Income Tax Appellate Tribunal - Mumbai
Galderma India P. Ltd., Mumbai vs Asstt. Cit - 9(3)(2), Mumbai on 30 March, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "G" MUMBAI
BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER)
AND
SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
ITA No. 1747/MUM/2019
Assessment Year: 2013-14
&
ITA No. 1987/MUM/2020
Assessment Year: 2014-15
&
ITA No. 1988/MUM/2020
Assessment Year: 2015-16
Galderma India Pvt. Ltd. ACIT-9(3)(2),
(Formerly known as Nestle Skin Aayakar Bhavan, M.K.
Health India Pvt. Ltd.), Vs. Road,
Lotus Corporate Park, D Wing, Mumbai-400020.
Unit 801 & 802, Graham Firth
Steel Compound, Goregaon (E),
Mumbai-400063.
PAN No. AACG 8660 M
Appellant Respondent
ITA No. 1964/MUM/2020
Assessment Year: 2014-15
&
ITA No. 1965/MUM/2020
Assessment Year: 2015-16
ACIT-1(3)(1), M/s Galderma India Pvt. Ltd.,
Room No. 540, 5th floor, (Previously known as M/s Mestle
Aayakar Bhavan, M.K. Vs. Skin Health India Pvt. Ltd.),
Road, Lotus Corporate Park, 'D' Wing,
Mumbai-400020. Unit 801 & 802, Graham Firth
Steel Compound, Goregaon (E),
Mumbai-400063.
PAN No. AACG 8660 M
Appellant Respondent
Galderma India Pvt. Ltd. 2
ITA Nos. 1747/M/2019, 1987, 1988, 1964 &
1965/M/2020
Assessee by : Mr. Ronak Doshi,
Ms. Ayushi Modani,
Ms. Vidhi Salot, ARs
Revenue by : Mr. Kishor Dhule, CIT--DR
Mr. Anil Kumar Das, DR
Date of Hearing : 06/03/2023
Date of pronounce
pronouncement
ment : 30/03/2023
ORDER
PER OM PRAKASH KANT, AM
These appeals by the assessee and cross appeals by the cross-appeals orders dated 27.02.2020 Revenue are directed against separate orders, each for assessment years 2014-15 2014 and 2015-16 16 and order dated 2013 14, passed by the Ld. 15.02.2019 for assessment year 2013-14, Commissioner of Income-tax Income (Appeals)-16, 16, Mumbai [in short 'the ]. The grounds raised in these appeals and cross appeals Ld. CIT(A)'].
being identical, same were heard together and disposed off of by way of this consolidated order for convenience and avoid repetition of facts.
2. Before us, the Ld. Counsel of the assessee proposed that 2015 16 might be taken as lead case for appeal for assessment year 2015-16 adjudication and result of the same to be applied mutatis mutandis 2014 15 and 2013 on the appeals for assessment year 2014-15 2013-14. The Ld. Departmental Representative (DR) did not object ffor the same.
Galderma India Pvt. Ltd. 3 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 Accordingly, firstly, we took up the appeals for assessment year 2015-16 for adjudication.
3. The sole ground raised by the assessee in appeal for assessment year 2015 2015-16 is reproduced as under:
The Ld. CIT(A) erred in law in disallowing Rs.74,46,247/-
Rs.74,46,247/ from Sales Promotion expenses.
3.1 The ground raised by the Revenue for assessment year 2015- 2015 16 is reproduced as under:
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.1,80,92,582/ claimed as sales promotion expense Rs.1,80,92,582/-
without appreciating that such expenses were incurred in violation of amended India Medical Council Act, in view of the provisions contained in Explanation 1 toto section 37(1) of the Act and also in view of the clarifications made by CBDT Circular No. 5/2012 dated 01.08.2012.
4. Briefly stated, facts of the case are that the assessee company during the year under consideration was engaged in the business of marketing ting & trading 'dermatology' products. The assessee company Galderma Pharma SA', is a wholly owned subsidiary of 'Galderma SA a Switzerland Company. For the year under consideration, the assessee filed return of income on 27.11.2015 27.11.2015 declaring total Rs.35,82,09,750/-.. The return of income filed by the income at Rs.35,82,09,750/ assessee was selected for scrutiny and statutory notices under the tax Act, 1961 (in short 'the Act') were issued and complied Income-tax oceedings, the Assessing with. During the course of assessment proceedings, Galderma India Pvt. Ltd. 4 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 Officer (AO) observed expenses incurred by the assessee for payments to the doctors and their professional associations, which according to him were inviolation of Medical Council of India (MCI) Regulation and CBDT Circular No. 5/2012 5/2012 dated 01.08.2012. Out Rs.15,34,05,440/- debited under the head of the total expenses of Rs.15,34,05,440/ 'sales promotion romotion and marketing expenses, tthe he Assessing Officer disallowed expenses to the extent of Rs.2,55,38,829/-
Rs.2,55,38,829/ observing as under:
"The assessee has submitted that none The learned AR of the assessee of the above expenses have been incurred on medical practitioners / their professional associations. Before dealing with the submission of the assessee that the said Circular is not applicable to the aforesaid expenditure, it s significant to identify the expenses, attracting the is applicability of Circular No.05/2012 dated 01.08.2012. Having regard to the facts that the assessee has deducted tax at source in respect of certain expenses and also some of the expenditure has been incurred incurred in relation to the employees / officers / field force of the assessee company, the following expenses, which are found to have nexus with the payments made to doctors / their professional associations, are hereby identified for making disallowance under Explanation to the purpose of making Section 37(1) of the Act;
Category Amount (Rs.) Nature of expense P.G. Grant 7,00,000 It is incurred to provide a fixed grant to PG students presenting posters at the National Conference. It is not a business related activity.
ac Thus it comes within the mischief of the IMC Regulations.
