Archana Wadhwa, Member (J)

1. The issue which stands referred to the Larger Bench is in respect of valuation of physicians sample of medicines, which are supplied free of cost and are not being sold by the manufacturer. It was noticed by the referral Bench that the dispute stands decided by the Larger Bench of the Tribunal in the case of Blue Cross Laboratories v. C.C.E., Mumbai 2006 (202) ELT 182 (Tri-LB), laying down that assessment of free supplied physicians samples is required to be done on the basis of pro rata value of the regular sale pack of the medicines, in terms of the provisions of Rule 6(b)(i) of the erstwhile Central Excise Valuation Rules, 1975. However, a doubt was expressed as to whether the said decision would be applicable in the context of the new Valuation Rules and especially for the period post January, 2005, when the normal assessable value of the regular sale packs, in terms of Section 4 of the Central Excise Act was not available, such medicines having been specified with effect from the said date under the provisions of Section 4A and attracting duty on the basis of the maximum retail sale price.

2. We have heard Shri V. Sridharan, learned Advocate appearing for the appellants and Shri Sameer Chitkara, learned SDR appearing for the Revenue.

3. There is no dispute on the facts that the regular sale pack medicines, stand specified under the Notification issued in terms of the provisions of Section 4A of the Central Excise Act, which provides for payment of duty of excise on the basis of maximum retail price printed on the pack, in relation to which it is required to print the MRP under the provisions of Standards of Weights and Measures Act, 1976, subject to abatement allowed by the Central Government. Inasmuch as, physicians samples are not being sold by the appellants, there is no requirement of affixing any MRP on the same, in terms of the provisions of Standards of Weights and Measures Act and as such, Section 4A is admittedly not applicable. If that be so, the assessable value of the physicians samples is to be arrived at in terms of the provisions of Section 4 of the Central Excise Act, read with the relevant Rules. Inasmuch as the samples are not sold, the main provisions of Section 4 which introduced the concept of valuation of excisable goods based on transaction value with effect from 2000 are not applicable. Accordingly, resort has to be made the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 [Hereinafter referred to as Valuation Rules, 2000, for the sake of brevity].

4. The dispute in the present case is as to which Rule is appropriate Rule to be invoked for arriving at the assessable value of the physicians samples supplied free of cost. No Rule of Valuation Rules, 2000 admittedly covers such situation i.e. where the goods are supplied free of cost by the manufacturers. As such, resort has to be made to the residuary Rule 11, which provides for determination of the value of excisable goods using reasonable means consistent with principles and general provisions of these Rules and Sub-section (1) of Section 4. It is a common case from both sides that while applying Rule 11, support can be drawn from precedent Rules. It is again a common case of both sides that Rules 5, 6, 7, 9 and 10 are not to be applied, inasmuch as the same provides for the method of valuation, in terms of the goods sold and delivered at a place other than the place of removal or where the price is not the sole consideration for sale and where the excisable goods are same and after their clearance from the place of removal or where the goods are sold through the appellants related person or sold the same through interconnected person. By excluding the said Rules from our consideration we are left with TWO contending Rules - Rule 4 and Rule 8 for our consideration so as to arrive at the correct value in terms of Rule 11.

6. For better appreciation and ready reference, we reproduce the relevant Rules 4, 8 and 11:

Rule 4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable.

Rule 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be (one hundred and ten percent) of the cost of production or manufacture of such goods.

Rule 11. If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and the general provisions of these rules and Sub-section (1) of Section 4 of the Act.

7. We make it clear that value of physicians samples is to be determined in terms of Rule 11, inasmuch as admittedly neither Rule 4 nor Rule 8 strictly apply to clearance of physicians samples. However, Rule 11 does not provide any specific method to be adopted for determining the assessable value and for arriving at the value of the goods in terms of the said rule, reference is to be made to the foregoing Rules itself and using reasonable means. As such, for determining the value in terms of Rule 11, the two contending Rules i.e. Rule 4 and Rule 8 have to be examined.

