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2011 (10) TMI 120 - AT - Central ExciseManufacture of industrial explosives - used to draw samples and department demanded duty, education cess etc. on the samples drawn and tested in the laboratory - also demanded penalty u/s 11AC of the Central Excise Act - As decided in the case CCE, Nagpur Vs. Economic Explosives Ltd. 2007 -TMI - 2617 - CESTAT, MUMBAI that Rule 141 of the Explosives Rules 1983 framed under the Explosives Act imposed a ban on sale/delivery to any person of any explosive that had deteriorated or was defective - as the goods were removed for in-house testing and proper accounts were maintained no payment of duty was necessary - impugned order is set aside - Appeal is allowed.
Issues:
- Duty liability on samples drawn for quality control testing - Interpretation of Rule 141 of Explosives Rules 1983 - Applicability of Tribunal's decision in Economic Explosives Ltd. case Analysis: Issue 1: Duty liability on samples drawn for quality control testing The appellant, engaged in manufacturing industrial explosives, drew samples from production batches for quality control testing. The department demanded duty on these samples tested in the laboratory within the factory premises from April 2004 to July 2008. The adjudicating authority confirmed the duty demand and imposed a penalty under Section 11AC of the Central Excise Act. The appellant contended that the dutiability of such samples had been settled against the Revenue in the case of CCE, Nagpur Vs. Economic Explosives Ltd. The Tribunal held that as long as proper records were maintained and samples were tested in the in-house laboratory, no duty payment was necessary. The Tribunal also noted that the Revenue did not dispute the maintenance of records by the appellant for quality control testing samples, leading to the conclusion that such samples were not subject to excise duty. Issue 2: Interpretation of Rule 141 of Explosives Rules 1983 The appellant argued that Rule 141 of the Explosives Rules 1983, framed under the Explosives Act, prohibited the sale or delivery of any deteriorated or defective explosive. Hence, samples were drawn and tested in the in-house laboratory to ensure quality control before clearance. The Tribunal considered this argument in conjunction with the maintenance of separate records for quality control testing samples by the appellant. This practice aligned with the requirements of Rule 141 and further supported the non-liability of such samples to excise duty. Issue 3: Applicability of Tribunal's decision in Economic Explosives Ltd. case The Tribunal referenced its decision in the case of Economic Explosives Ltd., which had been upheld by the Hon'ble Bombay High Court. In that case, it was established that excise duty was not payable on samples used for testing in an in-house laboratory where proper records were maintained. The Tribunal reiterated this principle and applied it to the present case, emphasizing that the samples in question were tested within the factory premises and not at the RG-1 stage. Consequently, the Tribunal set aside the impugned order, allowing the appeal and disposing of the stay application. In conclusion, the Tribunal's judgment in this case clarified the non-liability of samples drawn for quality control testing to excise duty when tested in an in-house laboratory with proper record-keeping, in line with the interpretation of relevant rules and previous legal precedents.
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