Doctors Group meeting 15,55,340 It is incurred to fund the educational programs in the field of dermatology. This expenditure comes within the mischief of the IMC Regulations.
Post marketing survey 29,34,000 It is incurred for documenting the feedback (PMS) obtained from registered medical practitioners.
Galderma India Pvt. Ltd. 5 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 Thus, this expenditure comes within the mischief of the IMC regulations.
IADVL 26,05,970 Stata IADVL 15,67,771 Other conference 30,79,341 It is the payment made to medical
practitioners/their professional association for attending the congress and stall participation. This expenditure comes within the mischief of the IMC Regulations.
Sponsorship local 22,56,907 The sum of Rs.22,56,907/-
Rs.22,56,907/ has been incurred on purchase of test kits/instruments, which are given to the Doctors. Thus, this expenditure comes within the mischief of the IMC Regulations.
Samples 2,16,78,999 The expenditure of Rs. 2,16,78,999/-
2,16,78,999/ isincurredd on manufacture of samples of the company's products, and dispatch on them which are given to medical practitioners. As per the assessee, it has incurred this expenditure towards the samples as givento the 600stockists and the medical practitioners.Howeverr , the assessee plea is not acceptable in view of the fact that the assessee has not been able to exactly quantify the amount of such samples distributed to its stockists or Medical practitioners. Hence, considering the written submission of the assessee, the disallowance is restricted to the 50% of the samples cost ie Rs. 1,08,39,500/-
1,08,39,500/ Thus, as regards the expenditure of Rs. 2,55,38,829/ 2,55,38,829/-
claimed under the name and style of"sales promotion expenses, the same is hereby held to have been incurred directly or indirectly to appease the doctors and their professional associations by way of giving away the freebies. which is against the public policy and prohibited by law, and hence the plea raised by the AR of the assessee that it is not required to be disallo wed as per disallowed Explanation to Section 3711 of the Act, is found to be not acceptable in view of the followi ng detailed reasoning following therefore;"
5. The Ld. Assessing Officer supported the finding relying on the decision of the Hon'ble Allahabad High Court in the case c of Abdul Hameed v. Mohd. Ishaq [AIR 1975 All. 166], 166], to explain the term Galderma India Pvt. Ltd. 6 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 "prohibited by law".. He further relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. KAP Scan & Diagnostic Centre Private Limited [2012] 344 ITR 476 to i unethical, support that paying commission to private doctors is against public policy and forbidden by law and therefore, same was not allowable being prohibited by Regulation 6.4.1 and 6.4.2 of the MCI Regulations.
6. On further appeal, the Ld. CIT(A) following the finding of his predecessor partly allowed the appeal in favour of the assessee. Out of the total expenses disallowed by the Assessing Officer, the Ld. CIT(A) upheld the disallowance of Rs.1,98,47,412/ Rs.1,98,47,412/- in respect of certain expenses observing as under:
5.1.6 During appellate proceedings, the Ld. A.R. "5.1.6 admitted that expenses claimed against continued Medical education - Rs. 2,70,520/- , P. G. Grant -
Rs.12,30,833/ Rs.12,30,833/-Indian Acne Alliance -Rs.Rs. 5,61,172/-
5,61,172/ Doctor Group Meeting - Rs. 11,54,265/- Post Marketing Survey PMS Rs. 41,67,000, Sponsorship Local - Rs. 27,70,809/- Samples- Rs. 94,29,850/- and payments to Rs.2,62,963/ totalling Rs. 1,98,47,412/-were doctors - Rs.2,62,963/- 1,98,47,412/ incurred directly or indirectly on doctors or their associations and no arguments were put forward regarding disallowance of the same made by the AO.As mentioned by the AO in the assessment order, these payments were made in contravention to Explanation (1) to Section 371(1) of the Income Tax Act. There is a clear Council Act, a law of land passed cut violation of Indian Council by the Parliament. The Hon'ble High Court of Allahabad has considered the similar issue in the case of CIT vs, PT Vishwanath Sharma (2009) 316 ITR 0419."
0419.
Galderma India Pvt. Ltd. 7 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 6.1 In respect of other expenses like IADVL &other other conference etc. by the Ld. CIT(A) allowed relief to the assessee observing as under:
5.1.9 In respect to payment made to IADVL New year -
"5.1.9 31,12,488/- IADVL-Rs. 27,62,350/-,, State IADVL - Rs. 31,12,488/ 14,86,618/ other conference - Rs. 24,32,510/-
Rs. 14,86,618/- 24,32,510/ the
assessee company claimed total total expenses of Rs.
