2005 (8) TMI 27 - AT - Central Excise

Credit on inputs drawn as samples for quality control tests Inputs were destroyed by assessee after following Rules mentioned under Notification dated 11.12.01 (issued by Ministry of Health and Family Welfare) No irregularity committed by appellant so credit cannot be denied on such process

Summary

Issues: Denial of Cenvat credit on inputs used for quality control tests.

Analysis:
1. The main issue in the present appeal was the denial of Cenvat credit on inputs utilized for quality control tests. The department argued that the inputs should be used in or in relation to the manufacturing process, while the assessee contended that testing is an integral part of manufacturing activity and mandated by the Drugs and Cosmetics Act, 1940. The assessee cited the decision in Biddle Sawyer Ltd. v. Commissioner of Central Excise, Mumbai, where it was held that if inputs are used for quality testing as required by the Drugs and Cosmetics Act, 1940, credit cannot be denied on the raw material. Testing raw material for quality control is considered a process in the manufacture of the final product.

2. The department contended that the inputs were preserved and later destroyed without being used in quality control tests, as per the earlier decision. However, the appellant provided Schedule M under the Good Manufacturing Practices and Requirements of Premises, Plant and Equipment for Pharmaceutical Products, showing that every manufacturing establishment must have its quality control laboratory and maintain reference/retained samples from each batch of products. These retained samples must be kept for a specified period after expiry.

3. The Tribunal noted that the inputs were indeed destroyed as per the rules, and the assessee had adhered to the Notification regarding quality control requirements. The Commissioner (Appeals) failed to consider this Notification and did not provide any findings. Consequently, the Tribunal found that the appellants had satisfactorily established their case, and thus, the appeal was allowed.

This judgment clarifies the importance of adhering to statutory requirements for quality control testing in manufacturing processes and upholds the right to claim Cenvat credit on inputs used for such purposes, as long as the procedures are followed as mandated by relevant regulations.