Holding

Physician samples are excisable goods and must be valued on a pro‑rata basis; the statutory prohibition on their sale does not exempt them from central excise duty.

Summary

The Supreme Court examined whether "physician samples" of patented and proprietary medicines, which are distributed free of cost to doctors and prohibited from sale under the Drugs and Cosmetics Act, are liable to central excise duty. It held that excise duty is a tax on manufacture, not on sale, and therefore the statutory ban on sale does not exempt the samples from duty. The Court reiterated that for a product to be excisable it must be marketable, meaning capable of being sold, even if the manufacturer chooses to give it away as a marketing tool. Consequently, physician samples are deemed marketable and excisable. Regarding valuation, the Court affirmed the earlier position that such samples must be valued on a pro‑rata basis under the Central Excise Valuation Rules. The appeal (Civil Appeal No. 3626 of 2005) was allowed and the matter remitted to the adjudicating authority for pro‑rata valuation; the related appeals (Civil Appeals Nos. 1354‑1355 of 2010) were dismissed.

Issues considered

Whether physician samples, prohibited from sale under the Drugs and Cosmetics Act, are excisable goods under the Central Excise Act.
Whether the prohibition on sale affects the liability to excise duty.
What is the correct method of valuing physician samples for the purpose of excise duty – pro‑rata basis or cost‑plus profit?

Legislation cited

Central Excise Act, 1944s. 3, s. 35L(b)
Central Excise Tariff Act, 1985s. Note 5 of Chapter 30
Central Excise (Valuation) Rules, 1975s. Rule 4, s. Rule 6(b)(ii), s. Rule 7
Central Excise Valuation Rules, 2000s. Rule 8
Constitution of Indias. Seventh Schedule, Entry 84 (List I)
Drugs and Cosmetics Act, 1940s. 18, s. 27(c), s. 27(d)
Drugs and Cosmetics Rules, 1945s. Rule 65(18), s. Rule 96(1)(ix)

Subjects

central excise dutyphysician samplesmarketabilityvaluationpro‑rata valuationDrugs and Cosmetics Actstatutory prohibitiondoctrine of mergertax on manufacture

Judgment

[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)
B
. JANU~RY 14, 2011
[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
· drug they manufacture .:.. Prohibition on the sale of physician E
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.
The questions which arose for consideration in the
G
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 743
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
B
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
. 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 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 [Paras 7, si-[753-A-C; . 754-C-E] F
' Sh.inde Brothers v. Deputy Commissioner AIR 1967 SC
1512; CCE v. Acer lnc/ja Ltd. 2004 AIR SCW 5496; Indian
Cable Co. Ltd, v: GCE 1994(74). ELT 22(SC) - relied on.
Ram Krishna Ramanath Agarwal v. Secretary, Municipal G
Commissioner, Kamptee 1950 SCR 15; Province of Madras
v.. Boddu Paidanna and Sons (1942) FCR.90 - referred to.
2.1. The main object or real purpose of the. Drugs and
Cosmetics Act,· 1940 and Rules m~de t~ereunder; Is to H
744 SUPREME COURT REPORTS [2011] 1 S.C.R. .

