M/S. Orchid Healthcare vs Cce, Chennai Iii

(Arising out of Order-in-Original No. 12/2011 dated 31.3.2011 passed by the Commissioner of Central Excise, Chennai - III)

M/s. Orchid Healthcare Appellant

Vs.

CCE, Chennai  III Respondent

Appearance

Shri M. Kannan, Advocate, for the Appellant Shri B. Balamurugan, AC (AR) for the Respondent

CORAM

Honble Shri P.K. Choudhary, Judicial Member

Date of Hearing / Decision: 15.07.2015

Final Order No. 40778 / 2015

M/s. Orchid Healthcare Ltd. Unit  II, a division of Orchid Chemicals & Pharmaceuticals Ltd. are manufacturers of P&P medicines / medicaments falling under Chapter 30 of the First Schedule to the Central Excise Tariff Act, 1985.

2. The learned Commissioner vide Order-in-Original No. 12/2011 dated 31.3.2011 had passed the following order:-

(i) I confirm the valuation of physician samples of P&P medicaments falling under Chapter 30 of the First Schedule of Central Excise Tariff Act, 1985, under Rule 4 of the Central Excise Valuation Rules, 2000 and rule out their valuation under Rule 11 read with Rule 8 of the Central Excise Valuation Rules, 2000 consequent upon the above findings.

(ii) I confirm the demand of Rs.7,92,529/- (Rupees seven lakhs ninety two thousand five hundred and twenty nine only) on M/s. Orchid Healthcare  Unit II under sub-section (2) of Section 11A of the Central Excise Act,1 944 read with sub-section (1) of Section 11A of the Central Excise Act, 1944.

(iii) I appropriate the amount of Rs.7,92,529/- (Rupees seven lakhs ninety two thousand five hundred and twenty nine only) paid by M/s. Orchid Healthcare  Unit II and adjust the same against the demand made at (ii) above.

(iv) I confirm the demand of interest at appropriate rates under Section 11AB of Central Excise Act, 1944 on the duty demanded in para (ii) above.

(v) I impose a penalty of Rs.7,92,529/- (Rupees seven lakhs ninety two thousand five hundred and twenty nine only) on M/s. Orchid Healthcare  Unit II under Rule 25 of the Central Excise Rules, 2002.

(vi) I drop the demand of Rs.42,89,074/- made in the show cause notice No. 35/2010 dated 28.4.2010 being barred by limitation of time.

(vii) I drop the interest under Section 11AB of Central Excise Act, 1944 on the duty dropped at (vi) above.

(viii) I drop the penal proceedings initiated under Section 11AC of the Central Excise Act, 1944 in the above Show Cause Notice No. 35/2010 dated 28.4.2010.

(ix) I drop the penalty proceedings initiated under Rule 25 of the Central Excise Rules, 2002 in the above Show Cause Notice No. 35/2010 dated 28.4.2010 in respect of the demand dropped at (vi) above.

3. The issue in dispute in the present appeal is penalty of Rs.7,92,529/- imposed under Rule 25 of the Central Excise Rules, 2002. The learned counsel for the appellant submitted that there was no intention on their part to evade central excise duty on physician samples and the same have been cleared on payment of duty. He also stated that the duty paid on physician samples were on cost construction method. He further contended that the Commissioner has dropped the demands for the period prior to 1.8.2008 and the Commissioner has confirmed differential duty only for the normal period of limitation. While doing so, the Commissioner has also imposed penalty of Rs.7,92,529/- under Rule 25 and dropped the penal proceedings under Section 11AC of Central Excise Act, 1944. The learned counsel has relied on the decision of the Honble High Court of Gujarat in the case of Commissioner of Central Excise & Customs Vs. Saurashtra Cement Ltd. - 2010 (260) ELT 71 (Guj.) wherein the Honble High Court has observed as under:-

15. For appreciating the controversy between the department and assessee, it is necessary to have a close look at the relevant provisions of Central Excise Act as well as Rules. The dispute centers around the applicability of Rule 25 of the Central Excise Rules. It reads as under :-

Rule 25. Confiscation and penalty. - (1) subject to the provisions of section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer,-

(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or

(b) does not account for any excisable goods produced or manufactured or stored by him; or

(c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or

(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or [rupees two thousand], whichever is greater.