8. As is seen, Rule 4 provides for value of the excisable goods if arrived at on the basis of the value of such goods sold by the assessee for delivery at any other time nearest to the time of removal of the goods under assessment, subject to necessary adjustment. The referral Bench has observed that the expression used is "such goods" and not "comparable goods". Inasmuch as the physicians samples are not being sold and their value is not available, the said Rule cannot be invoked. However, the learned Advocate fairly admits that though the earlier decision of the Larger Bench of the Tribunal in the case of Blue Cross Laboratories has ruled out the applicability of Rule 4 in respect of physicians samples, which are different in quantity etc. than the regular packs and cannot be held as "such goods", the Honble High Court of Mumbai in the case of Indian Drugs Manufacturers Association v. UOI upheld the Circular No. 813 dated 25th April, 2005 issued by the Central Board of Excise & Customs laying down that value of the physicians samples is required to be determined in terms of the said Rule 4. In view of the above, learned Advocate does not have much to submit on the above plea.

9. However, the question which arises, is as to whether the said Rule 4 would still be applicable when the retail pack of medicines were specified under Section 4A with effect from January, 2005. The issue before the Honble High Court of Mumbai was for the period when the medicines were not specified under Section 4A and their value under Section 4 of the Act was available.

10. Under Rule 4, it is seen that the value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of removal of goods under assessment, subject to necessary adjustment. The value required to be adopted in terms of the said Rule 4 is the value of the other excisable goods so cleared. The value as referred in the said Rule 4 stands defined in Rule 2(c) of the Valuation Rules, 2000 - as the value means the value under Section 4 of the Act. As such, it can be reasonably concluded that if the value of excisable goods under Section 4 of the Act is available, the same has to be picked up for arriving at the value of the physicians samples, in terms of Rule 4. However, the question arises that if the said value is not available whether the value of regular retail pack in terms of Section 4A can be picked up and applied in terms of Rule 4 of the Valuation Rules. The mandate of the law as contained in Rule 4 read with Rule 2(c) defining the value as contained in Section 4, is to the contrary. As such, it becomes clear that the value of the retail packs as arrived at in terms of the provisions of Section 4A cannot be adopted for the purpose of Rule 4.

11. The next question that arises is as to whether the value of regular retail packs is required to be first arrived at not for the purpose of payment of duty on such regular sale packs, but for the purpose of adopting the same in terms of Rule 4, so as to arrive at the assessable value of the physicians samples in terms of the said Rules. Admittedly, the value in terms of the main Section 4 is not required to be determined for the retail sale packs for the purpose of payment of duty. Such determination, would be only for the purpose of adopting the same so as to arrive at the value of physicians samples in terms of Rule 4. Whether such indirect method of first determining the value of the retail packs on deemed or notional basis and then to adopt the same for determining the value of physicians sample can be held to be a reasonable method as envisaged by Rule 11. There is no concept of first arriving at the notional value and to adopt the same for Rule 4 in Central Excise law. In our view, Rule 4 would apply only in those cases where the value under Section 4 is otherwise available.

12. We further note that the notional and indirect route adopted by the authorities below would also create many practical difficulties, inasmuch as, the value of the retail sale packs calculated in terms of main Section 4 would be open to many disputes. It is probably to avoid such disputes as regards the valuation of the medicines, that the same stand specified under Section 4A inviting duty on the basis of MRP. If the value is required to be first determined under Section 4, for determining the value of physicians samples, the entire legislative intent to avoid the valuation dispute, by specifying the medicines under Section 4A would get defeated. The same would also unnecessarily invite litigation between the Revenue and the assessee as regards the correct value of retail packs under Section 4, which otherwise is not required to be arrived at for the purpose of payment of duty on the said retail packs. This, in our view, does not seem to be reasonable concept and principle to be adopted in terms of Rule 11.

