2024 (8) TMI 1274 - AT - Central Excise

Failure to discharge applicable duty on the samples drawn for internal testing and control purposes - non-maintenance of proper records to account for the samples drawn for internal testing purposes and for control purposes - Extended period of limitation - HELD THAT - On going through the SOPs that it is mentioned at Para 3.2 that after completion and review of the batch, the samples shall be discarded; a clear procedure for the destruction of samples drawn is given at Para 3.2.1. It is clear from the internal records maintained by the appellants that samples drawn are destroyed and therefore, the same would not have been cleared outside the factory - as long as the samples are not cleared outside the factory premises, no duty is payable by them. It is found that Department s contention that the appellants have not maintained appropriate records and therefore, in terms of Para 3 of Chapter 11 of Supplementary Instructions, duty requires to be paid, is not acceptable. Understandably, there are no records prescribed for this purpose. The internal records maintained by the appellants have to be taken into consideration. On the basis of the records available, it is found that the appellants have maintained records as far as the control samples are concerned and as far as internal samples are concerned, it can be gleaned from the Standard Operating Procedures adopted by the appellants that the samples are either consumed in the course of testing or destroyed. In the absence of any contrary proof put forth by the Revenue, the claim of the appellants cannot be brushed aside - as long as the samples are not cleared outside the factory, no duty is payable. Extended period of limitation - HELD THAT - The Principal Bench in the case of SHYAM SPECTRA PRIVATE LIMITED (FORMERLY CITYCOM NETWORK PRIVATE LIMITED) VERSUS COMMISSIONER OF SERVICE TAX, DELHI II 2024 (8) TMI 95 - CESTAT NEW DELHI held, following the decision of the Hon ble Calcutta High Court, in the case of INFINITY INFOTECH PARKS LTD. VERSUS UNION OF INDIA 2014 (12) TMI 36 - CALCUTTA HIGH COURT , held that when a notice is issued in support of transactions spread over a period of time and it is found that the extended period of invocation has been invoked, the notice cannot be treated as within limitation for some of the same transaction, once it is found that the extended period of limitation is not invocable. Appeal allowed.

Summary

Issues Involved:
1. Applicability of excise duty on samples drawn for internal testing and control purposes.
2. Maintenance of proper records for samples as per statutory requirements.
3. Invocation of the extended period of limitation for issuing show cause notices.

Detailed Analysis:

1. Applicability of Excise Duty on Samples Drawn for Internal Testing and Control Purposes:

The appellants argued that excise duty is not payable on the samples drawn for in-house testing as these samples are not final products ready for clearance. They cited several cases, including *BBF Industries, Unit-II vs. CCE, Jammu & Kashmir* and *Hindustan Unilever Ltd. vs. Commissioner Of C. Ex., Pune-II*, to support their position that samples consumed or destroyed within the factory premises are not liable for excise duty. The Tribunal found merit in the appellants' argument, noting that the samples drawn are either consumed in the testing process or destroyed and have not been cleared outside the factory premises.

2. Maintenance of Proper Records for Samples as Per Statutory Requirements:

The Department contended that the appellants failed to maintain proper records as per Para 3.2 of Chapter 11 of the CBEC Manual of Supplementary Instructions, thereby making them liable to pay duty on the samples. However, the Tribunal observed that the appellants maintained internal records for the drawl and destruction of samples, which were sufficient to demonstrate compliance. The Tribunal referenced the Larger Bench decision in *Dabur Pharma Ltd.*, which held that no excise duty is leviable as long as the samples are kept in the factory for testing and not cleared from there.

3. Invocation of the Extended Period of Limitation for Issuing Show Cause Notices:

The appellants argued that the extended period of limitation should not be invoked as there was no suppression of facts, and they had been filing returns regularly. They cited the case of *Nizam Sugars Factory* to support their claim that the Department cannot repeatedly invoke the extended period for subsequent show cause notices. The Tribunal agreed, noting that the issue involved legal interpretation and no evidence of suppression was presented by the Department. Consequently, the Tribunal found that the extended period of limitation was not applicable, rendering the show cause notices invalid.

Conclusion:

The Tribunal concluded that no excise duty is payable on the samples drawn for internal testing and control purposes as long as they are not cleared outside the factory premises. The Tribunal also found that the appellants had maintained adequate records for the samples and that the extended period of limitation could not be invoked for issuing show cause notices. Consequently, all the appeals were allowed, and the impugned orders were set aside.