TaxTMI 
TaxTMI 
2011 (1) TMI 13
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of law for our consideration and decision:- "Whether Physician samples manufactured and distributed as free samples have to be assessed on the basis of cost of manufacture plus normal profits, if any, earned on the sale under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 (for short, "Rules 1975") upto 1st July, 2000 and thereafter, on application of Rule 8 of Central Excise Valuation Rules, 2000 (for short, "Rules 2000") i.e. on cost of manufacture plus 15% profit basis and not on pro-rata basis as has been done by the Revenue?" 2. The Commissioner, while passing the order in Original No. 01/MP/Valsad/2002, dated 30-12-2002, has held that the value should be determined under Rule 4 of Rules 1975. In the appeal filed by the appellant, the Tribunal, following the judgment in the case of Mayo India Ltd. [2001 (127) E.L.T. 192 (Tribunal)] and Cheryl Laboratories (P) Ltd. [1997 (93) E.L.T. 129 (Tribunal)], held that the value of Physician samples should be determined in accordance with the principle laid down in Rule 6(b)(i) read with Rule 7 of the Rules 2000. After coming to the aforesaid conclusion, the Tribunal has accepted the method of assessable value a....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., are statutorily prohibited from being sold by virtue of Section 18 of the Drugs Act read with Rule 65(18) of the Drug Rules and the breach of the Drug Rules invites prosecution under Section 27(d) of the Drugs Act, and also invites penalty under Section 27(c) of the Drugs Act. It is further submitted that the two conditions that require to be satisfied for levy of excise duty are existence of manufacturing process and as a result of such process, goods are produced which are capable, in the ordinary course, of being taken to the market for being bought and sold. It is further submitted that the word 'excisable goods' has been construed to mean not only goods specified in the Schedule to the Central Excise Tariff Act, 1985, but also goods which are capable of being sold i.e. marketable. In the present case, the 'Physician Samples' are statutorily prohibited from being sold and therefore, do not satisfy the twin test required to make physician samples excisable goods. 5. Shri R.P. Bhatt, learned senior counsel for the Revenue, justifies the reasoning and conclusion reached by the Tribunal. 6. In pith and substance, the submission of learned senior counsel Shri Ganesh is that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of excise and a tax on sale in Province of Madras v. Boddu Paidanna and Sons, (1942) FCR 90 = 1978 (2) E.L.T. (J272) (F.C.), wherein it is observed : "Plainly, a tax levied on the first sale must, in the nature of things, be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer. It may well be that a manufacturer or producer is sometimes doubly hit... If the taxpayer who pays sales tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be overlapping in one sense, but there is no overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct imposts. There is, in theory, nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence no matter what happens to it afterwards, whether it be sold consumed, destroyed, or given away... It is the fact of manufacture which attracts the duty even though it may be collected later. In the case of a sales tax, the liability to tax arises on the occasion of a sale and a sale has no necessary connection with m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax, in which the burden of the imposition is passed on to the ultimate consumer. In that context, the expression "goods manufactured or produced" must refer to articles which are capable of being sold to a consumer. In Union of India v. Delhi Cloth & General Mills, AIR 1963 SC 791, this Court considered the meaning of the expression "goods" for the purposes of the Central Excises and Salt Act, 1944 and observed that "to become 'goods' an article must be something which can ordinarily come to the market to be brought and sold", a definition which was reiterated by this Court in South Bihar Sugar Mills Ltd. v. Union of India, AIR 1968 SC 922". 11. In Bhor Industries Ltd. v. Collector of Central Excise, Bombay, (1989) 1 SCC 602 = 1989 (40) E.L.T. 280 (S.C.), it was held : "Excise is a duty on goods as specified in the Schedule. The taxable event in the case of excise duties is the manufacture of goods. Under the Central Excise Act, as it stood at the relevant time, in order to be goods as specified in the entry, it was essential that as a result manufacture goods must come into existence. For articles to be goods these must be known in the market as such or these must be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rket, it makes no difference so long as they are available for purchasers..... The marketability of articles does not depend upon the number of purchasers nor is the market confined to the territorial limits of this country." 14. In Indian Cable Company Ltd., Calcutta v. Collector of Central Excise and Others, (1994) 6 SCC 610 = 1994 (74) E.L.T. 22 (S.C.), this Court has stated : "Marketability is a decisive test for dutiability. It only means 'saleable' or "suitable for sale". It need not be in fact 'marketed'. The article should be capable of being sold or being sold, to consumers in the market, as it is ---- without anything more." 15. In Triveni Engineering & Industries Ltd. v. CCE, (2000) 7 SCC 29 = 2000 (120) E.L.T. 273 (S.C.), this Court, while demonstrating the attributes of excisable goods under the excise law, has observed that : "13. The article in question should be capable of being brought and sold in the market -- a test which is too well established by a series of decisions of this Court to be elaborated here." 16. In Union of India v. Sonic Electrochem (P) Ltd., (2002) 7 SCC 435 = 2002 (145) E.L.T. 274 (S.C.), this court has held : ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Cadila Laboratories (P) Ltd. v. CCE, Vadodara, (2003) 4 SCC 12 = 2003 (152) E.L.T. 262 (S.C.), this Court has held : "9. Thus the law is that in order to be excisable, not only goods must be manufactured i.e. some new product brought into existence, but the goods must be marketable. By marketable it does not mean that the goods must be actually bought and sold in the market. But the goods must be capable of being bought or sold in the market. The law also is that goods which are in the crude or unstable form and which require a further processing before they can be marketed, cannot be considered to be marketable goods merely