16. The Tribunal considering Rule 25 has observed in its order that Rule 25 provides for imposition of penalties which shall not exceed the duty on the excisable goods, when there is contravention of the nature referred to in clause (a), clause (b), clause (C) or clause (d). The Tribunal found that clause (a) of Rule 25 refers to removal of excisable goods in contravention of any of the provisions of the Rules. When goods were removed, no excise duty was required to be paid at that point of time. As such, it cannot be said that the contravention of the nature mentioned in the said clause has been committed by the assessee. Clause (b) is to the effect that the manufacturer does not account for any excisable goods manufactured by him. The said clause does not stand contravened inasmuch as the goods were duly reflected in the statutory records. Similarly, clause (c) does not stands contravened inasmuch as the assessee has not manufactured goods without applying for registration. Clause (d) refers to contravention of any of the provisions of the Rules with intent to evade payment of duty. Excisable goods were entered in records, cleared on Central Excise invoices and duty was also paid subsequently, though belatedly along with interest. As such, the said clause (d) is also not contravened. After analyzing and examining all these four sub-clauses of Rule 25, keeping in mind the facts of the case, the Tribunal held that the invocation of Rule 25 for imposition of penalty for delayed deposit of duty is not in accordance with law.

17. It is also to be borne in mind that Rule 25 starts with the word Subject to the provisions of Section 11AC............. Section 11AC of the Central Excise Act deals with penalty for short levy or non-levy of duty in certain cases. It says that where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of Section 11AC, shall also be liable to pay a penalty equal to the duty so determined. For the purpose of invoking Section 11AC of the Act, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any willful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules.

4. He has also relied on the decision of the Honble High Court of Madhya Pradesh in the case of Shree Ashok Kumar Manibhai Patel & Co. Vs. CCE, Bhopal  2015 (317) ELT 431 (MP). The learned counsel reiterated that in view of the decision of the Honble High Courts and also in view of the findings of the adjudicating authority, it is apparent that there was no fraud, collusion or any willful mis-statement or suppression of facts or contradiction of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty and therefore the penalty imposed under Rule 25 may be set aside.

5. The learned AR for Revenue reiterated the findings of the adjudicating authority and submitted that since there is no dispute in the method of valuation of physician samples under section 4 read with Rule 8 in the light of the decision of the Larger Bench of the Tribunal in the case of Jayanthi Food Processing (P) Ltd. Vs. CCE, Rajasthan  2007 (215) (Tri. LB) which has been confirmed by the Honble Supreme Court reported as 2007 (215) ELT 327 (SC). He further submitted that there is a Boards Circular No. 813/10/2005-CX dated 25.4.2005 wherein it has been clarified that in respect of samples that are cleared for free distribution by the physicians the value shall be determined under Rule 4 of Central Excise (Valuation) Rules, 2000 that is proportionate to the price of their commercial tax cleared under section 4A of the Central Excise Act, 1944 since P&P medicaments are subject to MRP valuation with effect from 1.4.2005. He relied on the judgment of the Honble High Court of Bombay in the case of Indian Drug Manufacturers Association Vs. Union of India  2008 (222) ELT 22 (Bom.) and the decision of the Larger Bench of the Tribunal in the case of M/s. Cadila Pharmaceuticals Ltd. Vs. CCE, Ahmedabad  2008 (232) ELT 245 (Tri.  LB).

6. After hearing both sides and on perusal of the records, I find that the appellant-assessee was paying excise duty on cost construction method ever since they started clearing physician samples of P&P medicines and there was no provision in ER-I return to provide such information. The appellants have maintained that there is no intention on their part to evade central excise duty inasmuch as physician samples have been cleared on payment of duty. The Adjudicating Authority has himself dropped the penalty under section 11AC and also under Rule 25 for the extended period, as there is no malafide intention or suppression of facts considering the fact that the appellants have already paid the differential duty. The appellants are not liable for penalty under Rule 25.

7. By following the judgments of the Honble High Court of Gujarat (supra) and the Honble High Court of Madhya Pradesh (supra) and the discussions in the foregoing paragraphs, the impugned order insofar as it pertains to imposition of penalty of Rs.7,92,529/- under Rule 25 is set aside and the appeal is allowed to that extent.

(Dictated and pronounced in open court)

(P.K. Choudhary) Judicial Member

Rex

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