2015 (11) TMI 1343 - AT - Central Excise

Clandestine removal of goods (chocolates ) - Destruction of the sample - drawing samples, without payment of Central Excise duty for in-house testing of quality of the goods manufactured and without following any procedure under the Central Excise law, on hourly basis, daily for all the 3 shifts - Penalty u/s 11AC - Held that - There is no finding of any misstatement and/or contumacious conduct and/or suppression of the records by the appellant-assessee. Further, I find that proper records have been maintained of the drawal of samples in the usual course of business. Only for the sake of absence of a column mentioning the date of destruction of the sample, without there being any finding as to clearance or sale of any sample products by the assessee, no adverse inference can be drawn based on presumptions and assumptions. In this view of the matter, I set aside the impugned order. - Decided in favour of assessee.

Issues:
1. Central Excise duty on samples drawn for in-house testing.
2. Compliance with Central Excise law regarding sample testing procedures.
3. Maintenance of proper accounts for samples cleared without payment of duty.
4. Applicability of penalty and interest in case of duty payment before show-cause notice.

Issue 1: Central Excise duty on samples drawn for in-house testing
The case involved the appellant-assessee, engaged in manufacturing excisable goods, drawing samples for in-house testing without paying Central Excise duty. Revenue officers noted the non-payment during a factory visit. The contention was that duty should be paid on samples cleared for testing, as per Chapter 11 of CBEC Excise manual. The appellant contested the show-cause notice, arguing that the samples were not for sale and were destroyed after testing. The adjudicating authority held that duty should have been paid, and the appellant eventually paid the duty. The Commissioner (Appeals) upheld the duty payment but waived penalty and interest, considering the duty was paid before the show-cause notice.

Issue 2: Compliance with Central Excise law regarding sample testing procedures
The appellant argued that the samples drawn were for quality control and testing purposes, not for sale. They contended that the samples were destroyed during testing and could not be marketed. The appellant maintained that the samples were not excisable as they were not sold in the market. They also highlighted discrepancies in the application of CBEC's Excise Manual of Supplementary Instructions. The Commissioner (Appeals) accepted the appellant's arguments and ruled in favor of no penalty or interest due to the duty payment before the notice.

Issue 3: Maintenance of proper accounts for samples cleared without payment of duty
The case involved allegations of the appellant failing to maintain proper accounts for samples cleared without paying duty. The appellant argued that private records in the quality assurance department sufficed as maintenance of records regarding samples, as no specific form was prescribed. The Tribunal noted that proper records were indeed maintained by the appellant, and without evidence of clearance or sale of samples, no adverse inference could be drawn. The impugned order was set aside, and the appellant's appeal was allowed.

Issue 4: Applicability of penalty and interest in case of duty payment before show-cause notice
The Commissioner (Appeals) ruled that no penalty or interest was chargeable as the appellant had paid the full duty before the show-cause notice. The Tribunal upheld this decision, emphasizing the absence of misstatement or suppression of records by the appellant. Proper records were maintained, and without evidence of clearance or sale, no adverse inference could be drawn. The appeal of the appellant was allowed, and the appeal of the Revenue was dismissed, with the appellant entitled to consequential benefits.

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