2016 (3) TMI 569 - AT - Central Excise

Duty demand on the clearance of coffee decoction for testing and destruction in the appellant s factory premises - duty liability on the samples which are collected from the shop floor and tested in the in-house laboratory - Held that - Collection of the samples of finished goods and testing the same for ascertaining the quality is part of the manufacturing process. The assessee, has to ascertain that the final products manufactured by them are conforming to the standards laid down by themselves or as per requirement of the law, which requires, testing of the samples which do get destroyed during such testing. It is common sense, manufacturing of a final product is not complete without the testing of the final products in the in-house laboratory or any agency; as the marketing of final products can be done only if the final products are up to a standard. This cannot be said or equated with the clearances of the goods and duty liability can be fastened. We find from the show-cause notice as well as the adjudication order and the order of the first appellate authority, that there is no dispute that the testing of the coffee decoction is in the appellant s own in-house laboratory and there is no remanents. On the face of such factual matrix, we have to hold that both the lower authorities have misdirected their findings in coming to a conclusion that the testing of the samples of coffee decoction are liable to duty. - Decided in favour of assessee

Summary

Issues involved:
Demand of duty on clearance of coffee decoction for testing and destruction in the factory premises.

Analysis:
The issue in this case revolves around the demand of duty on the clearance of coffee decoction for testing and destruction in the appellant's factory premises. The Revenue contends that since the appellant withdraws some quantity of coffee decoction for testing purposes, they are required to discharge central excise duty on such decoction. The lower authorities relied on a judgment of the Apex Court in a similar case to rule against the appellant. However, the appellant argues that the samples are withdrawn solely for testing purposes and get destroyed during testing, as confirmed by in-house quality tests. They cite the Apex Court's judgment in ITC Ltd.'s case, which held that items destroyed during quality control tests are not liable to excise duty. The appellant emphasizes that the goods are cleared only for in-house quality control testing, without which the products are not marketable. The appellant also challenges the valuation of the products and argues against the remission of duty on tested goods that get destroyed.

The Tribunal delves into the duty liability on samples collected from the shop floor and tested in the in-house laboratory. It acknowledges that the coffee decoction is excisable, and the appellant already pays duty on home clearances. Samples are drawn from the shop floor to ensure the final products meet set standards, and these samples are destroyed during testing. The Tribunal finds the Revenue's demand for duty unsustainable and incorrect for several reasons. It emphasizes that testing samples to ascertain quality is part of the manufacturing process, and the final products cannot be marketed without meeting specific standards. The Tribunal highlights that the lower authorities misdirected their findings by concluding that testing samples are liable to duty, especially when the testing is done in the appellant's in-house laboratory with no remnants left.

Moreover, the Tribunal references the Apex Court's decision in the ITC Ltd. case, which established that duty liability does not arise on testing samples. The Tribunal notes that the Apex Court ruled that any sample collected for quality assessment and destroyed during testing is not subject to excise duty. In the present case, the Tribunal finds no dispute that the coffee decoction gets destroyed during quality control tests conducted in the appellant's in-house laboratory, and there is no allegation of non-maintenance of accounts or destruction. Consequently, the Tribunal rules in favor of the appellant, setting aside the impugned orders and allowing the appeal.