[Order per : Justice U.L. Bhat, President]. - The common appellant is engaged in the manufacture of Pharmaceutical products falling under subheading 3003.10 of the present Central Excise Tariff Act, 1985. Besides effecting sales appellant has been supplying, free of cost, samples to physicians also. The dispute in this appeal relates to the determination of the assessable value of the free samples. Appellant filed price list declaring the value of physician’s samples as the sum total of the cost of raw material, manufacturing cost and manufacturing profit. The price list having been approved provisionally, clearances were being made accordingly on payment of duty. For the periods from 25-7-1991 to 30-11-1991 and 1-12-1992 to 28-4-1993, notices were issued to the appellant stating that since Section 4(1) (a) of the Central Excises Act (for short, the Act) cannot be applied to the instant case in the absence of sale to physicians the provision of Section 4(1)(b) of the Act and Rule 6 of Central Excise (Valuation) Rules, 1975 (for short, the Rules) would be applicable and that being so the value should be determined on the basis of proportion of the value declared for the corresponding medicines sold in the wholesale market. Accordingly, the notices proposed demand of differential duty. Appellant resisted the notices on various grounds. Overruling the contentions. Assistant Collector passed two separate orders confirming demands. These orders having been confirmed by the Collector (Appeals), the present appeals are filed.
2. At the outset, the learned Counsel pointed out that the reference to the Rule 6 in the show cause notice was not correct and the appropriate Rule 7 read with Rule 6 of the Rules. There is no dispute that Rules 4 to 6 of the Rules as such are inapplicable and valuation should be determined on the best judgment under Rule 7 and in doing so the principles of the precedent Rules could be followed. It is agreed on both sides that the principles of Rule 6 had to be followed in cases like this; the dispute is whether Clause (i) or Clause (ii) of sub-Rule (b) of Rule 6 of the Rules would apply. Alternatively, it is contended by the learned counsel that even if Rule 6(b)(i) of the Rules is held to be applicable, in view of the proviso to the Clause (i), the fact that physician’s samples are not “sold” and no prices are realised from physicians and that the samples are being given as a kind of advertisement of the products and the cost thereof would have been included in fixing the wholesale price of the medicines being sold to buyers, should have been taken into consideration by the lower authorities and they did not do so.
3. Each of the show cause notices contained Annexure 1 (a) which show the assessable value of the medicines being sold by appellant to the wholesale buyers. The charts furnish the strength of the sale pack, the assessable value and the strength of the sample pack. It is seen that in respect of 7 medicines, the contents of samples are much smaller than the contents of the sale pack. The contents respectively are 200 ml- l00 ml, l00ml-30ml, 60ml-30ml and l00 ml - 60 ml. In respect of three products, the contents of both packs are identical, namely, 5 gms. Even where the contents are identical, the assessable values sale packs and sample packs have wide variance, namely, Rs. 7.63 -Rs. 7.08, Rs. 5.84 -Rs. 5.24 and Rs. 7.98 - Rs. 5.97. In the case of medicines wherein the quality of contents of the pack are different, the difference in sale values are much more, namely Rs. 16.14 - Rs. 5.49, Rs. 11.13 - Rs. 2.88, Rs. 8.04 - Rs. 3.11, Rs. 7.89 - Rs. 2.39, Rs. 10.20 - Rs. 3.30, Rs. 7.40 - Rs. 1.63 and Rs. 10.84 - Rs. 4.21. In regard to three medicines where the sale pack and the sample pack have identical contents, and the Assistant Collector has adopted for the physician’s samples, the assessable value equal to the value of the sale pack. In regard to the other say, he has adopted the value proportionate to the quality of contents of the two packs.
4. Rule 6 (b)(i) and (ii) of the Rules read thus :-
“(i) on the value of the comparable goods produced or manufactured by the assessee or by any other asseessee :
Provided that in determining the value under this sub-clause the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any in the material characteristics of the goods to be assessed and of the comparable goods;
(ii) if the value cannot be determined 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."
