1998 (4) TMI 273 - AT - Central Excise

Summary

Issues:
Manufacture of track shoes for battle tanks, duty demand on destroyed material during testing, interpretation of Central Excise Rules, 1944, applicability of Chapter X Procedure, quality control tests, entry in RG 1 Register, intention behind clearance of goods for use in battle tanks.

Manufacture of Track Shoes for Battle Tanks:
The assessees manufactured track shoes, component parts of battle tanks, and cleared them to Defence Factories under Notification No. 165/87-C.E., following Central Excise Rules, 1944. During rigorous tests by buyers, some material was damaged. The RT 12 Return showed Rs. 98,735/- of material destroyed. Duty was demanded on this value, leading to an appeal by the assessees.

Interpretation of Central Excise Rules and Chapter X Procedure:
The Assistant Collector held that goods destroyed during testing should not be considered used as Original Equipment parts in tanks, as they were fully manufactured when cleared. The Collector, however, noted that goods needed to pass quality control tests to be deemed fully manufactured. The Revenue appealed this decision.

Entry in RG 1 Register and Quality Control Tests:
The JDR claimed that goods were fully manufactured as they were cleared under Chapter X Procedure and entered in the RG 1 Register. The Tribunal found that the contract allowing payment for destroyed samples indicated full manufacturing. The Collector's reliance on a previous judgment was discussed, emphasizing the importance of quality control tests.

Intention Behind Clearance for Use in Battle Tanks:
The Tribunal analyzed the phrase "intended for use" in the notification, citing a Supreme Court judgment for interpretation. It was concluded that the intention behind clearance was for use in battle tanks only, as the goods had no alternative use. Destruction during testing was considered permissible under Rule 192 due to the broad interpretation of the term "handling."

Final Decision:
The Tribunal ruled that goods destroyed during sample testing at the recipient's factory under the notification did not attract any duty. Consequently, the order of the Assistant Collector was not restored, and the appeal was dismissed based on the grounds that the goods were cleared for specific use in battle tanks and the destruction during testing was within permissible handling losses.