Case Note & Summary
The petitioners, Indian Drugs Manufacturer's Association and M/s. Emil Pharmaceuticals Industries Pvt. Ltd., challenged Circular No. 813 dated 25/4/2005 issued by the Central Board of Excise and Customs. The circular clarified that physician's free samples of medicines should be valued under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, and not under Rule 11 read with Rule 8 as per an earlier circular. The petitioners argued that free samples are not sold but supplied freely to medical practitioners, and therefore should be valued based on cost of production under Rule 11 read with Rule 8. The respondents, Union of India and others, contended that free samples are excisable goods and must be valued under Rule 4, which applies to goods sold in the market. The court analyzed the relevant provisions and held that physician's free samples are goods manufactured and cleared from the factory, thus excisable under Section 3 of the Central Excise Act, 1944. Since comparable goods are sold in the market, Rule 4 applies for valuation, not Rule 11 read with Rule 8. The court dismissed the petition, upholding the validity of Circular No. 813.
Headnote
A) Central Excise - Valuation of Free Samples - Rule 4 of Central Excise Valuation Rules, 2000 - The issue was whether physician's free samples should be valued under Rule 4 (based on price of comparable goods) or under Rule 11 read with Rule 8 (cost of production). The Court held that free samples are excisable goods and must be valued under Rule 4, as they are not sold but are comparable to goods sold in the market. (Paras 1-10)
B) Central Excise - Excisability of Free Samples - Section 3 of Central Excise Act, 1944 - The Court held that physician's free samples are goods manufactured and cleared from the factory, and thus are excisable under Section 3. The fact that they are not sold does not affect their excisability. (Paras 2-5)
C) Central Excise - Valuation Rules - Rule 11 read with Rule 8 of Central Excise Valuation Rules, 2000 - The Court rejected the argument that free samples should be valued under Rule 11 read with Rule 8 (cost of production), as Rule 11 applies only when goods are not sold and no comparable goods exist. Since comparable goods are sold, Rule 4 applies. (Paras 6-10)
Issue of Consideration
Whether physician's free samples of medicines are excisable goods and, if so, what is the correct method of valuation under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
Final Decision
The petition is dismissed. The court upheld the validity of Circular No. 813 dated 25/4/2005, holding that physician's free samples must be valued under Rule 4 of the Central Excise Valuation Rules, 2000.
Law Points
- Valuation of free samples under Central Excise Act
- 1944
- Rule 4 of Central Excise Valuation Rules
- 2000
- Rule 11 read with Rule 8 of Central Excise Valuation Rules
- Doctrine of mutuality
- Excisability of free samples
Case Details
Writ Petition No. 246 of 2006
H.L. Gokhale, J.P. Devadhar
Mr. Vikram S. Nankani, Mr. M.R. Baya, Ms. Aarti Sathe for petitioners; Mr. A.J. Rana, Mr. Y.S. Bhate for respondents
Indian Drugs Manufacturer's Association and M/s. Emil Pharmaceuticals Industries Pvt. Ltd.
Union of India, Central Board of Excise & Customs, Ministry of Chemicals and Fertilizers
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Nature of Litigation
Writ petition challenging the validity of a circular issued by the Central Board of Excise and Customs regarding valuation of physician's free samples.
Remedy Sought
Petitioners sought quashing of Circular No. 813 dated 25/4/2005 and a declaration that free samples should be valued under Rule 11 read with Rule 8 of the Central Excise Valuation Rules, 2000.
Filing Reason
The Board issued Circular No. 813 changing the valuation method for physician's free samples from Rule 11 read with Rule 8 to Rule 4 of the 2000 Rules, which the petitioners contended was incorrect.
Previous Decisions
Earlier Circular No. 643 dated 1/7/2000 had stated that valuation should be under Rule 11 read with Rule 8.
Issues
Whether physician's free samples are excisable goods under the Central Excise Act, 1944.
What is the correct method of valuation for physician's free samples under the Central Excise Valuation Rules, 2000?
Submissions/Arguments
Petitioners argued that free samples are not sold but supplied freely, so they should be valued under Rule 11 read with Rule 8 (cost of production).
Respondents argued that free samples are excisable goods and since comparable goods are sold, Rule 4 applies.
Ratio Decidendi
Physician's free samples are excisable goods under Section 3 of the Central Excise Act, 1944. Since comparable goods are sold in the market, valuation must be under Rule 4 of the Central Excise Valuation Rules, 2000, which uses the price of comparable goods, and not under Rule 11 read with Rule 8, which applies only when goods are not sold and no comparable goods exist.
Judgment Excerpts
By the said circular the Board has clarified that the valuation of physicians free samples should be made under Rule 4 of the Central Excise Valuation (determination of price of excisable goods) Rules, 2000 and not under Rule 11 read with Rule 8 of 2000 Rules as stated in its earlier circular No.643 dated 1/7/2000.
The main argument of the petitioners is that the physicians samples cleared from the factory are not sold but are supplied freely to the medical practitioners and, therefore, the valuation of such free samples should be made under Rule 11 read with Rule 8 of 2000 Rules.
Procedural History
The petition was filed in 2006 challenging Circular No. 813 dated 25/4/2005. Rule was issued and made returnable forthwith. By consent, the petition was taken up for final hearing. Judgment reserved on 28th August 2006 and pronounced on 28th September 2006.
Acts & Sections
- Central Excise Act, 1944: Section 3
- Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000: Rule 4, Rule 8, Rule 11
