Valuation of free physician samples upheld at cost + profit margin, duty payments required. Lower penalties overturned.

The appeal concerning the valuation of physician samples distributed free of cost was decided in favor of valuing the samples based on the cost of production plus a 15% profit margin. The appellant was directed to make necessary payments for duty liability and interest, with adjustments to be made for amounts already paid. No penalties were imposed due to the ongoing litigation on the valuation issue during the relevant period. Penalties imposed by lower authorities were set aside, and the appeal was disposed of on 04.12.15.

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Issues: Valuation of physician samples cleared free of cost.

The judgment deals with an appeal concerning the valuation of physician samples distributed free of cost. The appellant cleared physician samples for free distribution by discharging duty based on the assessable value calculated using the costing method. The lower authorities determined that the valuation of the physician samples should be based on the pro rata value of the sale pack of the medicines. Both parties acknowledged that the Supreme Court's decision in Biochem Pharmaceuticals Ind. Ltd., 2015 (322) ELT 808 (SC) established that the valuation of physician samples provided free of cost should be based on the cost of production or manufacture of goods plus 15%. Consequently, the appeal was decided in favor of valuing the physician samples based on the cost of production plus a 15% profit margin. The lower authorities were instructed to calculate the duty liability and interest, with the appellant directed to make the necessary payments. The appellant had already paid the differential duty, and the lower authorities were directed to adjust these amounts along with any pre-deposited sums towards the duty and interest. Given that the issue of valuation was under litigation during the relevant period, no penalty was imposed on the appellant, and the penalties imposed by the lower authorities were set aside. The appeal was disposed of accordingly, with the operative part of the order pronounced in court on 04.12.15.

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