Gross turnover deductions for expired medicines and free samples require proper supporting records; reassessment ordered on fresh consideration.

In medicinal trade, exclusion from gross turnover for returned expired, damaged or broken medicines must be tested against contemporaneous support such as stock records, invoices, expiry particulars and the accountant's certificate required by rule 159; because that material was not properly examined, the matter was remitted for fresh assessment. Medicines imported under way-bill and later distributed as free samples for trade promotion could not be treated as intra-State sales without proper consideration of the manufacturer's approval forms and supporting explanation; this issue too was sent back for reconsideration. The impugned orders were set aside and tax liability was not finally affirmed.

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Issues: (i) Whether the value of medicines returned on expiry of saleable date and medicines damaged or broken could be excluded from gross turnover on the basis of credit notes and supporting documents; (ii) Whether medicines imported under way-bill and later distributed as free samples for trade promotion could be treated as intra-State sales and added to gross turnover.

Issue (i): Whether the value of medicines returned on expiry of saleable date and medicines damaged or broken could be excluded from gross turnover on the basis of credit notes and supporting documents.

Analysis: The peculiar nature of the medicinal trade was recognised, including the limited shelf life of medicines and the customary return of unsold or expired goods for replacement. The claim for deduction, however, depended on proper supporting material such as stock-check records, invoices, particulars of expiry, and the chartered accountant's certificate contemplated by rule 159. As the earlier assessment and appellate orders had not properly examined the claim in this light, fresh scrutiny was considered necessary.

Conclusion: The issue was not finally decided on merits and was remitted for fresh assessment after allowing the petitioner to produce further documents.

Issue (ii): Whether medicines imported under way-bill and later distributed as free samples for trade promotion could be treated as intra-State sales and added to gross turnover.

Analysis: The record showed that the petitioner relied on manufacturer's approval forms and explained that the goods were converted into free samples for distribution to doctors, medical practitioners, wholesalers, stockists, and sub-distributors for sales promotion and advertisement. Since this material had not been properly considered by the assessing and appellate authorities, the claim required reconsideration on the basis of the explanation and documents now produced.

Conclusion: The issue was remitted for reconsideration by the assessing authority in the light of the additional explanation and documents.

Final Conclusion: The impugned orders were set aside and the matter was sent back for reassessment with an opportunity of hearing and production of further documents, so the tax liability was not finally affirmed.

Ratio Decidendi: In a medicinal trade, claims for deduction of returned expired or damaged goods and for exclusion of goods distributed as free samples must be examined on the basis of contemporaneous supporting records and trade-specific practice, and if such material was not properly considered, fresh assessment is warranted.

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