13. We also take into consideration the appellants submission that the value of free supplied physicians samples is already taken into consideration by the manufacturer while fixing the maximum retail price of the regular retail packs meant for sale and stand added in the value of the regular retail sale packs on pro rata basis. Invocation of Rule 4 would mean that value of the physicians sample, whatever small percentage of the same may be, which is already included in the value of the retail sale pack, would again get included in the value of physicians samples. It may not be justifiable and reasonable.

14. In view of our foregoing discussion, we are of the view that for the period post January 2005 when the retail sale pack medicines were specified under Section 4A and their normal sale price in terms of Section 4 was not available, the provisions of Rule 4 cannot be resorted to. For arriving at the above conclusion, we may take support from the Honble Supreme Court decision in the case of Jaynati Food Processing (P) Ltd. v. C.C.E., Rajasthan 2007 (215) ELT 327 (SC). Though the issue before the Honble Supreme Court was different, the support can be drawn from the observation made by their Lordship in para 29. While dealing with the issue as to whether package of Kitkat chocolates when supplied free of cost with bottle of Pepsico and without any MRP printed on the same, the duty is required to be paid under Section 4A or under Section 4, it was observed that if there is no sale involved of the packages, there was no question of Rule 6(1)(f) being attracted. Unless there is an element of sale as contemplated in Section 2(v), Rule 6(1)(f) will not be attracted and such package would not be governed under the provisions of Standards of Weights and Measures Act (PC) Rules. By applying the above observation to the facts of the present case, it can be safely observed and held that if there is no normal price of the retail packs (except MRP), there can be no value as per definition of value in terms of provisions of Rule 2(c) of the Valuation Rules, 2000 and if there is no value, the provisions of Rule 4 will not be attracted and hence cannot be applied.

15. Having held that Rule 4 is not applicable, we proceed to examine the applicability of Rule 8. Admittedly, the said Rule is applicable only when excisable goods are not sold by the assessee but are used for consumption in the production or manufacture or other articles. However, as already observed in terms of Rule 11, reasonable means consistent with the principles and general provisions of these Rules has to be used. Said Rule provides for adoption of assessable value as 110% of the cost of the production or manufacture of such goods. In other words, the cost of the goods and margin of profit at the rate of 10% is required to be adopted for arriving at the assessable value. In the earlier decision of the Larger Bench of the Tribunal in the case of Blue Cross Laboratories, the basis for adoption of cost of production was not accepted, as contained in the erstwhile provisions of Rule 6(b)(ii) of the Central Excise Valuation Rules, inasmuch as, the provisions as contained in Rule 6(b)(i) providing for adoption of comparable goods, price was found to be applicable. If that was so, the provisions of Rule 6(b)(ii) were held to be inapplicable, which were later in seriatim. In new Central Excise Rules, we find that no Rule deals with determining the value on the basis of the value of comparable goods. Rule 8 only provides for arriving at the value on the basis of 110% of the cost of production. Whether such adoption of value on the basis of cost would be reasonable or not, is required to be examined. Apart from the fact that having ruled out the applicability of Rule 4, Rule 8 is the only left Rule required to be adopted, we note that adoption of the cost of manufacture with addition of margin of profit, which would have been normally earned by the manufacturer on such goods, has been adopted for arriving at the assessable value of the goods by various decisions as also by the Boards itself by way of issuance of various Circulars. Reference in this regard is made to Boards Circular No. 643/34/2002-CX dated 1.7.2002, which provides for assessment of duty in respect of free - supplied items on the basis of 115% of cost of production. Though the above Circular was subsequently withdrawn and new Circular providing applicability of Rule 4 was issued (which was the subject matter of Mumbai High Courts decision), but as the same was for the period prior to January, 2005 and having held as not applicable, support can be drawn from the earlier Circular. As such, we are of the view that adoption of the assessable value of the physicians samples based upon the cost of production along with margin of profit, in terms of the said Rules (now quantified at 10%) is the reasonable method and consistent with the principles of valuation as reflected in Section 4 and various Rules. We accordingly hold that the assessable value of physicians samples supplied free of cost is to be arrived at in terms of the provisions of Rule 8 of Central Excise Valuation Rules, 2000. Reference is answered accordingly. The appeal papers may be transferred to the original Bench for disposal of the appeal.