97,93,996/-,, According to the appellant, these payments were made with an intention to attend congress & put a stall at the venue of congress. For promoting marketing of its product, the assessee company installed a stall where products off the company were put for exhibition and sale. According to the appellant, Indian Association of Dermatologists, is one of the largest dermatologic association in the world. Participating in it and just to having a stall at the meetings organised by such association, Have a boosting impact on its sales and advertisement of its products. Seminar are organized by the IADVL & large number of doctors and specialists participate in it. Therefore, having a stall a participation in the congress is very useful in promoting and advertising the products of the assessee company. It was once again reiterated that the expense were exclusively incurred for installation of stall and fixed fee payment required for participation. It was clarified that expenses against IADVL New year, IADVL, State IADVL, mentioned against other conference, were not incurred on organisation of seminars or giving free gifts, accommodation to doctors or any other favours to doctors. Necessary bills and vouchers relating to above mentioned expenses were also produced during course of appellate proceedings. These expenses incurred were exclusively for participation fee and installation of stall which are not prohibited by the Indian Medical Council Act. Therefore, provisions of 7(1) will not be applicable in Explanation - I to Section 37(1) 97,93,996/ . Keeping in view respect to payments of Rs. 97,93,996/-. the facts of the case, expenditure for an amount of Rs.97,93,996/ incurred in connection with installation of Rs.97,93,996/-
stall and participation fees are allowed and expenses of s.1,98,47,412/- incurred for giving various direct and Rs.1,98,47,412/ Galderma India Pvt. Ltd. 8 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 indirect favours to doctors and their associations were 1961.
not allowed us. 37(1) of the Income Tax Act, 1961.
Rs.7,00,000/- Doctors 5.1.10In respect to P.G. Grant of Rs.7,00,000/ group meetings Rs.15,55,340/ rketing survey Rs.15,55,340/-, Post marketing Rs. 29,34,000/ 29,34,000/-/ / / and Sponsorship local Rs.22,56,907 /-, the facts and submissions are same and I have no reason to deviate from order dated in appellant's own case. Therefore, disallowance of Rs.74,46,247 made by the A.O. is hereby confirmed. Similarly my predecessor has allowed paymentsmade to IADVL Rs. 26,05,970/-, 26,05,970/ 15,67,771/ , Other conference State IADVL Rs. 15,67,771/-, Rs.30,79,341/ in respect of these expenses facts are Rs.30,79,341/-
similar to A.Y.2011 12 . The appellant has incurred these A.Y.2011-12 intention to attend congress and put a expenses with an intention stall at the venue of congress. Therefore, as decided in Y.2011 12 these expenses appellant's own case for A. Y.2011-12 are allowed. The A.O. is directed to delete the addition of Rs.72,53,082/ made by the A.O."
Rs.72,53,082/-
6.2 free samples In respect of expenses on account of 'free samples' to doctors, the Ld. CIT(A) allowed the expenditure observing as under:
"5.1.11 Rs.69,79,140/ on account of free 5.1.11 Expenses of Rs.69,79,140/- samples to doctors was confirmed by the Ld. CIT(A) - 16, Mumbai in A.Y. 2011-12.
2011 me, no specific
At that time,
arguments were made by the appellant regarding the allowability of these expenses.However, during appellate proceedings, in the instant case, the appellant has relied upon the judgements of Hon'ble ITAT 'D*** Bench Mumbai in the case of Dupen Dupen Laboratories IT A No.5195/Mum/2013 . The above mentioned judgement is received after appellate order dated 18.12.2015 in the appellant's own case. The issue before the Hon'ble Bench was whether the expenditure incurred on account of free distribution of medicines to physicians is sample distribution allowable or not. After considering the arguments of the appellant and respondent, the Hon'ble Tribunal on the ground raised has held as under:
Galderma India Pvt. Ltd. 9 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 Therefore, it is observed that the expenditure "Therefore, samples of medicines incurred for providing the samples free of cost to the medical practitioners is liable to be allowed as business expenditure, and therefore, the order of the learned CIT(A) is hereby set aside in this regards and the file is hereby order to Officer to reassess the restore before Assessing Officer assessment of assessee in view of the above said observations".
observations"."
7. Aggrieved with the above finding of the Ld. CIT(A) both the assessee and the Revenue are in appeal before the Tribunal by way of raising grounds as reproduced above.
8. Before us, the Ld. Counsel of the assessee has filed a Paper Book in two volumes containing pages 1 to 96 and 97 to 149.
149.The Ld. Counsel also filed a compilation of case laws in support of ground raised.
8.1 The Ld. Counsel of the assessee before us submitted submitt that firstly, as far as violation of M MCI Regulations is concerned,t concerned,the relevant authority has not held the assessee as guilty for violation of the said regulations and therefore in the case of the assessee, assessee there is no finding from the relevant authorities regulating the MCI Regulations that the expenditure incurred by the assessee are in violation of law or prohibited under the relevant law. The Ld. Counsel submitted that in the case of Apex Laboratories (P.) Ltd. v. DCIT IT [2022] 135 taxmann.com 286 (SC), (SC) violation of the MCI disputed in said case, as against the same is Regulationswas not dispute Galderma India Pvt. Ltd. 10 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 disputed by the assessee in the instant case, therefore,the therefore,t ratio of the said decision cannot be applied over the facts of the instant case. Secondly,, without prejudice to the first argument, the Ld. Counsel of the assessee submitted that the expenses incurred were for the purpose of the business and not in violation of any law and therefore, all the expenses which were disallowed by the Assessing Officer are eligible u/s 37(1) of the Act. Regarding the disallowance of the free samples, the Ld. Counsel relied on the decision of the Tribunal in the case of M/s Merk Limited v. DCIT (ITA No. 1525/Mum/2016) (Mum. Trib.) Trib.), which according to him hi has been passed after considering the ratio of Apex Laboratories Pvt. Ltd.
also the Ld. Counsel submitted (supra). Regarding other expenses also, ose expenses had not been made to the medical that payments for tho practitioner and therefore same were not falling under the MCI Regulations.
