2010 (5) TMI 590 - HC - Central Excise

Refund - Whether excise duty is leviable on control Samples drawn and retained by the party, considering it to be deemed removal under Rule 9 & Rule 49 of the erstwhile Central Excise Rules, 1944 - The control samples as long as these are kept in the factory and not cleared from there shall not be chargeable to duty provided proper account is maintained - Issue entries for the goods already accounted for in RG-I or EB 4 (or both) should be made in the register in the form given in Appendix XVIII and put upto the Range Officer for his information - it is clarified that when a manufacturer preserve the samples of their product for some period for investigation complaints, if received, no duty should be charged on these samples considering that goods remain within the factory In view of settled position of law, that the circulars are binding on the department and the department cannot be allowed to say that different interpretation could be given to Rule 9 and Rule 49 of Central Excise Rules, 1944 - Rule 9 and Rule 49, as referred above have been understood and regulated by departmental instructions corrected upto 31-12-1979 and in that sequence same are accelerated by way of supplementary submissions as on 1-9-2001 indicating that the control samples cannot be subject matter of the excise duty - On the mere reading of explanation to Rule 9 and Rule 49, it appears that nothing expressly has been dealt with about the imposition of excise duty on control samples - Decided in favor of the assessee

Issues Involved:
1. Whether excise duty is leviable on "control samples" drawn and retained by the party, considering it to be deemed removal under Rule 9 and Rule 49 of the erstwhile Central Excise Rules, 1944.

Issue-Wise Detailed Analysis:

1. Excise Duty on Control Samples:
The primary issue revolves around the applicability of excise duty on control samples retained within the factory premises. The judgment scrutinizes whether such samples are subject to excise duty under the concept of "deemed removal" as per Rule 9 and Rule 49 of the Central Excise Rules, 1944.

Facts of the Case:
The party, a manufacturer of medicaments, claimed refunds for excise duty paid on control samples preserved during 1999-2000. The Adjudicating Authority rejected the refund claim, stating no exemption notification existed for such samples during the relevant period. The Commissioner (Appeals) overruled this decision, stating no duty is due unless goods are cleared from the factory gate or captively consumed.

Arguments by the Appellant:
The appellant argued that under Rule 9 and Rule 49, goods manufactured and utilized within the factory are deemed to have been removed from the place of manufacture. The appellant cited several Supreme Court judgments emphasizing that utilization of goods, even without destroying their identity, constitutes "consumption" or "utilization," thereby making them liable for excise duty.

Larger Bench of CESTAT's Position:
The Larger Bench of CESTAT clarified that control samples kept within the factory for testing and complaint investigation purposes are not chargeable to duty, provided proper accounts are maintained. Duty becomes applicable only when such samples are cleared from the factory for purposes like testing or destruction.

Departmental Instructions and Circulars:
The court noted that departmental instructions from 1979 and supplementary instructions from 2001 consistently indicated that no duty should be charged on control samples retained within the factory. These instructions were binding on the department, reinforcing that control samples are not subject to excise duty unless removed from the factory.

Court's Conclusion:
The court concluded that the question of whether excise duty is leviable on control samples retained within the factory does not constitute a substantial question of law. The court upheld the view that control samples kept for laboratory tests and complaint investigation are not chargeable to excise duty, provided proper accounts are maintained. The explanations in Rule 9 and Rule 49 do not explicitly mandate excise duty on control samples.

Final Judgment:
The appeal was dismissed, affirming that control samples retained within the factory for specified purposes are not subject to excise duty, aligning with the established departmental instructions and circulars.

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