Mandatory quality testing samples destroyed in factory are not liable to excise duty when properly accounted and marketability depends on testing.

Goods drawn batch-wise for mandatory in-factory quality control testing are not liable to central excise duty when they are consumed or destroyed in the testing process and proper accounts are maintained. The discussion distinguishes adverse precedent on the basis that the assessee had not kept proper records there, whereas here the samples were accounted for and explosives became marketable only after testing. The fact that defective or deteriorated explosives could not be sold without compliance also supported the view that testing was integral to manufacture and marketability. On that footing, the duty demand and penalty did not survive.

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Issues: Whether detonator samples drawn batch-wise for mandatory quality control testing within the factory were liable to central excise duty when the samples were consumed or destroyed in the testing process, and whether maintenance of proper accounts altered the duty liability.

Analysis: The dispute turned on whether the samples had reached the stage of fully manufactured and marketable goods before testing. The decision accepted that goods destroyed in the course of quality control testing are not liable to excise duty, but distinguished the adverse precedent on the ground that there the assessee had not maintained proper accounts of the goods sent for testing. It was found that the respondents maintained proper accounts of detonators drawn for testing, the samples were consumed or destroyed in the testing process, and explosives could be regarded as marketable only after such testing was completed. The statutory restriction on sale of deteriorated or defective explosives also supported the view that testing was an essential part of manufacture and marketability in the facts of the case.

Conclusion: The detonator samples destroyed during quality control testing were not liable to excise duty, and the Revenue's appeal failed.

Final Conclusion: The order of the appellate authority was upheld and the duty demand and penalty did not survive.

Ratio Decidendi: Goods consumed or destroyed during mandatory quality control testing within the factory are not exigible to excise duty when the assessee maintains proper accounts and the testing is integral to determining marketability.

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