9. The Ld. DR on the other hand, relied on the order of the Ld. Assessing Officer and submitted that the expenses incurred being against the public policy and which have been held by the Hon'ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra), (supra) law, therefore, same are not in violation of law or prohibition of the law eligible u/s 37(1) of the Act.
10. We have heard rival submission of the parties on the issue issue-in-
dispute and perused the relevant material on record. We find that Galderma India Pvt. Ltd. 11 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 prior to the decision of the Hon'ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra), (supra) the expenditure on sales promotion and advertisement incurred in the form of (i) PG grant to doctors (ii) group meeting based survey sponsoring (iii) IADVL other conferences and (iv) free samples etc. were allowed by the Tribunal in assessment year 2011-12 2011 and 2012-13 13 and appeal of the Department against which is pending before the Hon'ble High Court. In earlier years, the Tribunal has allowed the appeal mainly on the ground that CBDT Circular No. 5/2012 was to be applied prospectively and not retrospectively and further MCI regulations were applicable on the medical practitioners and were not applicable to the pharmaceutical compan ies. But we find that the companies.
Hon'ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra) after considering the arguments from both sides held that expenses incurred for promotion of pharmaceutical products in the form of gifts or incentives (freebies) (free to the doctors are against public law same are not allowable u/s policy and being prohibited by law, 37(1) of the Act. The relevant finding of the Hon'ble Supreme Court (supra) is reproduced as under:
24. Even if Apex's contention were to be accepted - that "24.
it did not indulge in any illegal activity by committing an offence, as there was no corresponding penal provision in the 2002 Regulations applicable to it - there is no doubt that its actions fell within the purview of "prohibited by law" in Explanation Explanat 1 to Section 37(1).
37(1) Galderma India Pvt. Ltd. 12 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020
25. Furthermore, if the statutory limitations imposed by the 2002 Regulations are kept in mind, Explanation (1) to Section 37(1) of the IT Act and the insertion of Section 20A of the Medical Council Act, 195623 (which serves as parent provision for the regulations), what is discernible is that the statutory regime requiring that a thing be done in a certain manner, also implies (even in the absence of any express terms), that the other forms of doing it are impermissible.
26. In this regard the decision of this Court in Jamal in Ahmad v. Abu Saleh Najmuddin & Anr24 is of Uddin some relevance. There, the scope of Section 81 of the Representation of the People Act, 1951 was examined in the light of powers of the High Court to administer adminis election petitions by invoking the rule of implied prohibition. The Court observed that:
"Dealing with "Statutes conferring power; implied conditions, judicial review", Justice G.P. Singh states in the Principles of Statutory Interpretation (Eight Edition Edit 2001, at pp. 333, 334) that a power conferred by a statute often contains express conditions for its exercise and in the absence of or in addition to the express conditions there are also implied conditions for exercise of the power. An affirmative sta tute introductive of a new statute law directing a thing to be done in a certain way mandates, even if there be no negative words, that the thing shall not be done in any other way. This rule of implied prohibition is subserved to the basic principle Court must, as far as possible, attach a that the Court construction which effectuates the legislative intent and purpose. Further, the rule of implied prohibition does not negative the principle that an express grant of statutory power carries with it by necessary implicatiimplication the authority to use all reasonable means to make such grant effective. To illustrate, an Act of Parliament conferring jurisdiction over an offence implies a power in that jurisdiction to make out a warrant and secure production with the offence; power conferred of the person charged with on Magistrate to grant maintenance under Section 125 of the Code of Criminal Procedure 1973 to prevent Galderma India Pvt. Ltd. 13 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 vagrancy implies a power to allow interim maintenance;
conferred on a local authority to issue licences for power conferred holding 'hats' or fairs implies incidental power to fix days therefore; power conferred to compel cane growers to Inserted vide Medical Council (Amendment) Act, Act 1964.
(2003) 4 SCC 257.
supply cane to sugar factories implies an incidental power to ensure payment of price. In short, conferment of a power implies authority to do everything which could be fairly and reasonably regarded as incidental or consequential to the power conferred.
*** Herbert Broom states in the preface to his celebrated work on Legal Maxims --"In "In the Legal Science, perhaps more frequently than in any other, reference must be made to first principles." The fundamentals or the first principless of law often articulated as the maxims are manifestly founded in reason, public convenience and necessity. Modern trend of introducing subtleties and distinctions, both in legal reasoning and in the application of legal principles, formerly unknown, have rendered an accurate acquaintance with the first principles more necessary rather than diminishing the values of simple fundamental rules. The fundamental rules are the basis of the law; may be either directly applied, or qualified or limited, according to t the exigencies of the particular case and the novelty of the circumstances which present themselves. In Dhannalal vs. Kalawatibai and Ors .25 this court has held that:
Ors.25 the path and the "When the statute does not provide the precedents abstain to lead, then sound logic, rational reasoning, common sense and urge for public good play as guides of those who decide"."
27. It is also a settled principle of law that no court will lend its aid to a party that roots its cause of action in an immoral or illegal act (ex dolo malo non oritur action) meaning that none should be allowed to profit from any Galderma India Pvt. Ltd. 14 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 wrongdoing coupled with the fact that statutory regimes self defeating. Doctors and should be coherent and not self-
pharmacists being complementary and supplementary to each other in the medical profession, a comprehensive view must be adopted to regulate their conduct in view of thee contemporary statutory regimes and regulations. Therefore, denial of the tax benefit cannot be construed as penalizing the assessee pharmaceutical company. Only its participation in what is plainly an action prohibited by law, precludes the assessee from claiming it as a deductible expenditure.
