Madley Pharmaceuticals Ltd. vs Commnr of Central Excise & Customs, Daman

Medley Pharmaceuticals Ltd. ........... Appellant

Versus

The Commissioner of Central Excise & Customs, Daman ..............Respondent

WITH

CIVIL APPEAL NOS.1354-1355 OF 2010

Medley Pharmaceuticals Ltd. .............. Appellant

Versus

The Commissioner of Central Excise, Gujarat ..............Respondent

JUDGMENT

H.L. Dattu, J.

1) A group of three appeals is filed by the appellant - Medley

Pharmaceuticals Ltd., under Section 35 L (b) of the Central Excise

1 Act, 1944 (hereinafter referred to as `the Act'). In Civil Appeal

No.3626 of 2005, the appellant calls in question the correctness or

otherwise of the order passed by Customs Excise and Service Tax

Appellate Tribunal (CESTAT) (in short, "The Tribunal") in Appeal

No. E/549 to E 551/2003-Mum, dated 3.12.2004. By the impugned

order, the Tribunal has confirmed the order passed by Commissioner

of Customs and Central Excise, Valsad dated 30.12.2002. In this

appeal, the appellant has raised the following question 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

2 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. and Cheryl Laboratories (P) Ltd., 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 adopted by the Commissioner, though

it was under Rule 4 of the Rules 1975.

3) In Civil Appeal Nos. 1354-1355 of 2010, the appellant is aggrieved by

the final order passed by the Tribunal, bearing No.A/490/WZB

/AHD/2009 dated 27th February, 2009 and the order

No.H/853/WZB/AHD/2009 dated 4th August, 2009 passed on the

rectification application in Appeal No. E/384/2005. By the impugned

order, the Tribunal dismissed the appellant's appeal and upheld the

order passed by the Commissioner of Central Excise (Appeals) dated

24th November, 2004 holding that for the purpose of payment of

Excise duty, Physician samples have to be valued for the period post

1st July, 2000 upto December, 2001 on pro-rata basis on the value of

trade packs under Rule 4 read with Rule 11 of the Central Excise

Valuation (Determination of Price of Excisable Goods) Rules 2000.

3 The Tribunal, while rejecting the application filed for rectification of

the order dated 27th February, 2009, held that merely because a

product is statutorily prohibited from being sold, would not mean that

the product is not capable of being sold. In this appeal, the appellant

has raised the following questions of law for our consideration and

decision. They are:-

(A)Whether "Physician Samples" are excisable goods in view of the

fact that they are statutorily prohibited from being sold under the

Drugs and Cosmetics Act, 1940 (in short, "Drugs Act") and the

Rules made thereunder?

(B)If physician's samples are held to be excisable, then what is the

appropriate method of valuing physician samples for the purpose

of excise duty?

4) Shri S. Ganesh, learned senior counsel for the appellant, submitted

that the Physician Samples of Patent and proprietory medicines come

into existence as a manufactured product only when the same are

labeled and packed for the purpose of sale and distribution. Our

attention is invited to Note 5 of Chapter 30 of Central Excise Tariff

Act, 1985, wherein it is provided that packing and labeling would

4 amount to manufacture. Therefore, it is contended that the Physician

Samples of Patent and proprietary Medicines become manufactured

goods only when the same are packed and labeled. It is further

contended that the physician samples of patent and proprietory

medicines, at the time they are manufactured, 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 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 the physician samples of patent and proprietary

medicines are statutorily prohibited from being sold by virtue of Rule

65(18) and Rule 95 and Rule 96 (1) (ix) of the Drugs Rules. It is

contended that every drug intended for distribution as physicians

sample while complying with the labeling provisions under Drugs and

Cosmetic Rules further bear on the label of the container the words

"Physician's Sample- Not to be Sold" requires to be over printed and

further, the sale of such Physician samples is expressly prohibited

under Rule 65 (18) of the Drug Rules. He contends that patent and

proprietory drugs are excisable only after the labeling is complete.

