2001 (3) TMI 168 - AT - Central Excise

Summary

Issues involved: Classification of Diagnostic Reagent Kits and Strips under Tariff Heading 3822, compliance with Rule 74 of the Drugs and Cosmetics Act, 1940 regarding drawal of samples, duty demand on samples, penalty for non-maintenance of sample details in statutory registers.

Classification and Compliance with Rules: The appellants manufactured Diagnostic Reagent Kits and Strips classified under Tariff Heading 3822, requiring a licence u/s Drugs and Cosmetics Act, 1940. Compliance with Rule 74 of the Act was necessary, including drawal of samples for testing as per sub-rules (c) and (l) to ensure quality and maintain records.

Duty Demand and Penalty: Initial show cause notice demanded duty on samples drawn during a specific period, alleging non-maintenance of sample details in statutory registers u/r Central Excise Rules, invoking extended period due to alleged suppression of facts. Subsequent adjudications confirmed duty demand and penalties by Collector and Assistant Commissioner, upheld by Commissioner (Appeals).

Marketability and Duty Liability: Argument presented that samples drawn immediately after manufacture for testing were not marketable and thus not dutiable, citing precedents where marketability was deemed essential for duty liability, especially for samples not packaged for sale.

Legal Precedents and Applicability: Reference made to legal judgments emphasizing marketability as key for duty liability, including distinction between P or P medicines and miscellaneous chemical preparations, highlighting relevance of Drugs and Cosmetics Act definitions in determining dutiability.

Sample Storage and Duty Exemption: Samples stored beyond expiry date were deemed non-marketable, thus not subject to duty payment, supported by interpretation of Central Excise Rules regarding clearance from factory and captive consumption.

Penalty Imposition and Culpability: Despite proposed penalties for non-maintenance of sample records, penalties were not imposed by the Commissioner due to absence of clandestine removal and technical contravention, indicating absence of mala fides and negating suppression or misrepresentation claims.

Judgment and Relief: Tribunal ruled in favor of the appellants, finding no duty liability on samples drawn for testing or stored beyond expiry, leading to allowance of appeals and consequential relief as warranted.