Introduction: A recent case adjudicated by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Kolkata revolved around Parker Robinson Private Limited, a medicament manufacturer. The case questioned the applicability of excise duty concerning physician samples distributed free of cost and whether the duty should be based on the Maximum Retail Price (MRP) or the transaction value. The ruling provided by CESTAT Kolkata brings clarity to this complex issue.
1. Case Background: Parker Robinson Private Limited, a manufacturer of medicaments, became embroiled in a legal dispute with excise authorities. During a routine examination, it came to light that the company had distributed physician samples of medicines for free. The pivotal issue at hand was whether excise duty on these samples should be calculated based on their MRP under Section 4A or on their transaction value under Section 4 of the Central Excise Act, 1944.
2. Section 4A vs. Section 4: Section 4A(2) of the Central Excise Act, 1944, stipulates that excisable goods for which retail sale prices must be declared on packaging, following the Standards of Weights and Measures Act, 1976, are subject to Central Excise duty. The duty is calculated based on the value, which is deemed to be the retail sale price minus any allowable abatement.
On the other hand, free samples of medicines are to be assessed under Section 4 of the Central Excise Act, 1944, coupled with Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The valuation should match the goods sold by the manufacturer, closest to the time of removing the goods for assessment.
3. Impugned Proceedings: In light of this distinction, the excise authorities initiated proceedings against Parker Robinson Private Limited. They confirmed a demand for excise duty, alleging that the company had underpaid duty on physician samples distributed as free samples. This demand was recoverable from the company, resulting in the legal dispute.
4. CESTAT Kolkata’s Verdict: When the case was presented before CESTAT Kolkata, Parker Robinson Private Limited, the appellant, failed to appear for the proceedings. Following a review of arguments put forth by the Revenue’s Assistant Commissioner, CESTAT referenced a precedent set in the case of Medispray Laboratories Private Limited vs. Commissioner of Central Excise, Goa (2017 (5) GSTL 300 (Tri-Mumbai)).
The Medispray Laboratories case established that physician samples, which are not sold with an MRP label, should be distributed free of cost by the assessee. Under these circumstances, excise duty is to be levied based on transaction value, not MRP.
5. Implications of the Decision: CESTAT Kolkata’s decision provides much-needed clarity and precedence concerning the calculation of excise duty for physician samples. It reinforces the principle that excise duty should be calculated based on transaction value, aligning with the nature of such samples as promotional tools rather than commercial goods.
Conclusion: CESTAT Kolkata’s ruling in the case of Parker Robinson Private Limited vs. CCE provides essential guidance on calculating excise duty for physician samples. The judgment emphasizes that excise duty should be based on transaction value, streamlining the taxation process for free samples provided by medicament manufacturers. This ensures a fair and equitable approach to taxation in such cases, benefiting both manufacturers and consumers.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The appellant is in appeal against the impugned order.
2. The facts of the case are that the appellant is a manufacturer of medicament and during the course of scrutiny, it was found that the
appellant has cleared free physician samples and they have not paid the duty on the said samples of medicines on the basis of MRP based value under Section 4A instead of Section 4 of the said Act. Section 4A (2) of the Central Excise Act, 1944, as amended, provides, inter alia, that excisable goods in respect of which the retail sale price is required to be declared on the package as per the provisions of the standards of Weights and Measures Act, 1976 or the Rules made thereunder and the goods are specified by the Central Government by any Notification is chargeable to Central Excise duty with reference to value which shall be deemed to be the retail sale price declared on such goods less the admissible abatement. Free samples of medicines are assessable under Section 4 of the Central Excise Act, 1944 as amended read with Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and also should be equal to such goods sold by the appellant for delivery of any other nearest to the time of the removal of goods under assessment.
2.1 On determination of value of the medicines cleared as samples in the above manner, it was found that the appellant has short paid duty, which were recoverable from the appellant.
2.2 Accordingly, the impugned proceedings were initiated against the appellant and the demand was confirmed.
3. Today, when the matter was called, none appeared on behalf of the appellant.
4. After hearing the ld. A.R. for the Revenue, we find that the said issue has already been settled by this Tribunal in the case of Medispray Laboratories Private Limited Vs. Commissioner of Central Excise, Goa reported in 2017 (5) GSTL 300 (Tri-Mumbai), wherein it has been held that the physician samples are not sold by affixing MRP on them, the same has to be distributed free of cost by the assesee, in that circumstances, the duty is payable on transaction value.
5. In view of the above, we hold that the appellant has correctly paid the duty on physician samples on transaction value and the appellant is not liable to pay duty as demanded. Accordingly, the impugned order is set aside and appeal is allowed with consequential relief, if any.
(Operative part of the order was pronounced in the open Court)