MEDLEY PHARMACEUTICALS LTD versus THE COMMISSIONER OF CENTRAL EXCISE AND . CUSTOMS, DAMAN

Citation: [2011] 1 S.C.R. 741 · Decided: 14-01-2011 · Supreme Court of India · Bench: D.K. JAIN · Disposal: Disposed off

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Judgment (excerpt)

[2011] 1 S.C.R. 741 
MEDLEY PHARMACEUTICALS LTD. 
A 
_ _,j. 
v. 
THE COMMISSIONER OF CENTRAL EXCISE AND 
. CUSTOMS, DAMAN 
(Civil Appeal No. 3626 of 2005) 
.. JANU~RY 14, 2011 
B 
[D.K. JAIN AND H.L. DATTU, JJ.] 
...... 
Central Excise Act, 1944: 
c 
Object of the Act - Discussed. 
s.3 - "Physician Samples" manufactured and distributed 
as free samples - Liability to pay excise duty - Held: Liable 
to excise duty - Excise is a duty on manufacture, duty is 
D 
payable whether goods are sold or not - Sale is not 
necessary condition for charging excise duty -
The 
distribution of physician sample serves as a marketing tool 
in the hands of pharmaceutical company- It is not mandatory 
for the company to distribute the physician samples of every 
E 
· drug they manufacture .:.. Prohibition on the sale of physician 
samples intended for distribution to medical practitioner as 
free samples by rule 65(18) of Drugs Rules. -shall have no 
., . ...( 
bearing or effect on the levy of excise duty - Constitution of 
India, 1950 - Seventh Schedule, List I, Entry 84 - Drugs and 
Cosmetics Act, 1940 - Drugs and Cosmetics Rules, 1945 -
F 
r.96(1)(ix) - Central Excise Valuation Rules, 1975 
Central Excise Valuation Rules, 1975: 
s.6(b)(ii) - Valuation of Physician's samples - Held: To 
G 
~-
be valued on pro-rata basis - Central Excise Act, 1944. 
Drugs and Cosmetics Act, 1940: 
Object of the Act - Discussed. 
741 
-Ii-
742 
SUPREME COURT REPORTS 
[2011) 1 S.C.R. 
A 
Prohibition on tbe sale of physician samples intended for 
distribution to medical practitioner as free samples by rule 
65(18) of Drugs Rules - Effect on the levy of excise duty -
Held: Shall have no bearing or effect on the levy of excise 
duty since excise is duty on manufacture and duty is payable 
B . whether or not goods are sold - The Cf;lntra/ Excise Act and 
the Drugs Act 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 
c imported and applied to fiscal statue for non levy of excise 
duty, thereby causing a Joss of revenue - Interpretation of 
statutes. 
Drugs and Cosmetics Rules, 1945: 
D 
Rule 96(1 )(ix) - Labeling - Label "Physician Samp/es-
Not to be sold" - Process of labeling is distinct or different 
from the overprinting on the label of a physician's sample -
Manufacture for the purpose of the Central Excise Tariff Act 
cannot be said to be incomplete until 'Physicians Sample-Not -
E to be Sold' is printed on the label - Drugs and Cosmetics Act, 
1940. 
Precedent: 
Doctrine of merger - Held: In case, the appeal is 
F dismissed without reasons, such order entail application of the 
doctrine of merger, wherein the superior court upholds the 
decision of the lower court from which the appeal has arisen 
- Doctrines. 
G 
The questions which arose for consideration in the 
instant appeals were whether "Physician Samples" 
~ 
manufactured and distributed as free samples are liable 
to excise duty in view of the fact that they are statutorlly 
prohibited from being sold under the Drugs and 
H Cosmetics Act, 1940 and the Rules made thereunder and 
-
MEDLEY PHARMACEUTICALS LTD. v. COMMNR. OF 
7 43 
CENTRAL EXCISE AND CUSTOMS, DAMAN 
if physician's samples are held to be excisable, then what A 
is the appropriate method of valuing physician samples 
for the purpose of excise duty. 
Disposing of the appeals and remitting the matter to 
adjudicating authority, the Court 
HELD: 1. 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 
B 
. manufacture or production. Since excise is a duty on c 
. manufacture, duty is payable whether the goods are sold 
or not. Therefore, sale is not necessary. condition for 
charging excise duty. Marketability is an essential criteria 
· for charging duty. The test of marketability is that the 
· product w~ich is m~de liable to duty must be marketable 0 
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 
E 
form nor. in the shape or condition in which the 
manufactured article is foun

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