28. This Court also notices that medical practitioners quasi fiduciary relationship with their patients. A have a quasi-fiduciary doctor's prescription is considered the final word on the even if the cost of medication to be availed by the patient, even such (2002) 6 SCC 16.
medication is unaffordable or barely within the economic reach of the patient - such is the level of trust reposed in doctors. Therefore, it is a matter of great public demonstrated that a importance and concern, when it is demonstrated doctor's prescription can be manipulated, and driven by the motive to avail the freebies offered to them by pharmaceutical companies, ranging from gifts such as gold coins, fridges and LCD TVs to funding international attend medical conferences.
trips for vacations or to attend These freebies are technically not 'free' - the cost of supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly injurious cycle. The threat of prescribing medication that is significantly marked up, over effective generic counterparts in lieu of such a quid pro quo exchange was taken cognizance of by the Parliamentary Standing Committee on Health and Family Welfare26 which made the following observations:
notes that despite there being a "The Committee also notes code of ethics in the Indian Medical Council Rules introduced in December 2009 forbidding doctors from accepting any gift, hospitality, trips to foreign and domestic destinations etc from healthcare industry, there Galderma India Pvt. Ltd. 15 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 is no let-upup in this evil practice and the pharma companies continue to sponsor foreign trips of many doctors and shower with high value gifts like air conditioners, cars, music systems, gold chains etc. to obliging prescribers who then prescribe costlier drugs as quid pro quo. Ultimately all these expenses get added up to the cost of drugs. The Committee's attention was drawn to a news item in Times of India dated July 1, 2010 by Reema Nagarajan giving specific instances of violations of MCI code. The Committee callscalls upon the Government to take strict and speedy action on such violations. Since MCI has no jurisdiction over drug companies, the Government should take parallel action through DCGI and the Income Tax Department to penalize MCI rules by cancelling drug those companies that violate MCI manufacturing licences and/or disallowing expenses on unethical activities." (emphasis supplied) Interestingly, a similar conclusion was arrived at by the US Department of Health and Human Services Office of the Assistant ry for Planning and Evaluation, in a report called Secretary Savings Available Under Full Generic Substitution 45th Report on Issues Relating to Availability of Generic, Generic-Branded Branded and Branded Medicines, their Formulation and Therapeutic Efficacy and Effectiveness), Effectiven dated 04.08.2010.
of Multiple Source Brand Drugs in Medicare Part D (dated 23.07.2018).27 The report noticed inter alia, that an empirical study conducted in respect of 20 odd (out of the 600 drugs which were the subject matter of the research paper) brand medications dispensed for a particular period, were capable of generic substitution and would have resulted in substantial benefit to the patients:
"Beneficiaries could have saved over $600 million in out of pocket payments had they been dispensed g generic equivalent drugs. A significant amount of this spending occurred among the top 20 multiple source brands. Substituting these drugs for generic competitors at their median prices would have saved the program and beneficiaries $1.8 billion." Likewise, in a previous study non profit newsroom that by ProPublica (an independent, non-profit Galderma India Pvt. Ltd. 16 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 does investigative journalism) titled "Dollars for Doctors: Now Extracted from https://aspe.hhs.gov/reports/data-
https://aspe.hhs.gov/reports/data point-savings substitution-
savings-available-under-full-generic-substitution multiple-source medicare accessed at 16:37 source-brand-drugs-medicare on 13.02.2022. The report states, inter alia, that: "More 600 brand name drugs were dispensed and paid for by Part D plans in 2016, despite the presence of generic competition. Plans and beneficiaries paid $8.7 billion for multiple source brands and $34.0 billion for generics. Full substitution of multiple source brands would have resulted in total spending on generic drugs of $39.9 billion, saving the Part D program and its beneficiaries $2.8 billion in 2016. T hese estimates do not account for These manufacturer rebates paid to Part D plans or pharmacy benefit managers (PBMs) or statutory discounts paid by manufacturers for brand name drugs, and thus may overstate savings to the program after accounting for the effectss that rebates often have on premiums. See Figure
1. *********** Of this $2.8 billion, $2.25 billion is for brand name drugs that have faced generic competition for at least a full year (e.g. the first generic was available in 2015 or earlier). A further $584 $584 million in savings is estimated for substituting generics that were first launched in 2016 and therefore on the market for less than a full year. These 12 Single source includes payments for brand drugs prior to generic entry, e.g. $1.13 billion of Cre stor spending in the example used in Crestor the Methods section. savings are likely to grow as additional generic competitors enter the market. Beneficiaries spent $1.1 billion out pocket in cost-
out-of-pocket cost sharing for brand drugs with comparable generics, averaging twictwice as much out-of-pocket pocket than for comparable generics. In 2016, multiple source brand drug cost- sharing averaged $39.15, while generic cost cost- sharing for substitutable products was $17.04. Beneficiaries could have saved over $600 million in out of ments had they been dispensed generic pocket payments equivalent drugs. A significant amount of this spending occurred among the top 20 multiple source brands. Substituting these drugs for generic competitors at their median prices would have saved the program and Galderma India Pvt. Ltd. 17 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 iaries $1.8 billion. See Appendix Table A for these beneficiaries drugs, and figure 2 below for an example. In terms of cost sharing, we find similar results as for the beneficiary cost-sharing, overall calculation. Average per beneficiary spending is significantly higher for these brandsbrands than for the substitutable generics. (See Appendix Table A, also.) cost sharing averaged $30.69, compared to Brand drug cost-sharing $22.41 for their generic equivalents. For 17 of the top 20 drugs, the ratio of brand to comparable generic out-of-
out pocket spending ranges from 117% (Namenda) to 1,476% per drug savings are (Lamictal) indicating significant per-drug available for beneficiaries. In three cases (Abilify, Lovenox, and Tricor), beneficiary out pocket costs are out-of-pocket marginally higher for the generic than the brand drug.