(Pronounced in the open Court on .9.2008)

S.N. Jha, J. (President)

16. I have had the advantage of going through the opinion of Member (Judicial). I regret my inability to agree to the conclusion that the assessable value of physicians samples supplied free of cost is to be arrived at in terms of the provisions of Rule 8 of the Central Excise Valuation Rules, 2000.

17. This appeal has come up before the Larger Bench on reference for decision on the following issue:

Whether the ratio of law declared by the Larger Bench in case of Blue Cross Laboratories would be applicable for the period post January, 2005, when the normal sale price of retail pack under Section 4 was not available on account of the same having been specified under Section 4A.

18. The dispute relates to the value of physicians sample of medicines supplied free of cost by manufacturers to medical practitioners. A three-member Larger Bench in Blue Cross Laboratories Ltd. v. CCE, Mumbai 2006 (202) ELT 182 (T-LB), has held that medicines put in retail packs and physicians samples are identical in all material characteristics and though they are not sold, the value of medicines kept in physicians samples has to be worked out on the basis of value of the medicines which are sold as per Rule 4 of the Valuation Rules subject to adjustment on account of difference in the dates of delivery. The Larger Bench also held that where the physicians sample differs in quantity (though identical in essential characteristics of the medicine), they would nevertheless be governed by Rule 4 being comparable goods. It, however, clarified that in such cases, adjustments may be allowed as per proviso to Rule 6(b)(i) as the manufacturing process has an extended meaning by virtue of Chapter Note 5 of Chapter 30 of the Central Excise Tariff. The Bench disapproved the costing method as provided in Rule 6(b)(ii) of the Valuation Rules.

19. The Referral Bench noted that the decision in Blue Cross Laboratories Ltd. (supra) was rendered before the goods came to be notified under Section 4A of the Central Excise Act in January, 2005. The Bench observed that Rule 4 can be applied only when value under Section 4 is available. As there is no concept of deemed value in the Valuation Rules, the Revenue cannot determine the value on deemed basis for the purpose of arriving at the assessable value of the physicians sample. Taking such view, the Referral Bench referred the case to the Larger Bench for decision on the issue as indicated above.

20. The general rule of valuation of excisable goods under Clause (a) of Sub-section (1) of Section 4 of the Central Excise Tariff Act is the transaction value rule - as defined in Clause (d) of Sub-section (3) of Section 4 - subject to fulfilment of the conditions, namely, that goods are sold for delivery at the time and place of removal; that the assessee and the buyer are not related and that the price is the sole consideration for sale. Valuation "in any other case, including the case where the goods are not sold" shall be the value determined in the prescribed manner - vide Clause (b) of Sub-section (1) of Section 4. The manner is prescribed in the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (in short, Valuation Rules). Rule 3 of the said Rules lays down that the value of any excisable goods for the purposes of Section 4(1)(b) of the Act shall be determined in accordance with these rules. Rules 4 to 11 are the rules which contain the formula and provide for the manner of determination of value. The said Rules of 2000, it may be mentioned, replaced the previous Rules titled the Central Excise (Valuation) Rules, 1975.

21. Before proceeding further with the Valuation Rules, it is relevant to point out that under Section 4A of the Act, the Central Government may by notification specify goods, in relation to which there is a requirement under the Standard of Weights and Measures Act, 1976, or the rules made thereunder or under any other law for the time being in force, to declare the retail sale price of such goods on the package thereof. On issuance of such notification the provisions of Sub-section (2) of Section 4A become applicable to such goods. Under Sub-section (2) of Section 4A, notwithstanding the provisions of Section 4, the retail sale price i.e the maximum retail price (MRP) is deemed to be the value of said goods.

