2010 (12) TMI 52 - HC - Central Excise

Assessee is engaged in the manufacture of bulk drugs - SCN issued to show cause as to why duty should not be recovered in respect of the controlled samples cleared within the factory for testing and why penalty should not be imposed upon the assessee - assessee contended that the samples were not removed outside the factory but were drawn by the in house lab ratory within the factory premises and were actually consumed during the process of testing itself and, therefore, no excise duty was leviable on the controlled samples drawn for testing - Held that - samples are consumed / destroyed within the factory during the process of testing - appeal is dismissed by answering the question in favour of the assessee and against the revenue

Summary

Issues:
Whether control samples drawn for testing are chargeable to central excise duty under the provisions of Central Excise Act, 1944 and Rules made thereunder?

Analysis:
The respondent-assessee, engaged in the manufacture of bulk drugs, was issued a show cause notice regarding the recovery of duty on controlled samples cleared within the factory for testing. The assessee argued that the samples were not removed outside the factory but consumed during testing, thus excise duty was not applicable. The assessing officer disagreed, leading to a penalty. The Commissioner (Appeals) upheld the decision, but the Tribunal, following a larger Bench decision, ruled in favor of the assessee, stating no excise duty was payable for samples drawn for testing.

The revenue contended that a subsequent Tribunal decision distinguished the earlier ruling, stating excise duty would apply to samples drawn for testing without any exemption notification. However, in the present case, the assessee's samples were not removed from the factory and were consumed during testing, a fact not disputed by the revenue. The absence of failure to maintain required books/accounts for the samples further supported the assessee's case. Citing the Apex Court decision in ITC Ltd. V/s. Collector of Central Excise, Patna, it was established that when goods are drawn for testing within the factory and consumed during testing, no duty is applicable.

The Tribunal decision relied upon by the revenue was deemed irrelevant as it involved samples cleared out of the factory and sold as scrap, unlike the current case where samples were consumed within the factory during testing. Consequently, the Court upheld the Tribunal's decision, dismissing the appeal in favor of the assessee and against the revenue, with no costs awarded.