2006 (8) TMI 6 - AT - Central Excise

Valuation of physician's samples: Comparable goods value upheld over costing method. Cheryl Labs affirmed, Trinity Pharma overruled.

BLUE CROSS LABORATORIES LTD. Versus CCE, MUMBAI

The Tribunal determined that the valuation of physician's samples should be based on the value of comparable goods under Rule 6(b)(i) rather than the ... Central Excise -Where retail pack and physicians samples are identical in material characteristics and quantity value to determined under Rule 4, and where they are identical in essential characteristics but differ in quantity, labeling and packing value to be determined under Rule 6(b)(i) Issues Involved:1. Valuation method for physician's samples supplied free of cost.2. Applicability of Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975.3. Comparable basis for valuation of identical medicaments.4. Interpretation of Chapter Note 5 of Chapter 30 (Pharmaceutical Products).5. Consideration of previous Tribunal decisions and Supreme Court rulings.Detailed Analysis:1. Valuation Method for Physician's Samples Supplied Free of Cost:The primary issue was whether the value of physician's samples, which are supplied free, should be assessed on a comparable basis with identical medicaments manufactured and sold for commercial purposes or whether their valuation should be assessed by adopting the costing method as done by the assessee under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975. The Tribunal noted that the physician's samples and the regular goods were put in similar laminated foils, and there was no major difference between them except for the quantity and labeling. The Tribunal held that the normal price under section 4(1)(a) of the Act should apply to physician's samples.2. Applicability of Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975:The Tribunal examined whether Rule 6(b)(ii) was applicable for determining the value of physician's samples. The adjudicating authority and the Appellate Commissioner had rejected the assessee's adoption of the costing method under Rule 6(b)(ii), asserting that the normal price of the subject medicines was available under section 4(1)(a). The Tribunal concluded that Rule 6(b)(ii) would only apply if the value could not be determined under Rule 4 or Rule 5, and since the physician's samples were comparable to the regular packs, Rule 6(b)(i) was more appropriate.3. Comparable Basis for Valuation of Identical Medicaments:The Tribunal addressed whether physician's samples and regular commercial packs could be considered 'comparable goods.' It referred to previous decisions, such as Cheryl Laboratories (P) Ltd. and Charak Pharmaceuticals, which held that the value of physician's samples should be based on comparable goods under Rule 6(b)(i). The Tribunal found that the physician's samples, despite being smaller in quantity and labeled differently, were materially identical to the regular packs, justifying their valuation on a comparable basis.4. Interpretation of Chapter Note 5 of Chapter 30 (Pharmaceutical Products):The Tribunal considered the argument that labeling and packing for free physician's samples created a different final product from commercial packings. Chapter Note 5 of Chapter 30 was cited to define manufacturing in the context of pharmaceutical products. The Tribunal concluded that the material characteristics of the medicaments did not change due to packing and labeling, and thus, the physician's samples were comparable to the commercial packs.5. Consideration of Previous Tribunal Decisions and Supreme Court Rulings:The Tribunal reviewed various decisions, including those in Sun Pharmaceutical Industries, Trinity Pharmaceuticals, and Universal Glass Ltd. It noted that the decision in Sun Pharmaceutical Industries was not contrary to the principle established in Cheryl Laboratories, as it dealt with physician's samples sold to distributors. The Tribunal overruled the decision in Trinity Pharmaceuticals to the extent it conflicted with the established ratio in Cheryl Laboratories and Charak Pharmaceuticals. The Supreme Court's decision in Universal Glass Ltd. was cited to emphasize that comparable goods should be as identical as possible, supporting the Tribunal's conclusion.Conclusion:The Tribunal held that the valuation of physician's samples should be based on the value of comparable goods under Rule 6(b)(i) and not on the costing method under Rule 6(b)(ii). The decision in Cheryl Laboratories (P) Ltd. was affirmed as laying down the correct legal position, while the decision in Trinity Pharmaceuticals was overruled to the extent it conflicted with this principle. The matter was referred back to the concerned division bench for a decision on the merits of the appeal in accordance with this judgment.