A regulate the manufacture of drugs in order to maintain the
standard or quality of drugs for sale and distribution as
a drug. Therefore, any requirement or condition imposed
by the Drugs Act and Rules made thereunder, is in
furtherance of its object of regulating and maintaining the
8 quality of Drugs. The primary object of the Central Excise
Act, 1944 is to raise revenue by imposing duty on goods
that are manufactured. The scope of the Excise Act
extends to the event of manufacture of goods, for the levy
of excise duty. These two Statutes and the Rules made
C 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. Therefore, the prohibition on the sale of
D 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
E sold. Excise duty is payable even in case of free supply,
since sale is not a necessary condition for charging duty
under the Act. The Revenue is only concerned with the
manufacture of the goods and the possibility of
marketability of the goods. When the product is
F 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
G words, it is not mandatory for the pharmaceutical
company to distribute free physician samples of every
drug tlley manufacture. This choice mad• by the
-pharmaceutical companies in terms of Rule 96 (1) (Ix) of
the Drugs Rules by overprinting words 'Physician's
H sample-Not to be sold' on the label of the drugs will not
MEDLEY PHARMACEUTICALS LTD. v. COMMNR. OF 745
CENTRAL EXCISE AND CUSTOMS, DAMAN
come in the way of the Revenue from levying excise duty A
on the drugs so manufactured. [Paras 23-27] [760-E-F;
761-A-D-G-H; 762-A-C]
Union of India v. Delhi Cloth and General Mills AIR 1968
SC 922; Union Carbide India Ltd. v. Union of India (1986) 2
8
SCC 547; Bhor Industries Ltd. ·V. Collector of Centra/Excise,
Bombay (1989) 1 SCC 602; Hindustan Polymers v. CCE
(1989) 4 SCC 323; A.P. State Electricity Board v. CC£,
Hyderabad, (1994) 2 SCC 428; Indian Cable Company Ltd.,,
Calcutta v. Collector of Central Excise and Others (1994) 6
SCC 610; Triveni Engineering & Industries Ltd. v: CC£, C
(2000) 7 SCC 29; Union of India v. Sonic Electrochem (P) .
Ltd., (2002) 7 SCC 435; ITC Ltd. v. Collector of Central
Excise, Patna, (2003) 1 SCC 678; Cadila Laboratories (P) Ltd
v. CC£, Vadodara, (2003) 4 SCC 12; Hindustan Zinc Ltd. v.
·CCE, (2005) 2 SCC 662; Dharampal Satyapal v. CC£, D
(2005) 4 SCC 337; Gujarat Narmada Vallef Fertilizer Co. Ltd.
v. Collector of Excise and Customs (2005) 7 SCC 94;
Moriroku UT India (P) Ltd. v. State of Uttar Pradesh and Ors.
(2008) 4 SCC 548; State of Bihar v. Shree Baidyanath
Ayurved Bhawan (P) Ltd. (2005) 2 SCC 762; Kedia E
Agglomerated Marbles Ltd. v. CC£, (2003) 2 SCC 494; CC£
v. Shree Baidyanath Ayurved Bhavan Ltd., (2009) 12 SCC
419 - relied on.
2.2. Although it is correct to say that the manufacture F
of patent and proprietary drugs is complete only after the
labelling is completed, for the purpose of levy of excise
duty, however, a perusal of the labelling provisions in the

-
--+
Drug Rules shows that they deaf with the name of drug,
contents of the drug. name and address of manufacturer,
a distinctive batch number (details of manufacture of drug . G
· 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 ar~.
in aid of the object of the Act, v1z. promoting the use ()J ,
goo.d .quality
-- drugs, and e.nsuring
. ' .
th~t
. drugs that do ndt
. .
H·
.
746 SUPREME COURT REPORTS [2011] 1 S.C.R.

A live upto quaUty do not find their way into the market.
Rule 96(1 ){ix) of the Drug Rules states that while
complying ·r!ith the labelling provisions under clauses (i)
i:o (viii) of Rule 96 (1 ), the manufacturer must further
overprint on the label 'Physician's Sample-Not to be Sold',
B 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 ~-'
c 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, therefore, it is incorrect to
state that the manufacture for the purpose of the Central
0
Excise Tariff Act Is not completed until 'Physicians
Sample - Not to be Sold' is printed on the label. [Para 28]
[762-E-H; 763-A-C}
2.3. The primary reason of distributing free_physician
E samples by the manufacturer of pharmaceutical drugs
.appears to be only for the purpose of advertising of the
product anct' thereby enhancing the sale of the product
In the open market. It was shown by research that the
market of a pharmaceutical company Is enhanced
F 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 [Para 29) [763-
D-El
G
Characteristics of RecifJients of Free Prescription Drug
Samples: A Nationally ReW;~sentative Analysis, 98 Am. J.
Pub. Health 284 (2008) - referred to.

