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2016 (7) TMI 78 - CESTAT MUMBAI

2016 (7) TMI 78 - CESTAT MUMBAI - TMI - Duty liability on samples drawn for testing within the factory premises - Revenue contented that the Supplementary Instructions of the Central Board of Excise and Customs has laid down procedure for drawal and accounting of samples for testing which apparently insists upon payment of excise duty - FAA set aside the duty demand - Held that:- Samples that are retained in the factory of production for prescribed periods as well as those that are subject to te .....

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discharge of duty liability. - Samples that are drawn and retained are, by and large, reintroduced subsequently in the production process and thus metamorphosised as finished goods that are removed on payment of duty. Even if the samples were to lose their identity and characteristics during the testing, the cost of such samples would, in the normal course, be absorbed in the cost of production of finished goods that would ultimately be charged to duty. There is, therefore, no logic in conc .....

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GP-I/2006 dated 8th December 2006 of Commissioner of Customs & Central Excise (Appeals), Nagpur. 2. The first appellate authority set aside the orders-in-original nos. 4/NGP-I/2004/Dem dated 27th February, 2004, 6/NGP-I/2004/Dem dated 27th February, 2004 and 7/NGP-I/2004/Dem dated 27th February, 2004 confirming demand of ₹ 1,47,538/- ₹ 65,515/- and ₹ 3,17,341/- respectively being the duty liability not discharged on samples drawn for testing within the factory premises. 3. .....

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ing to cigarettes being taken out of the factory of production for quality control tests. It was held that the instructions of the Central Board of Excise and Customs are binding on the departmental officers in view of the decision of the Hon ble Supreme Court in Mahavir Aluminium Ltd. v. Commissioner of Central Excise, Jaipur [1999 (114) ELT 371 (SC)] and Paper Product Limited v. Commissioner of Central Excise [1999 (112) ELT 765 (SC)]. The first appellate authority, on the other hand, has ackn .....

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holding that the tests are necessary as pre-requisite for completion of the process of manufacture and in view of mandatory requirements, the demands were set aside. 4. The primary contention of Revenue in the appeal is that the Supplementary Instructions of the Central Board of Excise and Customs has laid down procedure for drawal and accounting of samples for testing which apparently insists upon payment of excise duty. Placing reliance on the circular of the Central Board of Excise and Custom .....

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ns of the Central Board of Excise & Customs that a detailed procedure for drawal of samples has been prescribed. The said procedure categorises samples as (i) Trade samples sent to customers for trial; (ii) Samples 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. 6. It goes on to elaborate upon the various .....

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the goods are removed for home consumption. The manufacturer shall prepare invoice under Rule 11 of the said Rules and make, issue entries for the goods (samples) in the Daily Stock Account. Appropriate duty shall be paid by the assessee on these samples before their removal for test purposes unless otherwise exempted by a duty exemption notification. 7. We note that the said instructions do admit that the Central Excise Rules does not contain any specific provision for drawal of samples for tes .....

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tedly, samples could be tested within the factory and elsewhere. It would appear that, in the absence of any exemption for samples taken outside the factory premises, they are be accorded a treatment no different from that of goods removed from the factory of production. 9. However, samples that are retained in the factory of production for prescribed periods as well as those that are subject to test within the factory are not, in effect, removed from the factory and it would appear that these s .....

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bsequently in the production process and thus metamorphosised as finished goods that are removed on payment of duty. Even if the samples were to lose their identity and characteristics during the testing, the cost of such samples would, in the normal course, be absorbed in the cost of production of finished goods that would ultimately be charged to duty. There is, therefore, no logic in concluding that there is loss of revenue on account of drawal of samples to the extent that such samples are r .....

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that the appellant had cleared the control samples for purposes other than those stipulated. There is also no evidence led by the Revenue to show that the appellant did not put to use the 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/destroye .....

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the case of the Revenue. In the said case, it was held that, as long as the control samples are kept in the factory and not cleared from there, the same will not be chargeable to duty if proper 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 consume .....

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