Duty can be imposed on physician’s samples: SC

In a major set back to pharma companies, the Supreme Court has held that excise duty can be levied on “physician samples” distributed free of charge among the doctors so as to boost sales. A bench comprising justices D K Jain and H L Dattu said that “despite the prohibition on the sale of physician samples intended for distribution to medical practitioners as free samples under the Drugs & Cosmetic Rules, excise is payable on these samples. Excise is a duty on manufacture and so, the duty is payable whether or not goods are sold, the court said. Physician samples are an important component of the drug promotional expenses. These account for a substantial chunk of the price of drugs to the consumer in the retail market as the companies transfer the cost of the promotional drive to the patient-consumer. India’s retail pharma market is around around Rs 50,000 crore at present, and if the drugs given to doctors as free samples are valued at retail prices, that would amount to a few thousand crores. An adverse implication of the SC order for the consumer could be that the drug companies could generally opt for transferring the budren of the excise duty on physician samples also to the consumer, rather than become stingy on promotional drives. Excise duty is payable even in case of free supply, since sale is not a necessary condition for charging duty under the Excise Act. However, the court said that valuation of the samples for the purpose of levy of excise duty shall be on pro-rata basis for the relevant period. The apex court further said that it is not mandatory for the drug company to distribute free physician samples of every drug it manufactures and the choice made by it 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. Justice Dattu, writing the verdict for the Bench said: “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.” Mumbai-based Medley Pharmaceuticals had challenged the sectoral tribunal’s ruling that held that a statutory bar from selling the physicians sample will not make it incapable for sale and, therefore, excise duty can be levied on these samples as excisable goods. Senior counsel S Ganesh and Pratap Venugopal, appearing for the pharma company, said that physician samples are not identical to trade packs to qualify as excisable goods. According to the petition, the samples are not excisable goods as the same are prohibited from being sold under Drugs and Cosmetic Rules, 1945. It said that the cost of physician sample are already included in the selling price of the trade pack and are not chargeable again as the same would amount to double payment of excise duty on the same goods. – www.financialexpress.com