dru We believe this is due to the interaction of total drug costs and plan coverage in the coverage gap for generics (42% in 2016), meaning patients paid 58% coinsurance for generics that year. This compares to 25% plan coverage manufacturer discount for brand and a 50% statutory manufacturer drugs in 2016." There's Proof: Docs who Get Company Brand Name Meds" (dated Cash Tend to Prescribe More Brand-
17.03.2016)28 stated that:
"...doctors who receive payments from the medical industry do indeed tend to prescribe drugs different differently than their colleagues who don't. And the more money they receive, on average, the more brand-name brand medications they prescribe." Data is now available publicly, in the United States, by reason of the Physician Payment Sunshine Act, 2010 i.e., Section 6002 of the Affordable Care Act, 2010.
This law compels manufacturers of drugs, devices, biologics, and medical supplies covered by Medicare, Medicaid, or the Children's Health Insurance Program to report to the Centers for Medicare & Medicaid Services on e broad categories of payments or "transfers of three value". These categories cover general payments or transfers of value such as meals, travel reimbursement, and consulting fees. These include expenses borne by manufacturers, such as speaker fees, travel, gif gifts, Galderma India Pvt. Ltd. 18 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 honoraria, entertainment, charitable contribution, education, grants and research grants, etc.
29. The impugned judgment, along with the judgments of Punjab & Haryana High Court (Kap Scan) and Himachal Pradesh High Court (Confederation) (supra) have correctly co addressed the important public policy issue on the subject of allowance of benefit for supply of freebies. The impugned judgment's reasoning is quoted as follows:
Co ordinate Bench of this "A perusal of the decision of Co-ordinate own case as also the decision Tribunal in the assessee's own of the Hon'ble Himachal Pradesh High Court clearly shows that the basic intention of the decision was that the receiving of the gifts/freebies by Professionals is against public policy as also against the law in so far as endment by the Medical Council Act,, 1956 to the the amendment Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, once receiving of such gifts have been held to be unethical obviousobviously the corollary to this would also be unethical, being giving of such gifts or doing such acts to induce such Doctors and Medical Professionals to violate the Medical Council Act, Act 1956." (emphasis supplied) https://www.propublica.org/article/doctors-
https://www.propublica.org/article/doctors who-take-company brand-
company-cash-tend-to-prescribe-more-brand name-
drugs accessed at 16:45 on 13.02-2022 13.02
30. Thus, one arm of the law cannot be utilised to defeat the other arm of law - doing so would be opposed to blic policy and bring the law into ridicule.29 In Maddi public CIT30, a fine imposed on Venkataraman & Co. (P) Ltd. v. CIT30, the assessee under the Foreign Exchange Regulation Act,, 1947 was sought to be deducted as a business expenditure. This Court held:
"Moreover, it will be against public policy to allow the benefit of deduction under one statute, of any expenditure incurred in violation of the provisions of anotherr statute or any penalty imposed under another Galderma India Pvt. Ltd. 19 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 statute. In the instant case, if the deductions claimed are allowed, the penal provisions of FERA will become meaningless".
(emphasis supplied) 10.1 Before us, the Ld. Counsel of the assessee has objected for applying the ratio of the Apex Laboratories Pvt. Ltd. (supra) mainly on the ground that no violation of MCI Regulations has been observed in the case of assessee by the relevant regulators. The Ld. Counsel relied on the decision of the Hon'ble Supreme Court Cour in the case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC) and submitted that any decision of the Hon'ble Court is only binding in respect of issues which are called upon to decide and not the decision of the on any other issues. He further referred to the Hon'ble Supreme Court in the case of ACIT v. A.K. Menon [1995] 215 ITR 364 (SC) to support that authority entrusted under the concerned statute/law alone can determine and adjudicate the law or liability or consequence thereof and no othe otherr part party can do so. In proposition the Ld. Counsel also relied on the other support of the proposition, decisions of various courts. Referring to the decisions, the Ld. Counsel submitted that disallowance applying Explanation-1 Explanation below e only in respect of expenditure section 37(1) of the Act can be made pertaining to act of the assessee assessee, which has been established to be inviolation/infraction of the law or prohibited by the law by the relevant authority under the Government law. The Ld. Counsel submitted that in the case of of the assessee no adverse action has Galderma India Pvt. Ltd. 20 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 been initiated against the assessee by the IMC under its notification. However, in our opinion, Regulations or notification opinion how any expenditure incurred by the assessee will be in the prohibition of the law, has been discussed in detail by the Hon'ble Supreme Court in the case of the Apex Laboratories Pvt. Ltd. (supra) which being the law, there here is no further scope for the assessee to deviate from same and thus all the arguments raised in this respect, are accordingly dismissed.
