyer’s subsequent use. The Bench emphasized that what the distributors ultimately did with the samples was “extraneous and not a relevant consideration” for determining assessable value.
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Rejecting the Department’s stand, the Bench held that the show cause notices were based on an incorrect premise and that the extended period of limitation could not be invoked in absence of any suppression or fraud.
The Division Bench comprising Mr. P.A. Augustian (Judicial Member) and Mr. Pullela Nageswara Rao (Technical Member) allowed three connected appeals filed by the appellant challenging the orders of the Commissioner (Appeals), Bangalore, which had upheld demands of excise duty, interest, and penalties for various periods between July 2005 and November 2011.
Allowing the appeals, the CESTAT set aside the impugned orders and granted consequential relief to Srushti Pharmaceuticals in accordance with law.
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