Mumbai ITAT ruling which directed Revenue to delete disallowance of cost of free samples distributed to the doctors by a Pharma Company.

Brief Background and Key Excerpts

• Assessee had supplied free samples of medicines to doctors for promotion of the product of the Assessee. The assessee was subjected to disallowance of 50% cost of free samples given to doctors and also of expenditure on doctor’s conference;
• ITAT explains that when a new product is launched, the doctors, through the free sample, test the marketability of new drug launched in the market, give necessary inputs regarding its acceptability etc. of the product; Opines that the provision of free samples help impart knowledge to other doctors about the new medicine/product coming into the relevant practice of their profession;
• Further points out that providing samples of pharmaceutical products is not prohibited either under the Indian Medical Council (Professional Conduct, Etiquette and Ethics), Regulations 2002 or the Uniform Code of Pharmaceutical Marketing Practices by the Department of Pharmaceuticals, 2014 (UCPMP) or 2019 Organization of Pharmaceutical Producers of India’s Code of Practice;
• Notes that UCPMP prescribes guidelines under which medical samples should be dispensed which ensure that they are used strictly for clinical evaluation purposes and each sample shall be marked “free medical sample – not for sale” and even the Drugs and Cosmetics Rules, 1945 recognizes the practice of providing drugs for distribution to medical professionals as a free sample;
• Accordingly, directs Revenue to delete the disallowance of cost of free samples; ITAT notes that expenditure on doctor’s conference comprises of travel expenses of doctors and gifts and holds that such expense is covered squarely by SC ruling in Apex Laboratories and dismisses Assessee’s appeal against such addition;
• ITAT rejects Revenue’s contention that the issue of free samples is covered against the Assessee by SC ruling in Apex Labotories. Holds Assessee that free sample of medicines supplied to doctors is for promotion of the product of the Assessee, thus incurred wholly and exclusively for the purposes of the business and allowable under Section 37(1).