10.2 Now, when we come to the facts of the instant case regarding various expenses under the hea head d sales promotion and marketing, he Ld. CIT(A) has upheld the disallowance in respect we find that the of PG grant (Rs.7 lacs), doctors group meeting (Rs.15,53,340/-) (Rs.15,53,340 post (Rs.29,34,000/-)) and sponsoring (Rs.22,56,907/ marketing survey (Rs.29,34,000/ (Rs.22,56,907/-) Rs.74,46,241/ Regarding the PG grant, the Ld. Counsel totaling to Rs.74,46,241/-.
of the assessee submitted that those th were provided to the post duate students for displaying posters, presenting graduate presenti papers and conferences.. The Ld. Counsel of the assessee article etc. in national conference submitted that for those expenses, payment were made to the medical institution for further distribution to post graduate students and no to the medical practitioners , therefore, same are Regulations Regarding post marketing not in violation of the MCI Regulations. survey, the e Ld. Counsel submitted that tho those se payments were made to the medical practitioners for conducting medical research, research survey Galderma India Pvt. Ltd. 21 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 to gain insight on their products. IIn n respect of the post marketing survey, the Ld. DR submitted that research or efficacy of the medical products can only be determined under the relevant drug trial rules and any cannot be prescribed on the basis of the questionnaire given by the doctors selected on feedback for questionnaires random basis. According to him, those th se expenses are in violation of doctors group meeting"
the IMC guidelines. Regarding the "doctors meeting also, the those had been incurred for organizing and assessee submitted that tho conducting meeting for continued ed medical education through a panel of the speakers and no payment was made to the medical practitioners. Regarding 'sponsoring expenses' also, the Ld. Counsel submitted that expenses were incurred/were spent by the assessee incurred/were rovided to the medical practitioner on the books etc. which were provided for or supporting them and enhancing knowledge.
10.3 The Ld. Counsel of the assessee was asked to provide details, ledger statement of the expenses along with vouchers, vouchers for determination whether same have been incurred in violation of the MCI Regulations as explained by the Hon'ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra) however, no such details were filed before us and therefore, in the interest of the substantial justice, we feel it appropriate to restore the issues in respect of disallowance sustained by the Ld. CIT(A) to the file of the Assessing Assess fter taking into consideration details of Officer for deciding afresh, after Galderma India Pvt. Ltd. 22 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 the medical practitioners to w whom hom the assessee has made payments along with vouchers of all the expenses. The grounds of appeal of the assessee are accordingly allowed for statistical purposes.
11. As far as the grounds of appeal of the Revenue in respect of deletion of the disallowance disallowance for IADVL Rs.26,05,970/-
Rs.26,05,970/ ; IADVL Rs.15,67,771/- ; other conferences (Rs.30,79,341/-) (Rs.30,79,341/ and free samples Rs.1,08,39,500/-
Rs.1,08,39,500/ totaling to Rs.1,80,92,582/-
Rs.1,80,92,582/ is concerned the Ld. Counsel of the assessee submitted that IADVL expenses are for attending conference b by y the assessee which are organized by the Indian Association of Dermatologist, Venereologists and Leprologists (IADVL). The nature of the expenses is for stall participation fees, printing charges, stall charges and other expenses for showcasing assessee's product and same were not for the benefit of the doctors or any medical practitioners. Regarding other conference expenses also similar submissions have been made by the Ld. Counsel. Regarding the free samples, the Ld. Counsel submitted that the Assessing Officer has disallowed 50% of the total free samples distributed by the assessee on the premises that the assessee could not quantify the amount of free samples given to the doctors and stockiest. According to the Assessing prohibition by the IMC guidelines as Officer, free samples are in prohibition same are given to medical practitioner/doctors for prescribing the assesseeto patients.. Before us, the Ld. Counsel of the medicine of assessee Galderma India Pvt. Ltd. 23 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 assessee submitted that Tribunal in the case of M/s Merk Limited the expenses incurred on free samples not (supra) has allowed the being in violation of the MCI guidelines. The relevant finding of the Tribunal (supra) on the issue is reproduced as under:
"28. We have carefully considered the rival contentions.With respect to free samples, we do not find that same is covered against the assessee by the decision of Honourable SC or it is prohibited by MCI Guidelines. Free sample of medicines supplied to doctors is for promotion of the product of the pharmaceutical launched, the doctors company. When a new product is launched, through the free sample provided, test marketability of new drug launched in the market, give necessary inputs regarding its acceptability etc. of the product. Provision of free samples help impart knowledge to other doctors about the ne neww medicine/product coming into the relevant practice of their profession. Therefore, distribution of free samples is directly related to business promotion activity of the pharmaceutical company. Thus it is wholly and exclusively for the purposes of the businessbusiness of the company. Further Providing samples of pharmaceutical products is not prohibited under either the Indian Medical Council (Professional Conduct, Etiquette and Ethics), Regulations 2002 (MCI Code) or the Uniform Code of Pharmaceutical Marketing Practices by the Department of Pharmaceuticals, 2014 (UCPMP) or2019 Organization of Pharmaceutical Producers of India (OPPI) Code of Practice. The UPMP prescribes guidelines under which medical samples should be dispensed which ensure that strictly for clinical evaluation purposes and they are used strictly each sample shall be marked "free medical sample - not for sale".Even the draft Uniform Code for Medical Device Marketing Practices (UCMDMP) published for stakeholder guidelines to consultation on March 16, 2022 lays down guidelines ensure that medical devices are distributed as samples for evaluation purposes only.The Drugs and Cosmetics Rules, 1945 also recognizes the practice of providing drugs for distribution to medical professionals as a free Galderma India Pvt. Ltd. 24 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 specific labelling requirements, sample by providing specific requiring such samples to be labelled with the words'Physician's Sample - Not to be sold," . Further assessee has submitted the complete details of such expenses therefore disallowing it to the extent of 50 % is when the same issue is covered in favour of not justified when the assessee by the decision of the coordinate bench in earlier years. Thus, we direct lower authorities to delete the disallowance of expenses on free samples. Ground no 4 is allowed."
allowed.
