Case: Madley Pharmaceuticals Ltd Vs. The Commissioner of Central Excise &amp; Customs, Daman &amp; Another

1. A group of three appeals is filed by the appellant-Medley Pharmaceuticals Ltd., under Section 35L(b) of the Central Excise Act, 1944 (hereinafter referred to as ‘theIn Civil Appeal No. 3626 of 2005, the appellant calls in question the correctness or otherwise of the order passed by Customs Excise and Service Tax Appellate Tribunal (CESTAT) (in short,) in Appeal Nos. E-549 to E-551/2003-Mum, dated 3.12.2004. By the impugned order, the Tribunal has confirmed the order passed by Commissioner of Customs and Central Excise, Valsad dated 30.12.2002.

Reasoning:
28. We agree with Mr. Ganesh, learned Senior Counsel for the appellant, that the manufacture of patent and proprietary drugs is completed only after the labelling is completed, for the purpose of levy of excise duty. However, on a perusal of the labelling provisions in the Drug Rules, we find that they deal with the name of drug, contents of the drug, name and address of manufacturer, a distinctive batch number (details of manufacture of drug is recorded and available for inspection as a particular batch), preparation of drug, date of manufacture and date of expiry of drug, its storage conditions, etc., which are in aid of the object of the Act, viz. promoting the use of good quality drugs, and ensuring that drugs that do not live upto quality do not find their way into the market. Rule 96(1)(ix) of the Drug Rules on which Mr. Ganesh heavily relies in support of his submission, states that while complying with the labelling provisions under Clauses (i) to (viii) of Rule 96 (1), the manufacturer must further overprint on the labelSample - Not to bein case they are to be distributed free of cost as physicians samples. Further, the bare perusal of Rule 96 shows that its heading bears ‘Manner ofand Clause 1 of this Rule contemplates or govern the manner of labelling in a way that the particulars on the label of the container of a drug shall be either printed or written in indelible ink and shall appear in conspicuous manner. This gives ample clarification that the process of labelling is distinct or different from the overprinting on the label of asample, and hence we are unable to agree with him that the manufacture for the purpose of the Central Excise Tariff Act is not completed until ‘PhysiciansSample - Not to beis printed on the label.29. The primary reason of distributing free physician samples by the manufacturer of pharmaceutical drugs to us appears to be only for the purpose of advertising of the product and thereby enhancing the sale of the product in the open market. It has been shown by research that the market of a pharmaceutical company is enhanced substantially by the distribution of free physician samples. In other words, the distribution of such physician samples serves as a marketing tool in the hands of the pharmaceutical companies [See Sarah L. Cutrona et al., Characteristics of Recipients of Free Prescription Drug Samples : A Nationally Representative Analysis,(2008) 98 Am. J. Pub. Health 284].30. Before we conclude, in our view, the issue raised in these appeals is no more res integra. This issue came up for consideration before this Court in the case of Ranbaxy Laboratories Ltd.v. Commissioner of Central Excise, Pune, (2003) 9 SCC 199, wherein it wasIn these appeals, the question is whether free medical samples supplied to the doctors are liable to excise duty. In our view, this question is answered by a decision of this Court rendered today in Civil Appeal No. 3643-44 of 1999.Now coming to the valuation of the physician samples for the purpose of levy of excise duty, in our view, this issue need not detain us long in view of the decision of this Court in the case of Commissioner of Central Excisev. M/s. Bal Pharma, Civil Appeal No. 1697 of 2006. This Court has upheld the conclusion of the Tribunal that thesamples have to be valued on pro-rata basis. The Tribunal, while arriving at the aforesaid conclusion, had relied upon its earlier decision in the case of Commissioner of Central Excise, Calicutv. Trinity Pharmaceuticals Pvt. Ltd.,reported as 2005 (188) ELT 48 , which has been accepted by the department. Therefore, we hold that physician samples have to be valued on pro-rata basis for the relevant period.