Since these physician samples cannot be sold in the market after the

completion of the labeling in view of the statutory prohibition, the

physician samples are not marketable and hence, no excise duty is

leviable on their manufacture.

7) The Central Excise Act, apart from others, provides for

charging of duty, valuation etc. Section 3 of the Act is the charging

6 provision. It states, there shall be levied and collected in such a

manner as may be prescribed duties on excisable goods which are

produced or manufactured in India. Basic excise duty and special

excise duty are levied under the charging provision at the rates

specified in First and Second Schedule to Central Excise Tariff Act,

1985. The duty is on excisable goods which are manufactured or

produced in India. This Court in Shinde Brothers vs. Deputy

Commissioner, AIR 1967 SC 1512 has held that excise duty is

imposed on goods, and the taxable event for the levy is manufacture

or production of the goods. A duty of excise is a tax upon the goods

and not upon sales or proceeds of sale of goods. In terms of Entry 84,

List I of Seventh Schedule to the Constitution, taxable event in respect

of excise is manufacture or production (See CCE vs. Acer India Ltd.,

2004 AIR SCW 5496). The levy is on the manufacture or production

of goods. The collection is shifted to stage of removal. Since excise

is a duty on manufacture, duty is payable whether or not goods are

sold. Therefore, sale is not necessary condition for charging excise

duty. This Court in the case of Ram Krishna Ramanath Agarwal Vs.

Secretary, Municipal Commissioner, Kamptee 1950 SCR 15, has

referred to the distinction made by the Federal Court between the duty

7 of excise and a tax on sale in Province of Madras vs. Boddu Paidanna

and Sons (1942) FCR 90, 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 manufacture or production."

..." [emphasis supplied]

8) The consistent view of this Court is that for the purpose of levy of

excise duty, an article must satisfy two requirements to be `Goods' i.e.

(a) it must be movable and (b) it must be marketable. In these

appeals, we are primarily concerned whether the `Goods' namely

Physician samples of patent and proprietory medicines intended for

distribution to the medical practitioner as free samples, satisfies the

test of `Marketability'. Marketability is an essential criteria for

8 charging duty. The test of marketability is that the product which is

made liable to duty must be marketable in the condition in which it

emerges. The word `Marketable' means saleable or suitable for sale.

It need not in fact be marketed. The article should be capable of being

sold to consumers, as it is without anything more. The essence of

marketability of goods is neither in the form nor in the shape or

condition in which the manufactured article is found. It is the

commercial identity of the article known to the market for being

bought and sold. The fact that the product in question is generally not

being bought or sold or has no demand in the market, would be

irrelevant. [See Indian Cable Co. Ltd. vs. CCE, 1994(74) ELT

22(SC)]. We will now refer to some of the decisions of this Court,

which have explained the concept of `Marketability' for the purpose

of the Act.

9) The Constitution Bench of this Court, in the case of Union of

India vs. Delhi Cloth and General Mills, AIR 1968 SC 922, after

referring to definition of `excisable goods', stated:

"These definitions makes it clear that to become goods an article must be something which can ordinarily come to the market to be bought or sold".

9 10) A three Judge Bench of this Court in the case of Union Carbide

India Ltd. v. Union of India, (1986) 2 SCC 547 has discussed the

concept of `marketability' in order for the Revenue to impose excise

duty as under:

"6. It does seem to us that in order to attract excise duty the article manufactured must be capable of sale to a consumer. Entry 84 of List I of Schedule VII to the Constitution specifically speaks of "duties of excise on tobacco and other goods manufactured or produced in India....", and it is now well accepted that excise duty is an indirect 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. vs. Collector of Central Excise, Bombay,

(1989) 1 SCC 602, 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

10 must come into existence. For articles to be goods these must be known in the market as such or these must be capable of being sold in the market as goods. Actual sale in the market is not necessary, user in the captive consumption is not determinative but the articles must be capable of being sold in the market or known in the market as goods. It is, therefore, necessary to find out whether there are goods, that is to say, articles as known in the market as separate distinct identifiable commodities and whether the tariff duty levied would be as specified in the Schedule. Simply because a certain article falls within the Schedule it would not be dutiable under excise law if the said article is not `goods' known to the market. Marketability, therefore, is an essential ingredient in order to be dutiable under the Schedule to Central Excise Tariff Act, 1985."

