Valuation of physician samples distributed as free of cost.

PJ/CASE LAW/2016-17/3156

Case:-EMIL PHARMACEUTICAL INDUSTRIES P. LTD. VERSUS COMMR. OF C. EX., THANE-II

Citation:-2016 (334) E.L.T. 143 (Tri. –Mumbai)

Brief Facts:-The period involved in all the five cases is from 1-4-2005 onwards when MRP based assessment was introduced in respect of P & P Medicaments. The issue is whether such samples should be assessed to duty as per Section 4(1) (a) or Section 4A.

Common issue is involved, therefore all the five appeals have been taken up together. Two appeals have been filed by the appellant M/s. Emil Pharmaceutical Ind. Pvt. Ltd. against the confirmation of the demand. Two other appeals have been filed by the Revenue against dropping of demand. Fifth appeals is Revenue’s appeal relating to M/s. Medibious Laboratories Pvt. Ltd. against dropping of demand.

The issue involved in all the five appeals is the valuation of physician samples manufactured by the assessees and sold to the brand name holder (other pharmaceutical companies) on principal to principal basis, who in turn distributes the same free of cost to various doctors/physician. In all the cases, respective assessees have manufactured the said goods using their own raw material, packing material, machinery etc. The period involved in all the five cases is from 1-4-2005 onwards when MRP based assessment was introduced in respect of P & P Medicaments. The issue is whether such samples should be assessed to duty as per Section 4(1) (a) or Section 4A.

Appellant’s Contention:- - Clearance of physician’s samples by manufacturer of P&P Medicaments to other principal manufacturers for free distribution. Since physician’s samples are not intended for sale, no legal requirement of indicating retail sale price. As held in various judgments of Tribunal, physician’s samples manufactured on principal to principal basis required to be assessed under Section 4(1)(a) of Central Excise Act, 1944 and not under MRP/RSP provisions - Section 4 of Central Excise Act, 1944.

Respondent’s Contention:-The respondent reiterated the findings of the lower authorities.

Reasoning Of Judgment: We find, the said issue is covered by the Tribunal judgment in the case of M/s. Gelnova Laboratories (I) Pvt. Ltd. v. Commissioner of Central Excise, Belapur vide Order Nos. A/948-951/2013/EB/C-II, dated 28-10-2013 [2014 (300) E.L.T. 437 (Tribunal)].

The provisions of Notification issued in this regard is also worth noting:-

“Medicaments - Assessments on basis of retail sale price (MRP)

In exercise of the powers conferred by sub-section (1) and sub-section (2) of section 4A of the Central Excise Act,1944 (1 of 1944), the Central Government hereby specifies the goods mentioned in column (3) of the Table below and falling under Chapter or Heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) mentioned in the corresponding entry in column (2) of the said Table, as the goods to which the provisions of the said sub-section (2) shall apply, and allows as abatement the percentage of retail sale price mentioned in the corresponding entry in column (4) of the said Table :-

S. No.	Chapter or Heading No. or sub-heading No.	Description	Abatement as a percentage of retail sale price
(1)	(2)	(3)	(4)
1.	3003. 10	Patent or proprietary medicaments, other than those medicaments which are exclusively Ayurvedic, Unani, Siddha, Homoeopathic or Bio-chemic	35%
2.	3003. 20	Medicaments (other than patent or proprietary) other than those which are exclusively used in Ayurvedic, Unani, Siddha, Homoeopathic or Bio-chemic systems	35%

This notification shall come into force on the 8th day of January, 2005.

Explanation. - For the purposes of this notification, “retail sale price” means the retail price displayed by the manufacturer under the provisions of the Drugs (Price Control) Order, 1995.”

We also note that Durg (Price Control) Order, 1995 in paragraph 7 specifies how the retail price of formulation is to be determined. Further paragraph 8 of the said order empowers the Government to fix the retail price of a scheduled formulation in accordance with paragraph 7. Further paragraph 9 of the said order empowers Government to fix ceiling price of scheduled formulations. Further paragraph 14 provides for carrying into effect the price fixed or revised by the Government, its display and proof thereof. Sub-paragraph (2) of the said paragraph reads as under :-

Carrying into effect the price fixed or revised by the Government, its display and proof thereof :

Every manufacturer, importer or distributor of a formulation intended for sale shall display in indelible print mark, on the label of container of the formulation and the minimum pack thereof offered for retail sale, the retail price of that formulation, notified in the Official Gazette or ordered by the Government in this behalf, with the words ‘retail price not to exceed’ preceding it, and “local taxes extra” succeeding it, in the case of Scheduled formulations.

Provided that in the case of a container consisting of smaller saleable packs, the retail price of such smaller pack shall also be displayed on the label of each smaller pack and such price shall not be more than the pro rata retail price of the main pack rounded off to the nearest paisa.”

From the above, it is clear that requirement of displaying the retail price is only for the goods intended for sale. Since, physician samples are not intended for sale, requirement to indicate the retail sale price does not exist, in the law. We also note that this Tribunal has been taking a view that physician samples manufactured on principal to principal basis are required to be assessed under Section 4(1)(a) of the Central Excise Act as is evident from the various case laws quoted by ld. Counsel for the appellant.

In view of the above findings, the appeal is allowed.

Decision:-Appeal allowed.

Comment:- The gist of the case is that since physician samples are not intended for sale, requirement to indicate retail sale price does not exist and consequently, the provisions of MRP based valuation as contained in section 4A of the Central Excise Act, 1944 is not applicable. Hence, the valuation of physician samples is to be done under section 4 of the Central Excise Act, 1944.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3156

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