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2003 (12) TMI 177 - AT - Central ExciseInvocation of longer period of limitation - Penalty - Duty Demand for the quantities removed to the R D Department for analysis as samples within the factory premises - Utilization of Nitrogen for non-plant and non-manufacturing activities within the factory premises - Wilful misstatement/suppression of facts - Manufacture of Polyol Glycol etc. - HELD THAT - We find from the records that the Appellants are Registered with Central Excise. They have filed declaration and price list periodically which have been approved by the Department. This position has not been controverted by the Department. In the circumstances it cannot be held that appellants have held back information from the department so as to warrant invocation of longer period of limitation as the ingredients as set out u/s 11A for invoking the provisions of the said Section are lacking in this case. We, therefore, hold that longer period of limitation cannot be invoked in this case. Duty demand - We note that the Tribunal in the case of CC v. Bhansali Engg. Polymers Ltd. 1999 (10) TMI 158 - CEGAT, NEW DELHI , has held that ABS Polymer samples drawn for quality control testing within the factory, is not liable to duty. The appeal filed by the Commissioner against this order has been dismissed by the Hon'ble Supreme Court in 2002 (5) TMI 859 - SC ORDER . The Hon'ble Supreme Court in the case of ITC Ltd. v. CCE, 2002 (12) TMI 85 - SUPREME COURT has categorically observed that if samples are drawn for in house testing and proper records are maintained, then no duty is payable on the quantity taken for testing within the factory. We, therefore, respectfully following the ratio of the above judgments hold that no duty is demandable in respect of the goods which were taken to R D department of the appellants within the factory, for the purpose of testing. Whether the final product and Modvat inputs which were taken outside the factory for trial and testing by other agencies including customers is dutiable or not - In the instant case, Nitrogen is used within approved factory premises and in terms of the Notification cited supra, no duty is payable if the same is used within the factory of production. The original authority also found that Nitrogen is used for manufacture of chilled water and the chilled water is used in the non plant area. This would mean that it is not directly used in the administrative block as alleged by the Department. Further, the definition of the term factory also includes precincts. In any event the nitrogen was used for manufacture of chilled water and the chilled water was used in the non-plant area. As noted above nitrogen was used for refrigeration lines equipments for purging, and so far as the use of nitrogen for purging is concerned, the benefit is available even when certain charges have been taken from the owner, as held in the cited case. In view of above, we are inclined to agree that it is too narrow a view to be taken if we are to hold that, Nitrogen used for manufacture of chilled water and a portion of that chilled water even if used for certain administrative purposes within the factory premises, should suffer duty. We, therefore, extend the benefit of the Notification in respect of Nitrogen used within the factory of the appellants as in the present case. Thus, we hold that imposition of mandatory penalty on the appellants u/s 11AC is not warranted. So far as imposition of penalty under Rule 173Q is concerned, since we have ruled in favour of the appellants on all the issues except in the case of samples taken outside the factory premises for quality control testing etc. and the amount involved for such removal is Rs. 20,430/- as noted in the order-in-original, we reduce the penalty to Rs. 2,000/- (Rupees Two thousand).
Issues Involved:
1. Invocation of longer period of limitation. 2. Duty demand on goods removed to the R&D Department for analysis within the factory premises. 3. Duty demand on final products cleared outside the factory premises for trial and testing. 4. Duty demand on utilization of Nitrogen for non-plant and non-manufacturing activities within the factory premises. Summary: 1. Invocation of Longer Period of Limitation: The Tribunal held that the appellants, being registered with Central Excise and having filed declarations and price lists periodically approved by the Department, did not withhold information. Therefore, the invocation of the longer period of limitation u/s 11A was not warranted. 2. Duty on Goods Removed to R&D Department: The Tribunal observed that the R&D Division was within the factory compound. Citing precedents like *Bhansali Engg. Polymers Ltd.* and *ITC Ltd. v. CCE, Patna*, it was held that no duty is demandable on goods taken to the R&D department within the factory for testing, as these samples are destroyed and do not attain commercial identity. 3. Duty on Final Products Cleared Outside for Testing: The appellants failed to provide sufficient evidence or authority to support their claim that goods taken outside for testing should not attract duty. Consequently, the Tribunal held that such goods must suffer duty at the appropriate rate. 4. Duty on Utilization of Nitrogen: The Tribunal noted that Nitrogen used within the factory premises, including for purging and manufacturing chilled water, falls under the definition of "factory" u/s 2(e) of the Central Excise Act. Referring to *Gas Authority of India Ltd. v. CCE, Bhopal*, it was concluded that no duty is payable on Nitrogen used within the factory premises, including administrative and R&D areas, as per Notification No. 8/96. Penalties: - The mandatory penalty u/s 11AC was set aside. - The penalty u/r 173Q was reduced to Rs. 2,000/- due to the favorable rulings on most issues except for the samples taken outside the factory for testing. Final Order: 1. Longer period of limitation not invocable. 2. No duty is leviable on samples drawn for testing within the factory. 3. Duty is leviable on samples taken outside the factory for testing. 4. Mandatory penalty u/s 11AC set aside. 5. Penalty u/r 173Q reduced to Rs. 2,000/-.
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