12) In Hindustan Polymers v. CCE (1989) 4 SCC 323, this Court

observed:

"11. Excise duty is a duty on the act of manufacture. Manufacture under the excise law, is the process or activity which brings into being articles which are known in the market as goods and to be goods these must be different, identifiable and distinct articles known to the market as such. It is then and then only that manufacture takes place attracting duty. In order to be goods, it was essential that as a result of the activity, goods must come into existence. For articles to be goods, these must be known in the market as such and these must be capable of being sold or are being sold in the market as such. In order, therefore, to be manufacture, there must be activity which brings transformation to the article in such a manner that different and distinct article comes into being which is known as such in the market."

11 13) In A.P. State Electricity Board vs. CCE, Hyderabad, (1994) 2

SCC 428, this Court stated:

"Marketability is an essential ingredient in order to be dutiable under the Schedule to the Act.......The `marketability' is thus essentially a question of fact to be decided in the facts of each case. There can be no generalization. The fact that the goods are not in fact marketed is of no relevance. So long as the goods were marketable, they are goods for the purposes of Section 3. It is not also necessary that the goods in question should be generally available in the market. Even if the goods are available from only one source or from a specified market, 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 vs. Collector of Central

Excise and Others, (1994) 6 SCC 610, 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."

12 15) In Triveni Engineering & Industries Ltd. v. CCE, (2000) 7 SCC

29, 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, this court has held:

"9. ... It is difficult to lay down a precise test to determine marketability of articles. Marketability of goods has certain attributes. The essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold. The fact that the product in question is generally not being bought and sold or has no demand in the market would be irrelevant."

17) In the case of ITC Ltd. v. Collector of Central Excise, Patna, (2003) 1

SCC 678, this Court while applying the test of marketability for the

purpose of levy of excise duty on the manufacture of the cigarette, has

observed:

13

"17. From a conspectus of the aforesaid decisions, it would be clear that for the purposes of levy of excise duty, the test to be applied is whether the goods manufactured are marketable or not. In the present case, the cigarette, which is the end product of tobacco, is fit for consumption before the same is removed for test. Packing of the cigarettes cannot be said to be incidental or ancillary to the manufacturing process, but the same may be incidental or ancillary to its sale only. In case it is laid down that packing of cigarettes is incidental or ancillary to the completion of manufactured products, the same may result in evasion of excise duty as before packing the cigarettes the same may be regularly supplied to each and every employee for his consumption without payment of excise duty thereon. The definition of "manufacture" under Section 2(f) very clearly includes process which is incidental or ancillary to the completion of manufactured product. Manufacture of cigarette is completed when the same emerges in the form of sticks of cigarettes which are sent to the laboratory for quality control test. Sticks of cigarettes can be consumed and manufacture of the end product i.e. cigarette, which is commercially known in the market as such, is completed before its removal for test and after testing only packing of the same, which is the requirement of Rule 93 of the Rules, is done. Thus, we hold that sticks of cigarettes which are removed for the purpose of test in the quality control laboratory located within the factory premises of the appellant Company are liable to excise duty."

18) In the case of Cadila Laboratories (P) Ltd v. CCE, Vadodara, (2003)

4 SCC 12, 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

14 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, 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 in the market or known to be so in the market."