3. This Court has consistently held that the medical
H supplies supplied to the Doctors are liable to excise duty.
MEDLEY PHARMACEUTICALS LTD. v. COMMNR. OF 74 7
CENTRAL EXCISE AND CUSTOMS, DAMAN
This Court, in catena of cases, has opined that in case, A
_,j.. 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. It is settled law that this B
Court should follow an earlier decision that has
withstood the changes in time, irrespective of the
• ~ rationale of the view taken. [Paras 32, 34) (764-G-H; 765·
_A-B; 766-E-F]
Rarlbaxy Laboratories Ltd. v. Commissioner of Central C
Excise, Pune, (2003) 9 SCC 199; Bharat Heavy Electricals
Ltd. v. Commissioner of Customs & Central Excise (2003) 9
SCC 185; V.M. Sa/gaocar & Bros.(P) Ltd. v. C./. T., (2000) 5
SCC 373; Kunhayammed v. State of Kera/a (2000) 6 SCC;
Waman Rao v. Union of India, (1981) 2 SCC 362 - rel~ed D
on.
4. The physician's samples have to be valued on pro-
rata -basis. Cl)F- 41] [769-D]
E
Commissioner of Central Excise, Calicut vs. Trinity
Pharmaceuticals Pvt. Ltd., reported as 2005 (188) ELT 48 -
relied -on. "···
Delhi Cloth' and General Mills v. Joint Secretary 1978(2)
ELT (J121); Amar Lal v. CCE, (2004) 172 ELT 466; Pfizer v. · F
Commissioner of Central Excise 2002 (146) ELT; Hindustan
Petroleum Corporation Ltd. v. CCE (2907) 210 ELT 407
(CESTAT; Himalaya Drug Company v. C.C.E. (2005) 187
, ELT 427 - held Inapplicable.
G
Case Law Reference: .
AiR 1967 SC 1512 relled on Para 7
·AIR sew 5496 relied on Para 7
1950 SCR 15 referred to Para 7 H
748 SUPREME COURT REPORTS (2011) 1 S.C.R.

A (1942) FCR 90 referred to Para 7
1994(74) ELT 22(SC) 4-...
relied on Para 8
AIR 1968 SC 922 relied on · Para 9
(1986) 2 sec 547 relied on Para 10
B
(1989) 1 sec 602 relied on Para 11
(1989) 4 sec 323 relied on Para 12
~ .
(1994) 2 sec 428 relied on Para 13
c
(1994) 6 sec 610 relied on Para 14
c2000) 1 sec 29 relied on Para 15
'
c2002) 1 sec 435 relied on Para 16
D (2003) 1 sec 678 relied on Para 17
c2003) 4 sec 12 relied on Para 18
(2005) 2 sec 662 relied on Para 19
E (2005) 4 sec 337 relied on Para 20
(2005) 1 sec 94 relied on Para 21
(2008) 4 sec 548 relied on Para 22 ~'

c2005) 2 sec 762 relied on Para 23
F
c2003) 2 sec 494 relied on Para 25
(2009) 12 sec 419 relied on Para 25
(2003) 9 sec 199 relied on Para 30
G ..,,...
(2003) 9 sec 185 relied on Para 31 A-

(2000) 5 sec 373 relied on Para 32
(2000) 6 sec 359 relied on Para 33
H (1981) 2 sec 362 relied on Para 34
MEDLEY PHARMACEUTICALS LTD. v. COMMNR. OF 749
CENTRAL EXCISE AND CUSTOMS, DAMAN

2005 (188) ,ELT 48 relied on Para 41 A
1978(2) ELT (J121) · held inapplicable Para 35
(2004) 172 ELT 466 held inapplicable Para 36
2002 (146) ELT 477 held inapplicable Para 37 B
(2007) 210 ELT 407 held inapplicable Para 38
~ -{ (2005) 187 ELT 427 held inapplicable Para 39

CIVIL APPELLATE JURISDICTION: Civil Appeal No.3626
of 2005. c
From the Judgment & Order dated 03.12;2004 of the
Customs, Excise and Service Tax Appellate Tribunal, West
Zonal Bench, Mumbai in Appeal Nos.,E/549/03.
-.,. D
WITH
C.A. No. 1354-1355 of 2010.

