ORDER
C.N.B. Nair
1. The dispute raised in this appeal is with regard to the valuation of medicines cleared by the appellant as “Physician Samples”. The appellants, a manufacturer of P & P medicines, submitted that Physician Samples are not marketed at all and, therefore, they cannot be subject to duty of excise.In the alternative,they submitted that if duty is payable, the same should be charged based only on the cost of production of such Physician Samples and not on the basis of the sale price of the medicine.The revenue rejected these contentions and held that the duty is payable and that the value for assessment shall be the value adopted for assessment of the same medicines when sold in the market. The appellant persists with their contentions in the present appeal.
2. The contention of the appellant is that physician samples are distinctly different from normal trade pack with regard to quantity in each pack, colour & size of outer cartons and design of the outer/inner carton of the pack. It is clearly written and conspicuously marked on each smallest packing that these Physician Samples are “not for sale”. They have also pointed out that the Physician samples are treated distinctly by the appellants right from the stage of ordering of raw material/packing material etc. They also submit that sale of Physician Samples os strictly prohibited under the Provisions of Rule 65 and 96 among other rules of Drug & Cosmetics Rules, 1945.It is their contention in view of this that Physician Samples are not being sold and, therefore, they will not come under the category of goods. Reliance has been placed by them on the following decisions of the Apex Court in support of the submission that, being not marketable, physician samples do not quality to be treated as goods:-
(i) Union of India Vs.Delhi Cloth and general Mills -1977 ELT P.199
(ii) South Bihar Sugar Mills Ltd. Vs.Union of India -1978 ELT P.336.
(iii) Union Carbide India Ltd. Vs. Union of India-
1986 (24) ELT P.169
3. In support of their submission regarding valuation, they have contended that medicines in normal trade pack and Physician Sample packs cannot be treated as comparable goods and, therefore Provisions of Rule 6(b)(ii) of the Central Excise Valuation Rules 1975.They have accordingly canvassed for valuation of the goods at their cost of production.
4. As against the aforesaid contentions of the Revenue, the learned DR has pointed out that the medicines cleared in trade pack and in Physician Sample Packs are one and the same. He, therefore, submitted that they are identical goods and no objection could be raised to treating identical goods as comparable goods.The learned DR also pointed out that the issue regarding valuation of Physician Samples remains settled by the decision of the Tribunal in the case of Chery1 Lagboratores (P) ltd. Vs. Collector of Central Excise, Hyderabad [ 1992 (93) E.L.T. 129 (T). The Tribunal held in that case that the Physician samples are to be valued under Rule 6(b)(i) of Central Excise Rule i.e.value of comparable goods.
5. We are not able to appreciate the appellants contention that Physician Samples are not goods. Items involved in the present dispute are proprietary medicines which are manufacture by the appellants and sold to the public through medical shops. Doctors prescribed them and patients consumed them. No contention has been raised that the medicines so sold are not goods. Bulk of the medicines manufactured by the appellants are sold in the trade. Small portion of the same medicines is distributed free to Doctors for popularising the medicines. Doctors, in turn distributed these samples to patients. The appellants contenting is that, that portion of the medicines which is sold in the trade constitutes goods and the portion of the medicines which is distributed free would not be goods. This contention of the appellant amounts to defending materials as goods depending upon the actual fact os their sale. This amounts to saying that same materials when sold are goods and if given free (gifted) are not goods .The appellants have sought support for this contention from the judgments of the Apex Court. This is the result of a gross misunderstanding of the principle laid down by the Supreme Court.Marketability is an attribute of goods. Therefore, in order to be excisable, items in question should be marketable. However, it is not a requirement that particular goods are, as a matter of fact, marketed. It is sufficient that goods in question are marketable.There is no dispute in the present case that the mediqnes distributed through Doctors is the same as the medicines sold through shops . Ingredients, qualities and effect of the medicines which are sold and the medicines distributed free as samples are one and the same. It is only that the appellant chooses to distribute a part of the goods produced by them as a promotional measure as free samples. There is no aspect to free samples which makes them incapable , we hold that the free samples in question satisfy the criterion of marketability, are goods and are liable to Central Excise duty.
6. Section 6 (1) (b) of the Central Excise Act and Central Excise Valuation Rules 1975 relate to valuation of goods which are not sold.Section 4 (1)(b) stipulates that where the normal price of such goods is not ascertainable for the reasons that such goods are not sold or for any other reason, the value of such goods shall be deemed t be the nearest ascertainable equivalent thereof. In the present case goods in question are not sold. Therefore, their assessable value shall be “the nearest ascertainable equivalent” of their normal price i.e. the price at which such goods are ordinarily sold by the assessee. The Central Excise Valuation Rules 1975 deals with the determination of of value of excisable goods. These Rules have been brought into force for the purpose of Clause (b) of sub-section (1) of Section 4 of the Central Excise Act. Rules 3 to 6 of these Rules to don’t specifically apply to the valuation of goods which are give away as free samples. Rule 7 of the Valuation Rules, which is in the nature of residual provision stipulated that “if the value of excisable goods cannot be determined under the foregoing rules, the proper officer shall determine the value of such goods according to the best of his judgment, and for this purpose he may have regard, among other things, to any one or more of the method s provided for in the foregoing rules”.Rules 6 (b) stipulates that “where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based (i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee. (ii) if the value cannot be determine under sub-clause (i), on the cost of production or manufacture including profits , if any, which the assessee would have normally earned on the sale of such goods”.
In the present case, the goods are not sold by the assessee, but are freely distributed by them. From the provisions of Rule 6(b) it is clear that where sub-rule 6 (b) (i) applies, 6(b)(ii) has no application. Valuation based on the cost of production as allowed under 6 (b) (iii) should be resorted to only “if value cannot be determined under sub caluse (i) i.e. based on the comparable value of similar goods. In the present case there is no dispute that the medicines involved in both the cases (sale and free distribution) are one and the same. For example “Cephalexin Dispersibel Tablets Sporidex (R) Distab 250”, are sold as well as distributed free as samples. The contents in the each tablet are the same irrespective of whether the table is for distribution as free physician sample or for sale. The curative properties are also the same.The only differences are with regard to distinctive packing. Such different, distinctive packing are provided only for easily distinguishing the packets, whether for sale or free distribution. This inconsequential difference does not make them anything other than comparable goods. In fact, the gods are identical. In such a situation, the value of the goods have been rightly determined by resort to the value of comparable goods as provided in Rule in 6 (b)(i) because that procedure yelids “the nearest ascertainable, equivalent” of normal price. The other method of going by cost of production under Rule (b)(ii) would not appropriate as that rule is to be pressed into service only if the method in sub-clause (i) is not available. In the circumstances, we are unable to agree with the appellants’ submission regarding the method to be adopted for valuation also. As pointed out by the learned DR, this issue remains covered by the decision of the Tribunal in the case of Chery1 Laboratories (P) Ltd. In that case the Tribunal held that physicians samples cleared free are comparable to the medicines sold and that Rule 6 (b)(i) of the Valuation Rules would correctly apply. We find no reason to disagree with that decision. We respectfully follow that decision.
8. In view of what has been stated above, the appeal fails and is rejected.