Per Justice U.L. Bhat :

The common appellant is engaged in the manufacture of pharmaceutical products falling under sub-Heading 3003.10 of the present Central Excise Tariff Act, 1985. Besides effecting sales appellant has been supplying, free of cost, samples to physicians also. The dispute in this appeal relates to the determination of the assessable value of the free samples. Appellant filed price list declaring the value of physician's samples as the sum total of the cost of raw material, manufacturing cost and manufacturing profit. The price list having been approved provisionally, clearances were being made accordingly on payment of duty. For the periods from 25.7.91 to 30.11.91 and 1.12.92 to 28.4.93, notices wee issued to the appellant stating that since Section 4 (1) (a) of the Central Excise Act (for short, the Act) cannot be applied to the instant case in the absence of sale to physicians the provision of Section 4 (1) (b) of the Act and Rule 6 of Central Excise (Valuation) Rules, 1975 (for short, the Rules) would be applicable and that being so the value should be determined on the basis of proportion of the value declared for the corresponding medicines sold in the wholesale market. Accordingly, the notices proposed demand of differential duty. Appellant resisted the notices on various grounds. Overruling the contentions, Assistant Collector passed two separate orders confirming demands. These orders having been confirmed by the Collector (Appeals), the present appeals are filed.

2. At the outset, the learned Counsel pointed out that the reference to the Rule 6 in the show cause notice was no correct and the appropriate Rule 7 read with Rule 6 of the Rules. There is no dispute that Rules 4 to 6 of the Rules as such are inapplicable and valuation should be determined on the best judgement under Rule 7 and in doing so the principles of the precedent Rules could be followed. It is agreed on both sides that the principles of Rule 6 had to be followed in cases like this; the dispute is whether Clause (i) or Clause (ii) of sub-Rule (b) of Rule 6 of the Rules would apply. Alternatively, it is contended by the learned counsel that even if Rule 6 (b) (i) of the Rules is held to be applicable, in view of the proviso to the Clause (i), the fact that physician's samples are not "sold" and no prices are realised from physicians, and that the samples are being given as a kind of advertisement of the products and the cost thereof would have been included in fixing the wholesale price of the medicines being sold to buyers, should have been taken into consideration by the lower authorities and they did not do so.

3. Each of the show cause notices contained Annexure 1 (a) which show the assessable value of the medicines being sold by appellant to the wholesale buyers. The charts furnish the strength of the sale pack, the assessable value and the strength of the sample pack. It is seen that in respect of 7 medicines, the contents of the samples are much smaller than the contents of the sale pack. The contents respectively are 200 ml - 100 ml, 100ml - 30ml, 60ml - 30ml and 100ml - 60 ml. In respect of three products, the contents of both packs are identical, namely, 5 gms. Even where the contents are identical, the assessable values of sale packs and sample packs have wide variance, namely, Rs. 7.63 - Rs. 7.08, Rs. 5.84 - Rs. 5.24 and Rs. 7.98 - Rs. 5.97. In the case of medicines wherein the quality of contents of the packs are different, the difference in sales value are much more, namely, Rs. 16.14 - Rs. 5.49, Rs. 11.13 - Rs. 2.88, Rs. 8.04. - Rs. 3.11 Rs. 7.89 - Rs. 2.39, Rs. 10.20 - Rs. 3.30, Rs. 7.40 - Rs. 1.63 and Rs. 10.84 - Rs. 4.21. In regard to three medicines where the sale pack and the sample pack have identical contents, the Assistant Collector has adopted for the physician's samples, the assessable value equal to the value of the sale pack. In regard to the other say, he has adopted the value proportionate to the quali