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The dispute pertains to the 'transaction value' that is to be fixed in respect of goods sold by the SPIL to its distributors as physician samples. It is not in dispute that insofar as the assessee is concerned, it is selling these physician samples to its distributors for a price. However, since these are physician samples, the distributors in turn, supplied these samples to the physicians free of cost. Apart from above, the assessee is also selling the goods in market which are for further sale to the ultimate consumers and are known as 'trade pack'. The price at which the goods of the later category are sold is higher than the price at which physician samples are sold. It is because of this reason that various show cause notices were issued to the assessee, inter alia, stating that officers had found that the assessee had manufactured trade pack as well as physician sample pack products and sold at different prices. It was alleged in the Show Cause Notice that since these physician samples were cleared for free distribution and not sold within the meaning of clause (a) of sub-section (1) of Section 4 of the Central Excise Act, 1944 (hereinafter  referred to as 'Act') (as no consideration was involved), therefore, the value was required to be maintained as per clause (b) of sub-section (1) of Section 4 of the said Act. Thus, bringing the case out of Section 4(1)(a) of the Act and putting it under clause (b) thereof. A reference was made to the Central Excise Valuation Rules, 1975 (hereinafter referred to as 'Rules'). In the Show Cause Notice, thus, provisions of Rule 6(b) of the Rules was sought to be applied and on that basis, it was proposed to have the same value at which the trade pack goods were sold. In the reply given by the assessee, the assessee contented that the difference in the price of trade pack and physician sample pack was due to the fact that the physician sample pack were for free distribution.

Same kind of Show Cause Notice was issued for different periods wherein Assessing Officer as well as Appellate Authority confirmed the demand contained in the Show Cause  Notice. In the appeal filed by the assessee before the CESTAT, the two members of the CESTAT gave conflicting opinion. The Technical Member, inter alia, held that since the physician samples were sold to the distributors which were meant for distribution to the physicians free of cost and that would mean that distributors did not sell the physician samples, it was not understood as to why distributors shall purchase the samples from manufacturer and then distribute the same free of cost to the physicians. According to him, a specific question was put to the counsel for the assessee in this behalf but no satisfactory answer was given or was forthcoming from records. Giving this reason, the Technical Member took the view that price was not the sole consideration and therefore, requirement of Section 4(1)(a) of the Act was not fulfilled. Judicial Member took contrary view. However, the third Member has concurred with the view taken by the Technical Member on the same reason as was given by the Technical Member. Against this order, assessee has filed Civil Appeal No. 3263 of 2009.

We may first take up Civil Appeal No. 3263 of 2009. This has to be allowed for simple reason that the aforesaid reasons given by the CESTAT in support of its view clearly reveals that CESTAT has gone beyond the Show Cause Notice inasmuch as this was not even the case set up by the Department in the Show Cause Notice.

 As already noted above, the only ground which was mentioned in the Show Cause Notice was that since the goods had not been sold, the provisions of section 4(1)(a) of the Act could not be applied. We find that in the Show Cause Notice, the Department has, thus, accepted that no monetary consideration or any other consideration had been received by the assessee or the distributors from a doctor or concerned to whom free distribution of sample packs had been made. Further there was no allegation in the Show Cause Notice that the price at which the goods were sold by the assessee to the distributors was not sole consideration. In fact, the genuineness of the price at which the physician samples were sold by the assessee to the distributors was not even doubted. It is only on the ground that the goods were not actually sold by the distributors to the physicians, which was the ground on which it was contended that the case was not covered under Section 4(1)(a). The CESTAT, therefore, in our opinion, has gone beyond the Show Cause Notice and on this ground alone, the judgment of the CESTAT dated 27.02.2009, which is the subject matter of Civil Appeal No. 3263 of 2009, warrants to be set aside. Civil Appeal No. 3263 of 2009 is, accordingly, allowed.

As mentioned above, the assessee had put up the defence that since physician samples were not meant for sale by distributors but were to be given free of cost to the physicians, the assessee had charged lesser price. This statement of the assessee had not been doubted. The only  reason in the Show Cause Notice given was that since the physician samples were given free of cost by the distributors and no price was charged, the case was not covered by the provisions of Section 4(1)(a) of the Act. This is clearly fallacious and wrong reason. The transaction in question was between the assessee and the distributors. Between them, admittedly, price was charged by the assessee from the distributors. What ultimately distributors did with these goods is extraneous and could not be the relevant consideration to determine the valuation of excisable goods. When we find that price was charged by the assessee from the distributors, the Show Cause Notice is clearly founded on a wrong reason. The case would squarely be covered under the provisions of Section 4(1)(a) of the Act. In view thereof, the Central Excise Rules would not apply in the instant case.