20) In Dharampal Satyapal v. CCE, (2005) 4 SCC 337, it was held by

this Court:

"18. ... Marketability is an attribute of manufacture. It is an essential criteria for charging duty. Identity of the product and marketability are the twin aspects to decide chargeability. Dutiability of the product depends on whether the product is known to the market. The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. Marketable means saleable. The test of classification is, how are the goods known in the market. These tests have been laid down by this Court in a number of judgments including Moti

15 Laminates (P) Ltd. v. CCE (1995) 3 SCC 23, Union of India v. Delhi Cloth & General Mills Co. Ltd. (1997) 5 SCC 767 and Cadila Laboratories (P) Ltd. v. CCE (2003) 4 SCC 12"

21) In Gujarat Narmada Valley Fertilizer Co. Ltd. vs. Collector of

Excise and Customs, (2005) 7 SCC 94, it was held that unless the

product is capable of being marketed and is known to those who are in

the market, as having an identity as a distinct and identifiable

commodity, that the article is subject to excise duty. Simply because

certain articles fall within the Schedule does not make them

marketable. Actual sale in market is not necessary, but the articles

must be capable of being sold in the market or known in the market as

goods.

22) In Moriroku UT India (P) Ltd. vs. State of Uttar Pradesh and Ors.,

(2008) 4 SCC 548, it was observed that excise duty is a levy on a

taxable event of `manufacture'. Liability under excise law is event

based on manufacture and irrespective of whether the goods are sold

or captively consumed. Excise duty is not concerned with ownership

or sale.

16

23) Having said so in so far as exciseability of Goods for the purpose of

duty under the Act, we may notice the purpose and object of Drugs

Act. In our opinion, the main object or real purpose of the Drugs Act,

1940 and Rules made thereunder, is to regulate the manufacture of

drugs in order to maintain the standard or quality of drugs for sale and

distribution as a drug. This Court in State of Bihar v. Shree

Baidyanath Ayurved Bhawan (P) Ltd., (2005) 2 SCC 762, has held:

"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). 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

17 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 for non levy of excise duty,

thereby causing a loss of revenue. This Court in CCE v. Shree

Baidyanath Ayurved Bhavan Ltd., (2009) 12 SCC 419 has held:

"55. True it is that Section 3(a) of the Drugs and Cosmetics Act, 1940 defines "Ayurvedic, siddha or unani drug" but that definition is not necessary to be imported in the new Tariff Act. The definition of one statute having different object, purpose and scheme cannot be applied mechanically to another statute. As stated above, the object of the Excise Act is to raise revenue for which various products are differently classified in the new Tariff Act."

26) Therefore, the prohibition on the sale of Physician Samples intended

for distribution to medical practitioners as free samples by Rule 65

(18) of the Drugs Rules shall have no bearing or effect upon the levy

of excise duty under the Act, since excise is a duty on manufacture,

duty is payable whether or not goods are sold. Excise duty is payable

even in case of free supply, since sale is not a necessary condition for

charging duty under the Act.

18

27) Even assuming that Shri. Ganesh is correct, when he contends that

physician samples are not allowed to be sold in the open market in

view of the statutory prohibition on their sale, and hence are not

marketable; the Revenue is only concerned with the manufacture of

the goods and the possibility of marketability of the goods. When the

product is manufactured by a Pharmaceutical Company, it is for the

purpose of sale i.e., every such product including Physician Sample is

capable of being sold in the open market, but the pharmaceutical

company makes the choice to distribute the same as a free sample. In

other words, it is not mandatory for the pharmaceutical company to

distribute free physician samples of every drug they manufacture. This

choice made by the pharmaceutical companies in terms of Rule 96 (1)

(ix) of the Drugs Rules by overprinting words `Physician's sample-

Not to be sold' on the label of the drugs will not come in the way of

the Revenue from levying excise duty on the drugs so manufactured.

28) We agree with Shri Ganesh, learned senior counsel for the appellant,

that the manufacture of patent and proprietary drugs is completed only

after the labelling is completed, for the purpose of levy of excise duty.

However, on a perusal of the labelling provisions in the Drug Rules,

we find that they deal with the name of drug, contents of the drug,

19 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 manner. This gives ample clarification that the process

of labelling is distinct or different from the overprinting on the label

of a physician's sample, and hence we are unable to agree with him

that the manufacture for the purpose of the Central Excise Tariff Act 20 is not completed until `Physicians Sample - Not to be Sold' is printed

on the label.