22. Medicaments came to be notified as specified goods under Section 4A of the Act in January, 2005. Thus, when sold in packages or bottles, the MRP is to be treated as the value of medicines for purpose of central excise duty. The point for consideration is what shall be the assessable value of physicians samples which are not sold in market and are supplied free of cost. Since the physicians samples are not sold and they do not have MRP mentioned on them, the assessable value has to be determined in accordance with the provisions of the Valuation Rules - as per the mandate of Section 4(1)(b) of the Act. There is no dispute between the parties on this score.

23. As mentioned above, Rules 4 to 11 of the Valuation Rules contain provisions as to the manner of determination of values. However, learned advocate for the appellant and learned SDR for the Revenue fairly agreed that none of the rules - from Rule 4 to Rule 10 (Rule 10A was inserted later in 2007) - covers the case of free supply of goods by manufacturers and, therefore, aid has to be taken of the residuary Rule i.e Rule 11 of the Valuation Rules. Rule 11 lays down:

If the value of any excisable goods cannot be determined by the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and Sub-section (1) of Section 4 of the Act.

On a plain reading, it would appear that where the value of any excisable goods cannot be determined under the preceding rules i.e Rules 4 to 11 which are the substantive rules laying down the manner or formula for determination of value, that is, if none of the substantive rule is per se applicable, the value is to be determined as per the principles and general provisions of the Rules as well as Section 4(1) of the Act. In other words, when no particular rule, or rules can be strictly applied per se, the value shall be determined using reasonable parameters consistent with the express provisions of the Rules and Sub-section (1) of Section 4 of the Act. However, the rule itself does not contain any formula and, therefore, cannot be applied independently de hors the provisions of Rules 4 to 10 and Section 4(1) of the Act.

Both sides, again, very fairly agreed that the provisions of Rules 5, 6, 7, 9 & 10 are not applicable and, therefore, the answer has to be found in either Rule 4 or Rule 8. According to the parties, Rules 4 and 8 are the competing rules applicability whereof is to be decided. These Rules have been referred to by Member (Judicial) in her opinion; however, for the sake of convenience, they may be quoted again as under:

Rule 4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable.

Rule 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be (one hundred and ten percent) of the cost of production or manufacture of such goods.

24. The same question as to whether the assessable value of the physicians samples is to be determined as per the provisions of Rule 4 or Rule 8 came up for consideration in the Bombay High Court in the case of Indian Drugs Manufacturers Association v. Union of India . After elaborate discussion, the High Court came to the conclusion that Rule 4 squarely applies to clearances of physicians free samples and they cannot be valued under Rule 8. Before we notice the relevant observations, it may be mentioned that the decision was rendered in the context of challenge to the validity of a circular of the Central Board of Excise & Customs, being Circular No. 813 dated 25.04.2005, clarifying that the valuation of physicians free samples should be determined under Rule 4 instead of Rule 8 of the 2000 Rules. Earlier, by circular No. 643 dated 01.07.2002 the Board had held that the valuation be done under Rule 11 read with Rule 8 of the Rules.

25. The Bombay High Court noticed that prior to 01.07.2000 the concept of valuation of excisable goods was based on the deemed value. The deemed value as per Section 4(1)(a) of the Act, as it stood prior to 01.07.2000, was the normal price at which such goods were ordinarily sold for delivery at the time and place of removal to a buyer who was not a related person and price was the sole consideration. Where, however, the normal price could not be ascertained for the reason that such goods were not similar or for any other reason, the value was to be determined in the manner prescribed - as laid down in Section 4(1)(b). For determining the value of excisable goods under Section 4(1)(b), the Central Government had framed Central Excise (Valuation) Rules, 1975. (I shall refer to the relevant rules a little later.) The concept of valuation underwent a drastic change with the amendment of Clause (a) of Section 4(1) with effect from 01.07.2000. The concept of deemed value was done away with and substituted by the concept of the transaction value as the basis of valuation. With the introduction of the concept of valuation based on transaction value, the Central Government framed new rules in 2000, namely, Central Excise Valuation (Determination of Price of the Excisable Goods) Rules, 2000 with which we are concerned in this case.

