2018 (12) TMI 1473 - AT - Central Excise

Demand of duty short paid - extended period of limitation - appellants did not follow the proper procedure as per Central Excise Rules, 2002 and retained/ destroyed the sample without payment of appropriate Central Excise duty leviable on these samples and thereby short paid the duty to that extent - Section 11A(1) of the Central Excise Act, 1944 - Held that - The issue involved in the matter is squarely covered by the decision of larger bench of Tribunal in case of Dabur India Ltd, 2005 (2) TMI 166 - CESTAT, NEW DELHI , where larger bench has considered all the arguments and ruled in the favour of assessee holding that no duty is required to be paid in respect of such samples drawn for quality control purpose. Since we are deciding the appeal on merits itself we are not considering the other grounds taken by the appellant in their appeal and during arguments. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Marketability of medicaments without undergoing specified quality control tests.
2. Requirement to account for the quantity of medicaments taken for quality control tests in Daily Production records.
3. Applicability of duty on samples taken for test purposes as per CBEC supplementary instructions.
4. Liability of duty on samples drawn for quality control purposes and retained within the factory.
5. Invocation of the extended period of limitation for demanding duty.
6. Imposition of mandatory penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Marketability of Medicaments Without Quality Control Tests:
The appellants argued that without undergoing specified quality control tests, the medicaments are not marketable, and quality control (QC) tests are part of the manufacturing process. Therefore, duty on these samples is not payable. The Tribunal referenced the larger bench decision in Dabur India Ltd., which held that no duty is required to be paid on samples drawn for quality control purposes, as these are not marketable until they pass QC tests.

2. Requirement to Account for Medicaments in Daily Production Records:
The appellants contended that the quantity of medicaments taken for QC tests is not required to be accounted for in the Daily Production record as they are not finished goods. These samples have been duly accounted for in Batch manufacturing records. The Tribunal noted that proper accounting in the Batch manufacturing records is sufficient and aligns with the instructions in the CBEC supplementary instructions.

3. Applicability of Duty on Samples for Test Purposes:
The appellants cited CBEC supplementary instructions and various case laws to argue that duty is not payable on samples taken for test purposes. The Tribunal referenced the larger bench decision in Dabur India Ltd., which clarified that no duty should be charged on samples retained within the factory for control purposes unless they are cleared from the factory.

4. Liability of Duty on Samples Retained Within the Factory:
The appellants argued that samples retained for quality control purposes and not cleared outside the factory are not liable to duty. The Tribunal upheld this view, referencing the larger bench decision in Dabur India Ltd., which stated that as long as control samples are kept within the factory and proper accounts are maintained, no duty is chargeable.

5. Invocation of Extended Period of Limitation:
The appellants argued that the demand made for the period January 2002 to December 2006 is barred by limitation, as the extended period is not invokable. The Tribunal did not specifically address this issue in their decision, as the appeal was decided on merits.

6. Imposition of Mandatory Penalty Under Section 11AC:
The appellants contended that the mandatory penalty prescribed by Section 11AC is not imposable in the facts and circumstances of this case. The Tribunal did not delve into this issue, as the appeal was decided on the merits of the duty liability itself.

Conclusion:
The Tribunal found that the issue is squarely covered by the decision of the larger bench in Dabur India Ltd., which ruled in favor of the assessee, holding that no duty is required to be paid on samples drawn for quality control purposes and retained within the factory. The Tribunal set aside the order of the Commissioner (Appeal) and allowed the appeals, thus relieving the appellants from the duty and penalties imposed.