because they fall within the Schedule to the Excise Act." 19. In Hindustan Zinc Ltd. v. CCE, (2005) 2 SCC 662 = 2005 (181) E.L.T. 170 (S.C.), this Court observed : "5. Excise duty is levied under Section 3 on goods manufactured or produced in India. Thus, before excise duty is levied on an item, even if it is mentioned in the tariff, two conditions have to be cumulatively satisfied, namely, that the process by which an item is obtained is a process of manufacture and that the item so obtained is commercially marketable and bought and sold i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "14. The object of the Drugs Act is to maintain the quality of drugs as drugs. Its use as any other commodity in the hands of the consumer is not regulated. Hence, the Drugs Act is relatable to Entry 19 of List III, which deals with drugs and poisons, subject to Entry 59 of List I regarding opium. Lastly, the said Act regulates the manufacture of drug for sale and distribution as a drug." 24. Therefore, any requirement or condition imposed by the Drugs Act and Rules made thereunder, is in furtherance of its above stated object of regulating and maintaining the quality of Drugs. 25. The primary object of the Act is to raise revenue by imposing duty on goods that are manufactured as mentioned above [see Kedia Agglomerated Marbles Ltd. v. CCE, (2003) 2 SCC 494 = 2003 (152) E.L.T. 22 (S.C.)]. In other words, the scope of the Act extends to the event of manufacture of goods, for the levy of excise duty. These two Statutes and the Rules made thereunder, operate in entirely two different fields having different objects, purposes and schemes. The conditions or restrictions contemplated by one statute should not be lightly and mechanically imported and applied to fiscal statue fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Drug Rules, we find that they deal with the name of drug, contents of the drug, name and address of manufacturer, a distinctive batch number (details of manufacture of drug is recorded and available for inspection as a particular batch), preparation of drug, date of manufacture and date of expiry of drug, its storage conditions, etc., which are in aid of the object of the Act, viz. promoting the use of good quality drugs, and ensuring that drugs that do not live upto quality do not find their way into the market. Rule 96(1)(ix) of the Drug Rules on which Shri Ganesh heavily relies in support of his submission, states that while complying with the labelling provisions under clauses (i) to (viii) of Rule 96(1), the manufacturer must further overprint on the label 'Physician's Sample - Not to be Sold', in case they are to be distributed free of cost as physicians samples. Further, the bare perusal of Rule 96 shows that its heading bears 'Manner of Labelling' and clause 1 of this Rule contemplates or govern the manner of labelling in a way that the particulars on the label of the container of a drug shall be either printed or written in indelible ink and shall appear in conspicuous....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(154) E.L.T. 10 (S.C.) [referred to as Civil Appeal No. 3643-44 of 1999], in which this Court held : "4. It is next submitted that the value of an assessable goods can be zero. It is submitted that when a part is replaced under a warranty to the assessee the value is zero. It is submitted that as the value is zero, no excise duty should be payable on that part. We are unable to accept this submission also. In order to promote sales manufacturers and dealers very often offer incentives e.g. supply of free TV or some other equipment or goods. One of the incentives offered, is a warranty to replace a part within a particular period. Merely because manufacturers and dealers choose to offer such incentives does not mean that goods which are otherwise excisable, should be exempted from paying excise duty. When offering the incentive, the manufacturer or dealer is choosing to take upon himself the cost of those goods. So far as the Revenue is concerned, those goods remain excisable." 32. This Court has consistently held that the medical supplies supplied to the Doctors are liable to excise duty. Elaborate consideration may not be forthcoming in these judgments, but, in our vie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....self (and not merely the petition for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in the same order and at times the orders are quite brief. Nevertheless, the order shows the exercise of appellate jurisdiction and therein the merits of the order impugned having been subjected to judicial scrutiny of this Court. 42. "To merge" means to sink or disappear in something else; to become absorbed or extinguished; to be combined or be swallowed up. Merger in law is defined as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist, but the greater is not increased; an absorption or swallowing up so as to involve a loss of identity and individuality. (See Corpus Juris Secundum, Vol. LVII, pp. 1067-68.)" 34. It is settled law that this Court should follow an earlier decision that has withstood the changes in time, irrespective of the rationale of the view taken. It was held by a Constitution Bench in the case of Waman Rao v. Union of India, (1981) 2 SCC 362 : "40. It is also true to say that for the application of the rule of stare decisis, it is not necessary that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cture by it for cough syrup. The Tribunal, while answering the issue, has stated that since the sale of Sugar Syrup containing artificial sweetener sodium saccharin would contravene the provisions of Prevention of Food Adulteration Rules, the Goods cannot be considered as marketable. 38. In Hindustan Petroleum Corporation Ltd. v. CCE, 2007 (210) E.L.T. 407 (CESTAT), it was a case where assessee manufactured 'diesel stem' by refining the sour crude for captive consumption and sale in the market. The sale of 'diesel stem' containing high sulphur content was prohibited by Ministry of Petroleum and Natural Gas in the light of the notification issued by Ministry of Environment and Forest for preventing environmental pollution caused by emission due to burning of sulphur along with fuel. In the light of the notification issued by Ministry of Environment & Forest, the 'diesel stem' in its high content of sulphur is incapacitated from being sold in the market. In other words, this inherent incapability in the ingredients of the Goods, from being sold in the market makes it non-marketable and hence not excisable. 39. In Himalaya Drug Company v. C.C.E., 2005 (187) E.L.T. 427, the quest....