Pharmaceuticals Ltd. Vs The Commissioner of Central Excise & Customs, Daman
Pharmaceuticals Ltd. Vs The Commissioner of Central Excise, Gujarat
H.L. Dattu, J.
group of three appeals is filed by the appellant - Medley Pharmaceuticals Ltd.,
under Section 35 L (b) of the Central Excise 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:-
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?"
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. 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
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. 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:-
"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 there under?
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?
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 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.
R. P. Bhatt, learned senior counsel for the Revenue, justifies the reasoning
and conclusion reached by the Tribunal.
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.
Central Excise Act, apart from others, provides for charging of duty, valuation
etc. Section 3 of the Act is the charging 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 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." ..."
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 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.
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
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
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 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."
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."
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
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
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."
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."
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
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".
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."
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"
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.
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.
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
any requirement or condition imposed by the Drugs Act and Rules made there under,
is in furtherance of its above stated object of regulating and maintaining the
quality of Drugs.
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 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."
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.
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.
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, 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
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 labeling is distinct or different from
the overprinting on the labelof 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 is not completed until `Physicians Sample - Not to be Sold' is
printed on the label.
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)].
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."
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
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."
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.)"
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. ..."
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 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
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.
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 sweetener sodium saccharin would contravene
the provisions of Prevention of Food Adulteration Rules, the Goods cannot be considered
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.
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 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'.
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.
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.
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
b. We dismiss Civil
Appeal Nos. 1354-1355 of 2010. Parties to bear their own costs.
.........J. [ D.K. JAIN ]
[ H.L. DATTU ]