12. The Ld. Counsel of the assessee was asked to provide details of ledger statement of the expenditure incurred along with vouchers but no such details were provided before us for determining whether the expenses incurred are in violation of the ratio laid wn in the case of Apex Laboratories Pvt. Ltd. (supra) and down justice we feel it therefore, in the interest of the substantial justice, appropriate to restore this issue also to the file of the Assessing Officer with the direction of the assessee to produce detail of expenses along with vouchers and details of the medical practitioners or other persons etc. to whom benefit has been extended by the assessee. The grounds of appeal of the Revenue are accordingly allowed for statistical purposes.
Counsel of the assessee also referred to an
13. Before us, the Ld. Counsel additional ground raised on the issue of 'education cess which is education cess' reproduced as under:
"1. On the facts and circumstances of the case and in law, the Appellant prays that deduction of Primary Secondary and Higher Education Education Cess and Secondary Galderma India Pvt. Ltd. 25 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 Cess (*Education Cess") paid on Corporate Tax of Rs. 35.46.277/- be allowed since the same is not disallowable expenditure under section 40(a)(ii) of the Act.
2. The Appellant prays that the AO be directed to allow the deduction of the Education Cess while computing the total income of the Appellant.
Appellant."
14. Before us, the Ld. Counsel of the assessee submitted that issue has already been settled by the Hon'ble Supreme Court in the case of M/s. Chambal Fertilizers & Chemicals Limited [SLP(C) No. 7379 of 2019] and therefore, this additional ground raised by Accordingly the additional ground the assessee was not pressed. Accordingly, raised is dismissed as infructuous.
15. As far as the ground raised in assessment year 2014-15 2014 and urred, same are identical to ground raised in the 2013-14 are concurred, assessment year 2015-16 2015 16 and therefore those grounds are adjudicated mutatis mutandis following our finding in AY 2015-16.
201516. In assessment year 2014 14, the assessee has 2014-15 and 2013-14, refund of excess also raised one additional ground relating to "refund dividend distribution tax tax" paid to its withholding company. The additional ground is admitted for adjudication in view of decision of hon'ble on'ble supreme court in the case of NTPC Ltd 229 ITR 383(SC) investigation of fresh facts being purely legal ground and no investigation required. The submissions of the Ld. Counsel of the assessee in this respect are reproduced as under:
Galderma India Pvt. Ltd. 26 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020 "Part I :
The Appellant has filed filed additional ground on Refund of excess dividend distribution tax(DDT*) paid for AY 2013- 2013 2014 15 on October 14 on February 21, 2023 and for AY 2014-15 04, 2021.The Assessee is 100% WOS subsidiary of Galderma Pharma SA, a Switzerland Company.Thus, Assessee can provide provide the TRC for those year to substantiate that the recipient of Dividend was resident of Switzerland.
The Assessee submits that even if DDT was paid under 1150, the rate of DTAA ought to be applied and hence the excess DDT should be refunded. The said issue issue was referred to the Special Bench vide order dated June 23, 2021 in case of Total Oil Corporation (India) Limited and it is believed that same is heard in week ending February 24, 2023. The Appellant has sought adjournment for the March 06, 2023 vide letter dated March hearing fixed on March 03, 2023 for making additional submissions post perusal of the awaited order.
However, if the Hon'ble Bench decides to hear the matter despite the outcome and order of the Special Bench, the appropriate directions be given Appellant requests that appropriate for recalling and reposting the matter if same is warranted based on decision of the Special Bench so that if any similar / distinguishing facts are to be pointed out and any further submissions are to be made, the same sidered. On merits, the Appellant has relied on can be considered.
LPB 1 from Pg. 125- the favorable decisions compiled in LPB-1 125
226."
17. The Ld. DR on the other hand submitted that decision of the Hon'ble Special Bench shall apply over the facts of the case of the nd therefore, the Assessing Officer may be directed assessee also and to follow the finding of the Special Bench on the issue.
Galderma India Pvt. Ltd. 27 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020
18. We have heard rival submission of the parties on the issue issue-in-
dispute and perused the relevant material on record. On the issue of rate of dividend idend distribution tax, tax it has been informed by the Ld. Counsel of the assessee and matter has already been heard by the Special Bench of the Tribunal and order is awaited. We also note that appeal of the assessee has already been restored to the file of he Assessing Officer on other grounds for deciding afresh in the the light of the decision of the Hon'ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra), therefore, we feel it appropriate to restore this issue of refund of excess dividend distribution dis to the file of the Ld. Assessing Officer to be decided following the outcome of the Special Bench, h, as and when pronounced.
19. In the result, the appeals of the assessee and Revenue are allowed for statistical purposes.
Order pronounced under Rule 34(4) of the ITAT Rules, 1963 on 30/03/2023.
03/2023.
Sd/- Sd/--
(ABY
ABY T VARKEY)
VARKEY OM PRAKASH KANT)
(OM KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 30/03/2023
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
Galderma India Pvt. Ltd. 28
ITA Nos. 1747/M/2019, 1987, 1988, 1964 &
1965/M/2020
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Assistant Registrar)
ITAT, Mumbai