Free sample exemption denied where distributor recoveries showed goods were not supplied free and suppression justified extended limitation.

Clearances claimed as physician's free samples were not eligible for exemption because the assessee recovered amounts from distributors by agreement and debit notes toward sample, promotional and packing costs, so the goods were not supplied free as required by the notification. The non-disclosure of those recoveries amounted to suppression, justifying invocation of the extended limitation period. Duty had to be recomputed on the basis that the exemption was unavailable, and penalty and fine were left for reconsideration on a proportional basis. The matter was remanded only for rechecking the duty calculation and consequential penal consequences.

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Issues: (i) Whether the clearances claimed as physician's free samples were entitled to exemption under Notification No. 48/77-C.E. dated 01-04-1977; (ii) whether the extended period was invocable and the duty, valuation, penalty and fine required reconsideration.

Issue (i): Whether the clearances claimed as physician's free samples were entitled to exemption under Notification No. 48/77-C.E. dated 01-04-1977.

Analysis: The exemption was available only for samples actually supplied free and packed in the manner required by the notification. The evidence showed that, by agreement and debit notes, the assessee recovered charges from distributors in respect of the samples and related promotional and packing costs. Once such recoveries were made, the supplies could not be treated as free samples for the purpose of the notification.

Conclusion: The exemption was not available and the finding was against the assessee.

Issue (ii): Whether the extended period was invocable and the duty, valuation, penalty and fine required reconsideration.

Analysis: The recovery of charges was not disclosed, and the suppression justified invocation of the extended period. The assessable value therefore had to be redetermined on the basis that the exemption was unavailable. At the same time, the quantum of duty required verification, and the penalty and fine also required reconsideration on the principle of proportionality.

Conclusion: The extended period was upheld, but the matter was remanded for rechecking the duty calculation and for consequential reconsideration of penalty and fine.

Final Conclusion: The decision upheld denial of exemption and the applicability of the extended period, while sending back the matter only for recalculation of duty and reconsideration of penal consequences.

Ratio Decidendi: Where recoveries are made from distributors towards the cost of samples and related promotion, the clearances cease to be free samples for an exemption notification, and suppression of such recoveries warrants invocation of the extended limitation period.

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