Physician Sample Sold To Distributor For Free Distribution To Doctors Covered Under Section 4(i)(a) Of Central Excise Act: CESTAT

The Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that physician samples sold to distributors for free distribution to doctors are covered under Section 4(i)(a) of the Central Excise Act.

The bench of Ramesh Nair (Judicial Member) and C. L. Mahar (Technical Member) observed that the appellant has manufactured and cleared the goods, i.e., the physician sample, mentioning clearly on the pack that it is not for sale. Since the goods are not for sale and no MRP is affixed to the product, the goods cannot be valued under Section 4A as they are not for retail sale. The correct provision for the valuation of physician samples is Section 4, where the excise duty is payable on the transaction value.

Section 4 deals with the valuation of excisable goods for purposes of charging of duty of excise. According to Section 4 (i)(a), if any excisable goods are sold by the assessee for delivery at the time and place of the removal, and the assessee and the buyer of the goods are unrelated and the price is the only consideration for the sale, then the value of the goods at that time and place shall be the transaction value. Section 4A deals with the valuation of excisable goods with reference to the retail sale price.

The issue raised was whether the appellant is liable to pay excise duty on the valuation under Section 4A in respect of a physician sample of medicines sold to the dealer for free distribution to the doctors on which "not for sale" is mentioned or whether the valuation should be done under Section 4 of the Central Excise Act, 1944.

The assessee contended that since physician samples were not meant for sale by distributors but were to be given free of charge to the physicians, the assessee had charged a lesser price. The only reason in the show cause notice given was that since the physician samples were given free of charge by the distributors and no price was charged, the case was not covered by the provisions of Section 4(1)(a). This is clearly a fallacious and wrong reason. The transaction in question was between the assessee and the distributors. Between them, admittedly, the price was charged by the assessee from the distributors. What the distributors ultimately did with these goods is extraneous and could not be the relevant consideration to determine the valuation of excisable goods.

The tribunal relied on the decision of the Supreme Court in the case of Commissioner of C. Ex. & CUS., Surat vs. Sun Pharmaceuticals Inds., in which it was held that excise duty is payable in terms of Section 4(i)(a) not under Section 4A but on the pro rata value of goods cleared under Section 4A, i.e., on the transaction value between the assessee and distributor to whom the physician samples were sold.

Case Title: Sun Pharmaceuticals Industries Limited Versus C.C.E. & S.T.-Vadodara-ii

Case No.: Excise Appeal No. 11470 of 2015- DB

Date: 12.09.2023

Counsel For Appellant: A.B. Nawal

Counsel For Respondent: R. K. Agarwal

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