29) The primary reason of distributing free physician samples by the

manufacturer of pharmaceutical drugs to us appears to be only for the

purpose of advertising of the product and thereby enhancing the sale

of the product in the open market. It has been shown by research that

the market of a pharmaceutical company is enhanced substantially by

the distribution of free physician samples. In other words, the

distribution of such physician samples serves as a marketing tool in

the hands of the pharmaceutical companies [See Sarah L. Cutrona et

al., Characteristics of Recipients of Free Prescription Drug Samples:

A Nationally Representative Analysis, 98 Am. J. Pub. Health 284

(2008)].

30) Before we conclude, in our view, the issue raised in these appeals is

no more res-integra. This issue came up for consideration before this

Court in the case of Ranbaxy Laboratories Ltd. Vs. Commissioner of

Central Excise, Pune, (2003) 9 SCC 199, wherein it was held:

"1. In these appeals, the question is whether free medical samples supplied to the doctors are liable to excise duty. In our view, this question is answered by a decision of this Court rendered today in Civil Appeal No. 3643-44 of 1999.

21 2. However, in these matters one further question arises i.e. how are the samples to be valued. The question arises as to whether the price of physician samples are to be worked out on pro-rata basis for the samples as per Section 4(1)(b) of the Central Excise Act read with Rules 7 and 6(b) of the Central Excise (Valuation) Rules, 1975 or on some other basis. The Tribunal has not decided this question even after holding that the goods were excisable. We, therefore, remit these matters back to the Tribunal for a decision on this point. The appeals stand disposed of accordingly. No order as to costs."

31) This Court, while passing the aforementioned order, has relied on the

judgment and order passed in the case of Bharat Heavy Electricals

Ltd. v. Commissioner of Customs & Central Excise, (2003) 9 SCC 185

[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."

22 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 view, the issue

stands concluded. We say so for the reason that this Court, in catena

of cases, has opined that in case, the appeal has been dismissed in the

absence of detailed reasons or without reasons, such order will entail

the application of the doctrine of merger, wherein the superior court

upholds the decision of the lower court from which the appeal has

arisen. In the case of V.M. Salgaocar & Bros.(P) Ltd. Vs. C.I.T.,

(2000) 5 SCC 373, this Court held:

"8. Different considerations apply when a special leave petition under Article 136 of the Constitution is simply dismissed by saying "dismissed" and an appeal provided under Article 133 is dismissed also with the words "the appeal is dismissed". In the former case it has been laid by this Court that when a special leave petition is dismissed this Court does not comment on the correctness or otherwise of the order from which leave to appeal is sought. But what the Court means is that it does not consider it to be a fit case for exercise of its jurisdiction under Article 136 of the Constitution. That certainly could not be so when an appeal is dismissed though by a non-speaking order. Here the doctrine of merger applies. In that case, the Supreme Court upholds the decision of the High Court or of the Tribunal from which the appeal is provided under clause (3) of Article

133. This doctrine of merger does not apply in the case of dismissal of a special leave petition under Article 136."

23 33) In the case of Kunhayammed v. State of Kerala, (2000) 6 SCC 359,

it was held:

"41. Once a special leave petition has been granted, the doors for the exercise of appellate jurisdiction of this Court have been let open. The order impugned before the Supreme Court becomes an order appealed against. Any order passed thereafter would be an appellate order and would attract the applicability of doctrine of merger. It would not make a difference whether the order is one of reversal or of modification or of dismissal affirming the order appealed against. It would also not make any difference if the order is a speaking or non-speaking one. Whenever this Court has felt inclined to apply its mind to the merits of the order put in issue before it though it may be inclined to affirm the same, it is customary with this Court to grant leave to appeal and thereafter dismiss the appeal itself (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.)"

24 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 earlier decision or decisions of longstanding should have considered and either accepted or rejected the particular argument which is advanced in the case on hand. Were it so, the previous decisions could more easily be treated as binding by applying the law of precedent and it will be unnecessary to take resort to the principle of stare decisis. It is, therefore, sufficient for invoking the rule of stare decisis that a certain decision was arrived at on a question which arose or was argued, no matter on what reason the decision rests or what is the basis of the decision. In other words, for the purpose of applying the rule of stare decisis, it is unnecessary to enquire or determine as to what was the rationale of the earlier decision which is said to operate as stare decisis. ..."