S. Ganesh, Pratap Venugopal, Manoj Sanklecha, Surekha
Raman, Ramdas Gadiyar, Ananjay Singh; Namrata Sood (for E
K.J. John & Co.) for the Appellant.

·, _.,. R.P. Bhatt, Sunita Rani Singh, Rekha Pandey, B. Krishna ·
Prasad for the Respondent.

T~e Judgment of the Court was delivered by F
'"
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 Act, 1944 (hereinafter referred to as
'the Act'). In Civil Appeal No.3626 of 2005, the appellant calls G
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 theimpugned order, the.
Tribunal has confirmed the order passed by Commissioner of H
750 SUPREME COURT REPORTS [2011] 1 S.C.R.

A 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
B
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%
c 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/MPNalsad/2002 dated 30.12.2002, has held that the
D 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
E 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. Ip Civil Appeal Nos. 1354-1355 of 2010, the appellant
F is aggrieved by the final order passed by the Tribunal, bearing
No.A/490/WZB /AHDl2009 dated 27th February, 2009 and the
order No.Hf853/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 ..._
G appellant's appeal and upheld the order passed by the _J._ '
Commissioner of Central Excise (Appeals) dated 24th
November, 20.P4 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
H basis on the value of trade packs under Rule 4 read with Rule
MEDLEY PHARMACEUTICALS LTD. v. COMMNR. OF 151
CENTRAL EXCISE AND CUSTOMS, DAMAN [H.LDATTU, J.]
11 of the Central Excise Valuation (Determination .of Price of A
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
prod1,Jct is not capable of being sold. In this appeal, the B
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 C
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 D
physician samples for the purpose of excise duty?

4. Shri $. Ganesh, learned senior counsel for the appellant,
submitted that the Physician Samples of Patent and proprietary
medicines come into existence as a manufactured product only E
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 F
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
-.1· being sold by virtue of Section 18 of the Drugs Act read with ·
• _J__ Rule 65( 18) of the Drug Rules and the breach of the Drug Rules G
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 H

-, .
752 SUPRE:ME COURT REPORTS [2011] 1 S.C.R.

A which are capable, in the ordinary course, of being taken to the
market for being bought and sold .. lt 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.
B 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. }. 1

5. Shri R. P. Bhatt, learned senior counsel for the Revenue,
C 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
D 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
e Sample- Not to be Sole!' 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
F 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
G 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
· H Schedule to Central Excise Tariff Act, 1985. The duty is on
MEDLEY PHARMACEUTICALS·LTD. v. COMMNR. OF 753
CENTRAL EXCISE AND CUSTOMS, DAMAN [H.L DATIU, J.)
excisable goods which are manufactured or produced in India. A
_.,.4...
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, .8
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 c
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 D
-y 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 E
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 F
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 theofY., nothing to g,revent
the Central Legislature from img,osing a dutv of excise G
-+-- on a commodi(X as soon as it comes into existence no
matter what haQ.Q.ens to it afterwards, whether it be sold
consumed, destro'[.ed, or given awa'[.... It is the fact of
manufacture which attracts the dut'{, even though it ma'[. -
H
754 SUPREME COURT REPORTS [2011) 1 S.C.R.

A 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."
••• n [emphasis supplied]

8. The consistent view of this Court is that for the purpose
B
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
c 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
D not in fact be marteted. The article should be capable of being
sold to consumers, as it is without anything more. The essence r
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
E 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.
, , , . .C
CCE, 1994(74) ELT 22(SC)]. We will now refer to some of the
decisions of this Court, which have explained the concept of
F '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:
1,,-
G "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".

