2008 (2) TMI 314 - HC - Central Excise

Non-accountal of control sample in the daily stock account register - In the instant case, there is no allegation that the proper account was not being maintained, but it is said that the sample is to be accounted in the daily register - In our view, in the daily account register only those items are to be entered, which are withdrawn from the factory - no substantial question of law is arising no duty payable on Control Samples - assessee is not liable for penalty u/s 11 AC

Summary

Issues:
- Appeal against order under Section 35G of the Central Excise Act, 1944.
- Levying excise duty on control samples withdrawn without accountal.
- Interpretation of Rule 9 and Rule 49 of the Central Excise Duty Rules, 1944.
- Applicability of duty on control samples for laboratory tests.
- Liability for penalty under Section 11AC for not accounting control samples.

Analysis:
1. The appeal was filed by the revenue under Section 35G of the Central Excise Act, 1944, challenging the order of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) dated 11.2.2005. The CESTAT had allowed the appeal filed by the respondent-assessee, setting aside the order passed by the Commissioner (Appeals) Central Excise, Faridabad.

2. The main issue raised in the appeal was whether excise duty is leviable on control samples withdrawn without being accounted for in the daily stock account register by the party, considering it as "deemed removal" under Rule 9 and Rule 49 of the Central Excise Duty Rules, 1944.

3. The respondent-assessee, a company manufacturing medicines, was found withdrawing control samples of each batch of medicine without paying the central excise duty. The assessee had not accounted for these samples in the daily stock account register. A show cause notice was issued for non-payment of duty, which the assessee later deposited along with interest.

4. The Additional Commissioner confirmed the demand for central excise duty, interest, and imposed a penalty under the Central Excise Rules. However, the CESTAT, following its decision in a previous case, held that control samples retained in the factory for laboratory tests are not subject to duty until cleared from the factory.

5. The CESTAT relied on the interpretation of the Basic Manual of Departmental Instructions and supplementary instructions effective from 1.9.2001, stating that duty is chargeable only when samples are cleared from the factory. The decision in the case of CCE Vs. Dabur India Limited was cited to support this stance.

6. The appellant argued for penalty under Section 11AC for not accounting control samples in the daily stock account register. However, the CESTAT held that maintaining proper records of sample receipts and utilization in the laboratory is sufficient, and there was no requirement to account for them in the daily register.

7. The court found no illegality in the CESTAT's decision and dismissed the appeal, stating that no substantial question of law arose from the order. The judgment emphasized the importance of proper record-keeping for control samples and clarified the duty liability only upon clearance of samples from the factory.