ORDER
S.K. Bhatnagar, Vice President
1. This appeal has been filed against the order-in-original dated 12-11-1990 passed by the Additional Collector of Central Excise, Bombay-II.
2. The learned Counsel appearing for the appellants stated that the appellants are engaged, inter alia, in the manufacture of excisable goods such as medicines of various types classifiable under the erstwhile Tariff Item 14E till February, 1986 and thereafter under Chapter Heading 3003.19.
3. Learned Counsel submitted that the appellants filed classification lists from time to time declaring their product under the aforesaid sub-heading and claiming exemption from payment of excise duty on clearances intended for supply as free samples under Notification No. 48/77-C.E., dated 1-4-1977. The clinical samples were to be supplied free to hospitals, clinic etc. The said C/Lists were approved by the jurisdictional Asstt. Collector unconditionally.
4. Learned Counsel further submitted that the order of the Additional Collector is without application of mind and in gross violation of the Rules of natural justice. He stated that the Rule 9(2) of the Central Excise Rules, 1944 is inapplicable in the present case. He further submitted that the condition of the exemption notification was strictly and fully complied with by the appellants and that there was no allegation in the show cause notice that the clinical samples were not supplied free to hospitals, clinic etc.; that the source of funds for the purpose of providing samples free to hospitals, clinic etc. is irrelevant so long as funds have not been recovered from the same hospital, clinic etc.; that an exemption notification has to be strictly construed; that there can be no room for intendent and/or supposition; that it is the onus on the Department to show that the appellants are not entitled to the benefit of the Notification and that the burden has not been discharged.
5. Learned JDR appearing on behalf of the Revenue reiterated the findings contained in the impugned order. He submitted that the assessee filed C/List from time to time claiming exemption from payment of excise duty on clearances intended for supply as free samples. However, the assessee have issued debit notes on their distributors on account of proportionate expenses incurred on sales promotional and publicity materials distributed to medical practitioners etc. situated in territorial area of such dealers and also on account of reimbursement of cost of raw materials and packing materials used for such samples supplied in such dealers’ areas.
6. He submitted that this is fully corroborated by the statement of Shri C.V. Shivaraman recorded on 11-4-1989 u/s 14 of CESA, 1944, who inter alia, deposed that the agreement dated 15-7-1983 entered into with the dealers who were agreeable, to bear the part of advertising and sales promotion, including cost of raw and packing material expenses used in the manufacture of samples distributed in dealers’ area. The debit notes were issued to some of the dealers who entered into such agreement dated 15-7-1983 with the company and the value of the debit notes were recovered from the distributors on whom it was raised. Notification No. 48/77 clearly stipulates the condition that the samples packed must be in a form distinctly different from regular trade packing and each smallest packing is clearly and conspicuously marked “physician’s samples not be sold”.
7. He further stated that the very fact that debit notes were raised on the dealers in respect of physician’s samples distributed to medical practitioners in such dealers’ area clearly indicates that the samples distributed were not physician samples since such samples are not to be sold, and these were also not intended to be cleared as physician samples in terms of the aforesaid notification.
8. He submitted that such goods where debit notes had been raised on the dealers by the assessee were not entitled for exemption under Notification No. 48/77 dated 1-4-1977 and recoveries made against such clearances by issuance of debit notes on dealers for raw materials and packing is liable to be included in the assessable value as Section 4 and that the assessee has raised debit notes on their distributors towards recovery of promotion & publicity material.
9. He also submitted that the Supreme Court’s judgment in the case of Bombay Tyre International Ltd. v. UOI and Ors., reported in 1983 (14) E.L.T. 1896 (S.C.) has held that service such as marketing, selling, organisational expenses and advertisements cannot be deducted because these expenses promote marketability of the articles and thus enter into its value in the trade. In view of this judgment, recoveries amounting Rs. 3.76 lakh against promotion & publicity are liable to be included in the assessable value and chargeable to duty.
10. He further submitted that the assessee, having suppressed the facts wilfully the extended period beyond six months is correctly applicable.
11. We have considered the above submissions. We observe that the appellants have claimed the benefit of exemption Notification in respect of free samples supplied for medical practioners, hospitals, clinics etc. It was therefore, their responsibility to show that actually the samples of medicines were supplied free for the intended purpose, in the face of the charge, that they were not supplied free but the appellants have failed to substantiate their claim for entitlement to the Notification.
12. The Department has on the other hand, been able to show that by mechanism of agreement and debit notes, the appellants had actually recovered charges in respect of the goods in question. In view of this position, the supply could not be considered as free and the appellants were not entitled to the benefit of exemption notification.
13. Since the appellants have deliberately done so and suppressed the fact of recovery of charges, the extended period of time was invocable and has been rightly applied by the department. Since the appellants were not entitled to the benefit of exemption notification the assessable value was require to be redetermine the duty was payable in respect of the goods in question has rightly held by the Additional Collector of Central Excise. However, insofar as the Id. Counsel’s submission regarding the calculation of amount of duty is concerned, this aspect was required to be further looked into. Therefore, while upholding the order of the Additional Collector on merits, the matter is remanded to him for rechecking the calculation of amount of duty and consequential reconsideration of penalty and fine aspect as it is well settled that punishment should be proportionate to the offence. The appeal is disposed of in the above terms.