1988 (4) TMI 52 - HC - Central Excise

Excise duty on medical samples based on related person's price. Commissioner's decision overturned.

The court clarified that excise duty on medicinal products distributed as free samples should be based on the price set by a related person for wholesale ... Valuation - Medicines - Physician's free samples - Trade discount -Admissibility of Issues: Interpretation of Section 4(1) of the Central Excises and Salt Act, 1944 regarding the levy of excise duty on medicinal products containing alcohol and distributed as free samples.In this case, the petitioners, a limited company manufacturing medicines and pharmaceutical formulations, are facing a dispute regarding the excise duty levied on their products containing alcohol. These products are also assessable under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, administered by the State of Maharashtra. The petitioners distribute a percentage of their production as free samples to medical practitioners through a related company, Franco Limited. The dispute arises from a demand notice issued by a Prohibition and Excise Officer, claiming excise duty on the free samples given to medical practitioners. The Commissioner of Prohibition and Excise dismissed the petitioners' appeal, leading to the current challenge under Article 226 of the Constitution of India.The main argument revolves around whether the free samples distributed by the petitioners are liable to excise duty and at what rate. The petitioners argue that the price of the samples should not exceed the price at which Franco Limited sells the products to wholesalers, as Franco Limited is treated as a related person for excise duty purposes. The Commissioner refused to allow a trade discount on the free samples, stating they are not part of wholesale trade. However, the petitioners contend that excise duty should be based on the price set by Franco Limited for wholesale sales, as per Section 4(1)(a)(iii) of the Central Act.The court finds that the respondents, represented by the Government Pleader, have misunderstood the provisions of Section 4 of the Central Act. The court highlights that when goods are sold through a related person in wholesale trade, the price at which the related person sells the goods becomes the basis for excise duty calculation. Thus, the price set by Franco Limited for wholesale transactions should be the determining factor for excise duty, irrespective of whether the goods are distributed as free samples or sold at a lower price. The court concludes that the respondents' approach is contrary to the law and orders the case to be remitted to the Commissioner for a decision in line with the legal interpretation provided in the judgment.In summary, the judgment clarifies the application of Section 4(1) of the Central Act in determining excise duty on medicinal products distributed as free samples. It emphasizes that the price set by a related person for wholesale sales should be the basis for levy, regardless of how the products are distributed or sold at different prices. The court sets aside the Commissioner's decision and directs a reassessment in accordance with the correct legal interpretation.