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2016 (6) TMI 149 - CESTAT MUMBAI

2016 (6) TMI 149 - CESTAT MUMBAI - TMI - Leviability of duty on samples drawn - Manufacture of toilet soaps and detergents required to be tested at certain prescribed stages of the manufacturing process and samples, drawn from each batch, are to be retained for prescribed periods - samples for test purpose has been further segregated as those drawn for 'in-house laboratory testing' and for 'preservation for investigation of complaints' as well as samples which are drawn for sending outside the f .....

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to excise duty at that stage. It would appear that the adjudicating authority has been over-zealous in interpreting the provision relating to duty liability on removal to be applicable to all samples because of juxtaposition of sentences. We have no doubt in our mind that drawing of samples and removal of samples are two different events and it is only the latter that calls for discharge of duty liability. To the extent that samples are reintroduced into the production process, they would, undo .....

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production. - Therefore, in view of instruction prescribing duty payment only upon removal from the factory, the ultimate inclusion of the samples or the costs in goods that are cleared from the factory of production and the decision of Tribunal in the case of Thermax Cullgian Water Technologies Ltd. v. Commissioner of Central Excise [2013 (12) TMI 977 - CESTAT MUMBAI] and the decision of Hon'ble High Court of Bombay in the case of Commissioner of Central Excise v. RPG Life Sciences Ltd. [2 .....

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dated 26 th September 2006, PII/BKS/282/2006 dated 10 th October 2006 and PII/BKS/301-302/2005 dated 14 th July 2005 of Commissioner of Central Excise (Appeals), Pune - II. 2. M/s Hindustan Lever Ltd, aggrieved by the three orders-in-appeal, is before us along with Shri Prashant Chavathe who was penalized under Rule 209A of Central Excise Rules, 1944 read with section 38 of Central Excise Act, 1944. The notice for demand of duty had been issued to M/s Vashishti Detergents Ltd which has since mer .....

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or the period from January 2005 to June 2005 vide order-in-original no. RTN/112/ADJ/282/06-07 dated 21 st March 2006 with penalty of like amount. The appeals preferred against these original orders were rejected by Commissioner of Central Excise (Appeals), Pune - II and hence these proceedings. As these appeal all relate to an identical issue we take them up for disposal by this common order. 3. The appellant company is in the business of manufacturing of toilet soaps and detergents. Comprising, .....

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samples after elapse of the prescribed period of retention. Details of the samples drawn are maintained meticulously in the records but, owing to weeding out, was not available for the period to December 2002. 4. The original authority has placed reliance on the circular of Central Board of Excise and Customs No. 1/87-Cx. 6 issued under F. No. 224/7/86-CX.6 dated 15 th January 1987 and further circular no. 1/91-CX.3 dated 4 th January 1991 in relation to taking cigarettes out of the factory of p .....

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of Revenue is that the Supplementary Instructions of the Central Board of Excise and Customs has laid down a procedure for drawal and accounting of samples for testing which apparently insists upon payment of excise duty and that the circular of the Central Board of Excise and Customs dated 15 th January 1987, cited supra, requires payment of duty on samples. It is also contended that the Hon'ble Supreme Court in ITC Ltd. v. Commissioner of Central Excise, [2003 (151) ELT 246 (SC)] has conf .....

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for test purposes; (iii) Samples for supply against sale contracts or for enforcement of control measures; (iv) Samples for display at exhibitions, fairs and in show-case; and (v) Samples for market inquiries by Central Excise Officers. 7. It goes on to elaborate upon the various categories of samples and the samples for test purpose has been further segregated as those drawn for 'in-house laboratory testing' and for 'preservation for investigation of complaints' as well as sampl .....

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shall be paid by the assessee on these samples before their removal for test purposes unless otherwise exempted by a duty exemption notification." 8. We note that the said instructions do admit that the Central Excise Rules does not contain any specific provision for dutiability of samples drawn for testing. However, as no specific exemption is provided to such samples, the Central Board of Excise and Customs considered it necessary to issue instructions in dealing with samples. We also not .....

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y in a manner similar to goods removed from the factory of production. 10. However, samples which are retained in the factory of production for a prescribed period for conformity with standards as well as those which are tested within the factory are not, in effect, removed from the factory and it would appear that these should not be held liable to excise duty at that stage. It would appear that the adjudicating authority has been over-zealous in interpreting the provision relating to duty liab .....

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ntity and characteristics in testing, the cost of such samples would, in the normal course of business, be absorbed into the finished products which are subject to duty. There is, therefore, no logic in concluding that there is a loss of revenue on account of drawal of samples to the extent that those are retained or tested within the factory of production. 11. In Thermax Cullgian Water Technologies Ltd. v. Commissioner of Central Excise [2014 (312) ELT 148] the Tribunal has held: "5.3 As r .....

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e control samples by clearing them to customers. The only charge against the appellant is that they did not keep an account of the control samples drawn and tested. This Tribunal in the case of Dr. Reddy's Laboratories Ltd. (cited supra) held that samples mandatorily drawn for testing and getting used up/destroyed during testing cannot be considered as excisable goods liable to duty. Similarly, in the case of J.K.Industries Ltd. (cited supra) it was held that samples of tyres drawn for in-ho .....

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roper account is maintained. When these samples are cleared for test or for destruction at that time assessment should be made for duty, if any, leviable as per law. In the present case, the Revenue has not adduced any evidence that the control samples have been removed from the factory and has not been consumed or lost or destroyed during the course of testing. In the absence of any corroborative evidence of removal of these samples from the factory, the demand of duty on such control samples c .....

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