Mandatory testing samples not subject to excise duty where goods are not yet marketable.

Samples drawn within the factory exclusively for compulsory statutory testing before marketability was reached were treated as not liable to central excise duty. The reasoning was that the drug-control regime required testing before the goods could be marketed, part of the sample could be consumed in that process, and goods did not attain marketability until testing was completed. Following the earlier Tribunal view in the assessee's own case, the demand and penalty were held unsustainable, and the Commissioner (Appeals) was found to have correctly applied that approach.

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Issues: Whether samples drawn within the factory for mandatory testing under the applicable drug-control regime were liable to central excise duty, and whether the demand and penalty could be sustained.

Analysis: The appeal turned on the character of samples removed only for compulsory testing before the goods could be marketed. The reasoning accepted that the testing was a statutory requirement, that part of the sample may be consumed in the testing process, and that goods do not attain marketability until the prescribed testing is completed. On that basis, the samples drawn for such mandatory testing, including those retained within the factory, were treated as not giving rise to a duty liability. The earlier Tribunal view in the assessee's own case was followed, and the Commissioner (Appeals) was found to have rightly applied that approach.

Conclusion: The samples drawn for mandatory testing were not liable to duty, and the demand and penalty could not stand.

Ratio Decidendi: Samples drawn within the factory exclusively for mandatory statutory testing, and consumed or retained in the course of such testing before marketability is reached, are not liable to central excise duty.

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