26. We have noticed Rules 4 and 8, besides Rule 11 of the 2000 Rules above. We may at this stage notice the corresponding rules of the 1975 Rules.

Rule 4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable to the proper officer.

Rule 6. If the value of the excisable goods under assessment cannot be determined under Rule 4 or Rule 5, and -

(a) ....

(b) whether the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based -

(i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee:

Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods;

(c) ....

Rule 7. If the value of excisable goods cannot be determined under the foregoing rules, the proper officer shall determine the value of such goods according to the best of his judgment, and for this purpose he may have regard, among other things, to any one or more of the provided for in the foregoing rules.

It would appear on a comparative reading of the two sets of rules that Rule 4 of the 2000 Rules corresponds to Rule 4 of the 1975 Rules, in fact, the same as the other one, and similarly Rule 8 and Rule 11 of the 2000 Rules correspond to Rule 6(b)(ii) and Rule 7 of the 1975 Rules.

27. On consideration of the relevant provisions, referred to above, the Bombay High Court held as follows:

22. Rule 4 of 2000 Rules is a general rule and it provides that the value of excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment. Rules 5, 6, 7, 9 & 10 of 2000 provide for the method of valuation in respect of goods sold and delivered at a place other than the place of removal or where the price is not the sole consideration for sale or where the excisable goods are sold after their clearance from the place of removal or where the goods are sold through a related person or sold through an inter-connected undertaking. Rule 8 provides for the method of valuation in respect of goods that are not sold but are cleared for use and consumption in the production or manufacture of other articles. Rule 11 provides that if the value of any excisable goods cannot be determined under the above rules, then the value shall be determined by using reasonable means consistent with the principles and general provisions of 2000 Rules and Section 4(1) of the Act.

24. In our opinion, the physicians samples cannot be valued under Rule 8, because physicians samples are not cleared for use and consumption in the production or manufacture of other articles. Rule 8 applies to cases, where the goods are not sold but are cleared exclusively for use and consumption in the production or manufacture of other articles. Admittedly, the physicians samples are cleared for free distribution to the medical practitioners and are not cleared for use and consumption in the production or manufacture of other articles and, therefore, the method of valuation provided under Rule 8 cannot be applied for the valuation of physicians free samples.

27. In our opinion, Rule 4 squarely applies to the clearances of physicians free samples, because, physicians samples are not clearances by way of sale and delivery at the time and place of removal and such goods meaning thereby goods similar or identical to physicians samples are also sold and delivered at the time and place of removal. By the very nature, the physicians samples have to be strictly identical to the goods which are cleared on sale in the wholesale trade.

In fact, by distributing physicians samples freely, the assessee represents to the physicians that the product have same physical and chemical properties, composition, potency, etc. Thus, the physicians samples cleared for free distribution are liable to be valued under Rule 4 on the basis of the value of such goods sold and delivered at any other time nearest to the time and place or removal of the physicians samples.

28. Learned Member (Judicial) noticed the above decision of the Bombay High Court but distinguished it observing that "the issue before the Honble High Court of Mumbai was for the period when the medicines were not specified under Section 4A and their value under Section 4 of the Act was available". She also observed that in view of the definition of value under Rule 2(c) of the Valuation Rules - value means "the value under Section 4 of the Act" - where the value of excisable goods under Section 4 is available, the same can be picked up for arriving at the value of the physicians free samples in terms of Rule 4, but where such value is not available, the value of regular retail price in terms of Section 4A cannot be applied for the purpose of Rule 4. Learned Member (Judicial), with due respect, overlooked that in terms of Section 4A, the retail sale price i.e MRP is treated as the deemed value of the goods. To quote the relevant part of Section 4A(2), "such value shall be deemed to be the retail sale price declared on such goods". In my opinion, the restricted meaning of the term value based on Rule 2(c) of the Valuation Rules would militate against the express mandate of Section 4A. It is well known that the words "deemed to be" are used to create legal fiction and on a plain reading it is clear that Section 4A(2) creates a legal fiction to treat the retain sale price i.e MRP on the value of the goods. Legal fiction is created for a purpose and it is the duty of Courts to, first, ascertain the purpose and, then, give full effect to the fiction assuming all facts and consequences which are incidental or inevitable corollaries to its giving effect. I am tempted to quote the off-quoted observations of Lord Asquith in East End Dwelling Co. Ltd., (1951) 2 All ER 587 as under:

