Free samples in pharmaceutical sales do not breach declarations for manufacture for sale when sampling is integral to the sales process.

Goods purchased under declarations for use in manufacture for sale are not put to a prohibited use merely because part of the finished products is distributed as free samples. The Gujarat HC noted that the relevant declarations require use in manufacturing taxable goods or goods for sale, not that every finished article must actually be sold. In the pharmaceutical trade, sampling was treated as an integral part of the sales process, with sample cost absorbed in the price of the salable goods. On that basis, free distribution did not breach the undertakings in Form No. 15 or Form C, and penalties were not attracted under the Bombay Sales Tax Act, 1959 or the Central Sales Tax Act, 1956.

---

---

Issues: Whether distribution of manufactured goods as free samples amounts to a breach of the undertaking in the prescribed declaration that the goods purchased would be used in the manufacture of goods for sale, so as to attract penalty under the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act, 1956.

Analysis: The prescribed declarations under section 12(1)(b) of the Bombay Sales Tax Act, 1959 and section 8(4) of the Central Sales Tax Act, 1956 require that the goods purchased be used in the manufacture of taxable goods or goods for sale. The decisive question was whether distribution of a part of the manufactured lot as free samples meant that the goods used in that manufacture were not used for manufacture of goods for sale. The requirement is not that every finished article must in fact be sold; it is enough if the goods are used in manufacturing articles intended for sale. In the case of pharmaceutical products, free sampling was treated as an essential and integral part of the commercial process by which the remaining goods are sold, and the cost of samples is absorbed in the price of the salable goods. Such distribution therefore does not convert the manufacture into one for a purpose other than sale. For the Central Sales Tax Act, 1956, the same reasoning also negatived the charge of failure to use the goods without reasonable excuse.

Conclusion: Distribution of free samples did not violate the undertakings in form No. 15 or form C, and the penalties were not attracted under section 36(1) of the Bombay Sales Tax Act, 1959 or section 10-A of the Central Sales Tax Act, 1956.

Final Conclusion: The references were answered against the Revenue and in favour of the assessee, with costs awarded to the assessee.

Ratio Decidendi: Where goods are purchased under a declaration for use in manufacture for sale, free distribution of a portion of the manufactured goods as samples does not amount to a breach if such sampling is an integral part of the process of sale of the manufactured lot.

---