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(A)Whether "Physician Samples" are excisable goods in view of the fact that they are statutorily prohibited 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 physician samples for the purpose of excise duty?

4) Shri S. Ganesh, learned senior counsel for the appellant, submitted that the Physician Samples of Patent and proprietory medicines come into existence as a manufactured product only 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 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 being sold by virtue of Section 18 of the Drugs Act read with Rule 65(18) of the Drug Rules and the breach of the Drug Rules 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 which are capable, in the ordinary course, of being taken to the market for being bought and sold. It 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. 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.

5) Shri R. P. Bhatt, learned senior counsel for the Revenue, 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 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 Sample- Not to be Sold" 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.

(ix) of the Drugs Rules by overprinting words `Physician's sample- Not to be sold' on the 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 purpose of levy of excise duty. However, on a perusal of the labelling 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 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 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 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 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 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.

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 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 L. Cutrona et al., Characteristics of Recipients of Free Prescription Drug Samples: