Valuation of Physicians’ samples.

by

 

K. Vijay Kumar, MA, Bl, B.Ed, MBA

Superintendent of Central Excise, Hyderabad.

 

This has reference to Mr. HK Maingi's article on the above subject – 2001(127)ELT A134.

 

The learned advocate has at length explained the position referring to the case of Cheryl Laboratories v CCE – 1997(93) ELT 129(Tribunal). He had come to the conclusion that now the value of physician's sample has to be determined on the basis of Rule 8 ( 115% of the cost) read with rule 11( by using reasonable means consistent with the rules and section 4).

 

He had another argument that " since the cost of the free samples is not separately charged, but is already included as advertisement cost in the price of other goods sold by an assessee, no duty should be charged on the physicians' samples cleared free of cost. Since duty has already been paid on the other goods which includes the cost of free samples given as a sort of advertisement, payment of duty separately on free samples would amount to payment of double duty".

 

He bases his argument on a news report in Pharma Pulse that the Supreme Court has disallowed deductions of the cost of samples on the ground that it is a sort of advertisement and the cost is already loaded in the sale price. He argues that if such a view was taken in Income tax, the same view would have to adopted for Central Excise also.

 

The learned advocate is aware that this theory of advertisement was raised in the Cheryl Laboratories case referred to by him. But more clearly and specifically, the CEGAT in a very recent order reported in the very issue of ELT which carried Mr. Maingi's article held {CCE, Mumbai-I v Charak Pharmaceuticals – 2001(127)ELT 748(Trib.-Mum)} " it is no doubt true that the cost of these goods is included in the cost of goods which are sold, since these are distributed free of cost. We are however unable to see how this is relevant for the purpose of valuation."

 

As the Tribunal says, the fact of the value being included in the subsequent clearances for sale is immaterial. Samples are cleared not for sale. So the value has to be arrived at based on the valuation rules. That is the simple and sound logic and that is also the LAW. When duty is paid, the assessee would include the cost of the free sample, inclusive of duty on the goods, which are later sold.

 

In spite of the fact that no deduction was allowed in Income Tax, as this is treated as advertisement and that the value is included in the sale of other goods, the position in Central Excise would not change. The latest order of the Tribunal upholds this position.

 

EXCISE LAW TIMES 15 09 2001 – A 250