10. A three Judge Bench of this Court in the case of Union
H Carbide India Ltd. v. Union of India, (1986) 2 SCC 547 has
MEDLEY PHARMACEUTICALS LTD. v. COfy'IMNR. OF 755
CENTRAL EXCISE AND CUSTOMS, DAMAN [H.L DATTU, J.]
discussed the concept of 'marketability' in order for the Revenue A
_A-.. 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
B
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
c
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 D
'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. Uriion of India, AIR 1968 SC 922".
E
11. In Bhor Industries Ltd. v,s. 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 F
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
_J_, or these must be capable of being sold in the market as G
goods. Actual sale in the marke.t is not necessary, user in
· the captive consumption is not determinative but the
articles must be capable of being sold in the marketor
known in the market as pds. It is, therefore, necessary
to find out whether there are goods, that is to say, articles H
'
756 SUPREME COURT REPORTS (2011) 1 S.C.R.

A 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
s to the market. Marketability, therefore, is an essential
ingredient in order to be dutiable under the Schedule to
Central Excise Tariff Act, 1985."

12. ln Hindustan Polymers v. CCE (1989) 4 SCC 323,
this Court observed:
c
"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 -
D 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
E 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
F which is known as such in the market."

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
G 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
H maf\etable, they are goods for the purposes of Section
' '. I.
MEDLEY PHARMACEUTICALS LTD. v. COMMNR. OF 757
CENTRAL: EXCISE AND CUSTOMS, DAMAN [H.L. DATTU, J.]
3. It is not also necessary that the goods in question A
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 B
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:
c
"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, asit is - - ·
without anything more.· D
~
15. In Triveni Engineering & Industries Ltd. v. CCE,
. (2000) 7 SCC 29, this Court, while demonstrating the attributes
' of excisable goods un~er the excise law, has observed that:
'
"13 .... The article in question should be capable of being E
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) · F
7 sec 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 h the
form nor in the shape or condition in which the G
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." · 'H
758 SUPREME COURT REPORTS [2011] 1 S.C.R.

A 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:

B
"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
c 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
i)acking of cigarettes is incidental or ancillary to the
completjon of manufactured products, the same may result
D 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
E ancillary to the completion of manufac.tu·red 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.
F 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 exci_se
duty."

18. In the case of Cadila Laboratories (P) Ltd v. CCE,
H Vadodara, (2003) 4 SCC 12, this Court has held:
MEDLEY PHARMACEUTICALS LTD. v. COMMNR OF 759
CENTRAL EXCISE AND CUSTOMS, DAMAN [H.L DATTU, J.]
"9. Thus the law is that in order to be excisable, not only A
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 bought and sold in the market. But the goods must
be capable of being bought or sold in the market. The law B
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". c
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 D
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 E
market or known to be so in the market.•

'"'\~- .......
20. In Dharampa/ Satyapa/ v. CCE, (2005) 4 SCC 337,
it was held by this Court:

"18 .... Marketability is an attribute of manufacture. It is an F
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 G
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 Laminates (P) Ltd. v. CCE (1995) 3 SCC H
760 SUPREME COURT REPORTS [2011] 1 S.C.R.

A 23, Union of India v. Delhi Cloth & General Mills Co. Ltd.
(1997) 5 SCC 767 and Cadila Laboratories (P) Ltd. v.
ccE-c2003) 4 sec 12·

21. In Gujarat Narmada Valley Fertilizer Co. Ltd. vs.
8 Collector of Excise and Customs, (2005) 7 sec 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
C 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 sec 548, it was observed that
D 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.

E 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
F 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., (2~05) 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
G in the hands of the consumer is not regulated . .Hence, the
Drugs Act is relatable to Entry 19 of List Ill, which deals
with drugs and poisons, subject to Entry 59 of List l
regarding opium. Lastly, the said Act regulates the
manufacture of drug for sale and distribution as a drug."
H
MEDLEY PHARMACEUTICALS LTD. v. COMMNR. OF 761
CENTRAL EXCISE AND CUSTOMS, DAMAN [H.L. DATTU, J.]
24. Therefore, any requirement or condition imposed by A
the Drugs Act and Rules made thereunder, is in furtherance of
J. its above stated object of regulating and maintaining the quality
of Drugs.

