2018 (5) TMI 398 - AT - Central Excise

Valuation - captive consumption or not? - sample drawn for testing, the same are cleared on payment of duty as scrap - case of the department is that the samples drawn is a finished goods and the same was used captively, therefore, such clearances should be made following the valuation principles in terms of Rule 4 by virtue of Rule 11 of Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000. Held that - the appellant have drawn the sample captively within the factory for testing purpose, since the goods were not cleared from the factory, no duty was required to be paid and as and when the sample was cleared, the same was cleared in the form of waste and scrap and excise duty was paid on the transaction value of such waste and scrap. In this fact, there is no question of demanding duty on the captive consumption of sample for testing. The appellant s case is on the better footing that the sample tested were subsequently cleared as waste and scrap on payment of duty. The duty on the sample drawn for testing is not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether duty can be demanded on samples drawn for testing purposes and subsequently cleared as waste and scrap?

Analysis:
1. The appellants, engaged in manufacturing excisable goods, cleared samples from each batch of Galvanized Cold Roll Coils for testing purposes. The department contended that these samples were finished goods used captively and should be cleared following valuation principles under Rule 4 by virtue of Rule 11 of Central Excise Valuation Rules, 2000. Consequently, short duty was paid, and the demand was confirmed by the adjudicating authority.

2. The appellant argued that since the samples were cleared as scrap material after testing, no further duty should be demanded. The samples were drawn for testing as per ISO 2000 requirements, and the testing was related to the manufacture of the final product. The appellant relied on various judgments to support their case.

3. The revenue reiterated that duty should have been paid on the samples drawn for testing, as per the CBE&C's Manual guidelines. The appellant should have paid duty while drawing the samples of finished goods based on the correct value under the Central Excise Valuation Rules, 2000.

4. The Tribunal considered both sides' submissions and found that since the samples were drawn captively for testing within the factory and not cleared, no duty was required to be paid at that stage. When the samples were later cleared as waste and scrap, excise duty was paid on the transaction value of the scrap. The Tribunal cited precedents such as the Bhansali Engg. Polymers case, where it was held that duty on samples drawn for testing before the RG-I stage is not liable. The Tribunal also referred to the J.K. Industries case, where samples drawn for in-house testing were not chargeable duty.

5. The Tribunal noted that in the appellant's previous case on a similar issue, the Commissioner (Appeals) had allowed the appeals, which were not appealed against. Considering the observations and judgments, the Tribunal held that duty on samples drawn for testing is not sustainable. Consequently, the impugned orders were set aside, and the appeals were allowed.