35) Now we may notice the decisions on which reliance placed by

learned senior counsel Shri Ganesh. In Delhi Cloth and General

Mills Vs. Joint Secretary, 1978(2) ELT (J121) (Delhi High Court),

the question before the court was whether calcium carbide, which

does not comply with regard to purity and packaging with statutory

rules answers the test of `Marketability'. The Court on facts has

found that the calcium carbide manufactured by the company was

25 for further utilization in the production of acetylene gas was not of

purity that rendered it marketable nor was it packed in such a way as

to make it marketable that is to say, in air tight containers. The

Court has further noticed that the commodity in question would

require further processing to make it marketable and therefore, the

commodity in question is not marketable and hence, not excisable.

36) Reliance is placed on the decision of CESTAT in Amar Lal Vs.

CCE, (2004) 172 ELT 466. That was a case where assessee

manufactured a new drug for trial which were supplied for clinical

trials. In view of the Drugs Control Act and the Rules framed

thereunder, any drug could be marketed only after successful clinical

trials and after approval and licence from Drugs Controller. Hence,

the Tribunal held that the drug supplied free for clinical trials is not

excisable Goods as it cannot be bought and sold at that stage.

37) In Pfizer vs. Commissioner of Central Excise 2002 (146) ELT

477, the question before the Tribunal was, whether excise duty is

leviable on `Sugar syrup' manufactured by the assessee for use in the

manufacture by it for cough syrup. The Tribunal, while answering the

issue, has stated that since the sale of Sugar Syrup containing artificial

26 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. vs. CCE, (2007)

210 ELT 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 vs. C.C.E., (2005) 187 ELT 427, the

question before the Tribunal was, whether the excise duty is

leviable on `vegetable extracts' manufactured by the assessee for

27 use in the manufacture of Ayurvedic, Unani or Siddha Medicines.

The Tribunal, while answering the issue, concluded that such

vegetable extracts, unless subjected to preservative process, are

not liable to be considered as Goods attracting excise duty and

such Goods should be considered as only intermediary Goods.

Further, in view of the fact that the licence issued by the Drug

Controller prohibits assessee from selling such semi finished

products. Therefore, the Tribunal concluded that such intermediary

or semi finished Goods manufactured by assessee cannot be

compared with the products manufactured by others for sale, for

the purpose of `marketability'.

40) In our considered view, the reliance placed by the learned

senior counsel for the appellant on some of the decisions of the

Tribunal would not assist him in support of his submission for

the reason that the goods therein were not marketable and hence,

excise duty was not leviable, not because of any statutory

prohibition for the sale of the goods, but because they had not

reached the stage of satisfying the test of marketability of the

goods.

28

41) Now coming to the valuation of the physician samples for

the purpose of levy of excise duty, in our view, this issue need

not detain us long in view of the decision of this Court in the case

of Commissioner of Central Excise vs. M/s. Bal Pharma [Civil

Appeal No. 1697 of 2006]. This Court has upheld the conclusion

of the Tribunal that the physician's samples have to be valued on

pro-rata basis. The Tribunal, while arriving at the aforesaid

conclusion, had relied upon its earlier decision in the case of

Commissioner of Central Excise, Calicut vs. Trinity

Pharmaceuticals Pvt. Ltd., reported as 2005 (188) ELT 48, which

has been accepted by the department. Therefore, we hold that

physician samples have to be valued on pro-rata basis for the

relevant period.

42) In view of the above discussion, we pass the following order:-

a) Civil Appeal No. 3626 of 2005 is allowed and the matter

is remitted to the Adjudicating Authority with a direction to

value the goods in question on pro-rata basis for the relevant

period.

29 b) We dismiss Civil Appeal Nos. 1354-1355 of 2010. Parties

to bear their own costs.

.....................

.........J. [ D.K. JAIN ]

...............................J. [ H.L. DATTU ] New Delhi, January 14, 2011.

30