5. The above Rules would of course apply 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, but as we have already indicated above that the principles of Rule 6(b) may have to be followed while determining the value in this case under Rule 7 of the Rules and this was not disputed by either party. While following the above principles due regard must be paid to the broad scheme of the Rules. Sub-Rule (b) contains two clauses. Clause (i) applies where value of the comparable goods produced or manufactured by the assessee or by any other assessee is available. Clause (ii) applies only where value cannot be determined under Clause (i). According to the learned counsel for the appellant, the medicines sold in wholesale market and medicines sold to physicians cannot be regarded as comparable for two reasons namely, the former are sold for a price but latter are given to physician free of cost and the contents of the packing are also different. It is pointed out that invariably the quantities of contents of the physician samples are less than the contents of sale packs sold in the wholesale market. This submission is correct in regard to the medicines except three as we have already shown. Learned counsel also invited our attention to the Tribunal’s decision in The Gwalior Rayon Silk Mfg. (Wvg) Co. Ltd. v. CCE, Indore [ (Tribunal) = 1995 (11) RLT 248]. In paragraph 5 of the order, Tribunal rejected the contention of the assessee that there is no comparability between goods manufactured by two manufacturers on account of the quantity manufactured being different and on account of manufacturer effecting sales of each product and captively consuming bulk of the products. The proviso to Rule 6(b)(i) provides that in determining the value under this sub-clause the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all factors and, in particular, the difference, if any in the material characteristics of the goods to be assessed and of the comparable goods. It is not possible to provide an exhaustive list of factors which may regard as relevant. These aspects which we emphasised by the appellant are the nature and status of the person to whom the medicines are supplied, namely, buyers or physicians, and the nature of the transactions, namely, sale or gift, do not appear to be relevant factor. Comparability must be of the goods and not of the buyer or the recipient of the goods. Comparability cannot also depend upon the consideration of the transaction. On the other hand, the third aspect referred to the appellant, namely, the difference in the quantity of contents of the two packages does seem relevant. As alread pointed out in respect of three medicines, quantities are same and in respect of other medicines quantities of physician sample are much smaller than the quantities of sale packages. Any element of doubt introduced by the disparity in the quantum of contents can certainly be neutralised by granting reasonable adjustment in that behalf. In these circumstances, we are of the opinion that the packages of medicines sold in wholesale market are comparable to the packages supplied free of cost to physician. That being so, the broad scheme of Rule 6(b)(ii) would not apply and the broad scheme of Rule 6(b)(i) would apply in these cases.
6. The Assistant Collector has adopted the declared value of the goods being sold in the wholesale market as the basis of valuing physician samples by giving adjustment on account difference in quantity. This is advantageous to the assessee since it is well known that the larger bulk packages would cost proportinately less than smaller bulk packages. Therefore, in regard to the difference in quantity of contents no further adjustment is called for.
7. According to the appellant, adjustment is called for since the physician sample is supplied free of cost and the cost of the samples is already reflected in the price charges for medicines if sold. Learned counsel for the appellant stated that if the duty on the physician samples is increased the appellant has to increase the price of the medicine sold in the wholesale market which will in turn mean that the duty payable on the physician samples will go up and this will lead to a chain reaction. He also pointed out that adjustment has to be given on account of the fact that the physician samples are given without any profit motive. It is true that cash profit is absent where free sample is given to physician; but profit motive is present in the sense that the supply of free samples to the physician for use for promotion of medicines will in turn may improve sales. This of course was conceded by the learned counsel of appellant when he stated on behalf the samples are given for advertisement. We also fail to see how the absence of profit motive can have any relevance in the determination of the assessable value. The broad scheme of clause (i) and not of clause (ii) of the Rule 6(b) is applicable and going by such broad scheme the authority has to go by the assessable value of the comparable goods sold by the assessee or by any other manufacture subject to reasonable or rational adjustment, if any.
8. We, also hold that no adjustment is called for.
9. Learned Counsel for the appellant invited our attention to the Order-in-Original No. 143, dated 4-9-1993 issued by Collector of Central Excise, Aurangabad in the case of the other manufacturers’ medicines. It is seen that the Collector upheld the valuation of physician samples on the basis of costing. This order has no relevance since on a consideration of the principles of law applicable, we have held that the broad scheme of Rule 6 (b) (i) of the Rules would be attracted.
10. For the reason indicated above, we find no ground to interfere and accordingly dismiss the appeals.