25. The primary object of the Act is to raise revenue by 8
imposing duty on goods that are manufactured as mentioned
~bove (see Kedia Agglomerated Marbles Ltd. v. CCE, (2003)
2 sec 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
c
. 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 D
~· 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 E '
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 newTariff F
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, G
-L
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.
H
762 SUPREME COURT REPORTS (2011) 1 S.C.R.
•
A 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
B 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
c 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
D 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
E purpose of levy of excise duty. However, on a perusal of the
. lat;>elling 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
F 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
G 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
H free of cost as physicians samples. Further, the bare perusal
MEDLEY PHARMACEUTICALS LTD. v. COMMNR OF 763
CENTRAL EXCISE AND CUSTOMS, DAMAN [H.L DATTU, J.]
of Rule 96 shows that its heading bears 'Manner of Labelling' A
_j. and cfause 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 B
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 is not completed
until 'Physicians Sample - Not to be Sold' is printed on the
label. c
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 0
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
I,.. Cutrona et al., Characteristics of Recipients of Free E
. Prescription Drug Samples: A Nationalfy 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 F
consideration before this Court in the case of Ranbaxy
Laboratories Ltd. Vs. Commissioner of Central Excise, Pune,
(2003) 9 sec 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. G
In our view, this question is answered by a decision of this
Court rendered today in Civil Appeal No. 3643-44of1999.

2. However, in these matters one further question arises
i.e. how are the samples to be valued. The question arises H
764 SUPREME COURT REPORTS [2011] 1 S.C.R.
•
A as to whether the price of physician samples are to be
-worked out on pro-rata- basis for the samples as per -4....
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
B 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.• >-
C 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 rreferred to as Civil
Appeal No. 3643-44 of 1999], in which this Court held:

D "4. It is next submitted that the value of an assessable
goods can be zero. It is submitted that when a part is T ~
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
E 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
F 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."
G
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
H so for the reason that this Court, in cateria of cases, has opined
MEDLEY. PHARMACEUTICALS LTD. v. COMMNR. OF 765
CENTRALEXCISEAND CUSTOMS, DAMAN [H.L. DATTU, J.]
that in case, the appeal hasO-een dismissed in the absence of A
J.- 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: B
.· "8. Different considerations apply when a special leave
petition un51er 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
c
by this Court that when a special leave petition is
dismissed this Court does not comment on th~
correctness or otherwjse 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- 0
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 E
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."

33. In the case of Kunhayammed v. State of Kera/a, F
(2000) 6 sec 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 G
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 H
766 SUPREME COURT REPORTS (2011] 1 S.C.R.

A 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
B (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
c 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
D as the absorption of a thing of lesser importance by a
greater, whereby the lesser ceases to exist, but the greater y
is not increased; an absorption or swallowing up so as to
involve a loss of identity and individuality. (See Corpus
.. Juris Secundum, Vol. LVll, pp. 1067-68.)"
E
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
F sec 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
G 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
H a certain decision was arrived at on a question which arose
MEDLEY PHARMACEUTICALS LTD. v. COMMNR. OF 767
CENTRAL EXCISE AND CUSTOMS, DAMAN [H.L. DATTU, J.]
· or was argued, no matter on what reason the decision A
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. •... • B
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 c
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 D
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. E

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 F
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 slinical trials is not excisabl.e Goods as it
cannot be bought and sold at that stage. ·
. -+ G
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 H
768 SUPREME COURT REPORTS [2011] 1 S.C.R.

A sale of Sugar Syrup containing artificial 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,
B
(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
c 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
D 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
E 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, Unanf
or Siddha Medicines. The Tribunal, while answering the issue,
concluded that such vegetable extracts, unless subjected to
F 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
G +- -
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
H learned senior counsel for the appellant on some of the
MEDLEY PHARMACEUTICALSL:TD;v;COMMNR. OF 769
CENTRAL EXCISE AND CUSTOMS, DAMAN [H.L. DATTU, J.]
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. B

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 C
the conclusion of the Tribunal that the physician's samples have
to be valued on p~o-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 D
48, wtiich 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 E
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- F
rata basis for the relevant period.

(b) We dismiss Civil Appeal Nos. 1354-1355 of 2010.
Parties to bear their own costs. '

D.G. Appeals disposed of.