If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequence and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it-. The statute says that you must imagine a certain state of affairs; it is does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.

It is clear that purpose of creating the legal fiction in Section 4A(2) of the Act was to provide the basis of valuation of the specified goods - being their MRP. If thus the MRP is regarded, statutory, as deemed value of the goods, then, certainly, the value has to be understood in the wider sense as including deemed value as per Section 4A(2) of the Act. It cannot be given a meaning in conflict or inconsistent with Section 4A(2). In any case, it is well settled that a rule being subordinate piece of legislation has to be interpreted as subservient to and in consonance with the primary legislation.

29. In order to attract Rule 4 there need not be another sale. The rule has been quoted above but in order to bring home the point, the relevant part of it may be quoted again as under:

"The value of the excisable goods" (read physicians sample) "shall be based on the value of such goods sold by the assessee....

It would thus appear that there need be another sale of the goods, that is, medicines in the present case. The expression such goods must necessarily be understood as referring to the goods which are subject matter of assessment, that is to say, physicians sample in the instant case. It cannot be contended that physicians samples are different from the goods (medicines) sold notwithstanding that they may be sold in lesser quantities or in a different pack having different label, colour, etc. As held by the Bombay High Court, physicians samples are physically, chemically and functionally the same goods (medicines) which are sold in the market. I am in complete respectful agreement with their Lordships of the Bombay High Court that Rule 4 is the general rule and unless found to be inapplicable, would govern valuation of physicians samples. It is to be kept in mind that even if certain ingredients of Rule 4 are found lacking, it would make no difference, for, by virtue of Rule 11 of the Valuation Rules, it is the principle underlying the rule which needs to be applied consistent with other statutory provisions. The situation contemplated in Rule 8 on the other hand is completely different and alien. Rule 8 applies to cases where goods are cleared for use and consumption in the production or manufacture of other articles i.e for captive consumption. Physicians samples are not supplied for being captively used for production or manufacture of any article; they are final products like any medicine sold in regular packs, and, therefore, the method of Valuation provided in Rule 8 cannot be applied for valuation of physicians samples.

30. The fact that medicines/medicaments are specified goods within the meaning of Section 4A of the Act since January, 2005, does not appear to have been brought to the notice of the Bombay High Court but this would hardly make any difference, for, the MRP is to be treated as value of the goods i.e deemed value in place of the transaction value under Section 4(1)(a) and it does not take the goods out of the pale of Rule 4. Besides, it is to be kept in mind that the Bombay High Court was seized of a legal issue in the context of challenge to the validity of a circular issued on 25.04.2005, that is, in the aftermath of the notification under Section 4A(1).

31. In view of the above discussions, I am of the opinion that notwithstanding the non-availability of the normal sale price under Section 4(1)(a) of the Act, by reason of the goods being specified under Section 4A(1) making the retail sale price i.e MRP as its deemed value, the appropriate rule governing the valuation of physicians samples would continue to be Rule 4 and the decision of the Larger Bench in Blue Cross Laboratories Ltd.s case (supra) mutatis mutandis continues to be good law. The reference is accordingly answered in the affirmative in favour of the Revenue and against the appellant/assessee.

32. The appeal may now be listed before the regular Division Bench for disposal on merits.

(Order pronounced in the open court on .09.2008)