Valuation of physician's samples must follow CAS-4 cost build-up, not backward deduction from sale prices.

Physician's samples cleared free of cost were to be valued at 115% of cost of production under the Board's circular, with cost computed on the additive basis prescribed by CAS-4. Selling and distribution expenses were excluded from the cost build-up, so valuation could not be derived by backward deduction from the sale price of finished goods. The Revenue's backward-working approach was rejected in principle. However, the computation in the impugned order was unclear, especially on factory overheads and the figures used, so the matter was remanded for fresh determination by the original authority strictly in line with CAS-4 and the circular.

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Issues: Whether physician's samples of medicaments, cleared free of cost as part of marketing strategy, were required to be valued at 115% of cost of production under the Board's circular and CAS-4, and whether the assessable value had to be computed by forward working on the basis of production costs or by backward working from the value of sale goods.

Analysis: The valuation of free physician's samples was governed by the Board's circular, which adopted Rule 11 with the spirit of Rule 8 and required assessable value to be 115% of the cost of production or manufacture. Cost of production had to be determined in accordance with CAS-4, which is an additive method requiring inclusion of production-related expenses such as material consumed, direct wages and salaries, direct expenses, works overheads and other specified production costs. Selling and distribution expenses were not part of the cost build-up. The method urged by the Revenue, based on subtracting selling and distribution expenses from the assessable value of sale goods, was not consistent with CAS-4. However, the computation adopted in the impugned order was not clear or satisfactorily explained, and the break-up of factory overheads and the basis of the figures required fresh examination by the original authority.

Conclusion: The Revenue's challenge to the method of computation was rejected in principle, but the matter was remanded for fresh determination of the assessable value of physician's samples by strictly applying CAS-4 and the relevant circular.

Ratio Decidendi: Where physician's samples are to be valued under the Board's circular by reference to 115% of cost of production, the cost must be computed on the additive basis prescribed by CAS-4 and cannot be worked out by a backward deduction from sale prices.

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