2010 (12) TMI 67 - AT - Central Excise

Duty on samples - samples drawn for testing purpose - captive testing without removal from factory premises - held that - as per Chapter 11 of CBEC Manual para 3.3 the appellants are not required to pay duty on such samples which they have drawn from the finished goods manufactured by them for testing purposes - In the case of captive consumption the goods manufactured captively are to be used further for manufacturing the final product but it is not in the case of samples drawn and retained in the factory. As per the CBEC Manual it has been clarified that duty shall be payable when the samples have gone for testing. In the event when the samples are retained by them in their factory the appellants are not liable to pay duty. - The same view has been confirmed by the larger bench of this Tribunal in the case of Dabur India Ltd. (2005 -TMI - 49012 - NEW DELHI)

Summary

Issues:
1. Whether duty, interest, and penalties imposed on the appellants for samples retained for testing purposes are valid.
2. Interpretation of CBEC Manual Chapter 11 para 3.3 regarding duty payment on samples drawn by the appellants.
3. Applicability of the treatment of captive consumption to samples drawn for testing purposes.
4. Relevance of the decision in ITC Ltd. vs. CCE in 2003 (151) ELT 246 (SC) to the case.

Detailed Analysis:
1. The issue in this case revolves around the demand of duty, interest, and penalties imposed on the appellants for retaining samples for testing purposes. The adjudicating authority initially dropped the proceedings based on a specific decision but the Revenue appealed, leading to the confirmation of the demand. The appellants challenged this decision before the Tribunal.

2. The appellant argued that as per CBEC Manual Chapter 11 para 3.3, they are not obligated to pay duty on samples drawn from their finished goods for testing purposes. They contended that since the samples were not removed from the factory units and were drawn following prescribed procedures, duty payment was not required. The appellant also cited relevant case law to support their position.

3. On the contrary, the respondent asserted that duty becomes payable as soon as goods are manufactured, even if they are intended for captive consumption. They argued that the CBEC Manual instructions were contradictory and should not be relied upon. The respondent acknowledged that the decision in ITC Ltd. vs. CCE was not directly applicable to the case.

4. After considering the arguments from both sides, the Tribunal examined the situation and relevant legal principles. It was established that the CBEC Manual clarified that duty is only payable on samples when they are cleared for testing, not at the time of drawing. Since the samples were retained in the factory, the appellants were not liable to pay duty. The Tribunal differentiated captive consumption from the situation of retaining samples for testing purposes. Citing precedents and the CBEC Manual, the Tribunal ruled in favor of the appellants, setting aside the impugned order and allowing the appeal.