Excise duty on retained factory samples was held not payable where no clearance occurred and testing instructions governed removal.

Excise duty is not exigible on samples drawn from finished goods and retained within the factory for future or in-house testing, because no clearance of the samples takes place and the governing instructions contemplate duty only when samples are removed for testing. The CESTAT relied on the departmental manual, a larger bench decision, and a High Court decision to hold that merely keeping such samples in the factory does not attract duty. On that basis, the demand for duty, interest, and penalties was unsustainable, and the impugned order was set aside.

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Issues: Whether excise duty was payable on samples drawn from finished goods and retained within the factory for testing purposes.

Analysis: The samples were drawn from finished goods and kept in the factory for future or in-house testing, and were not cleared out of the factory for use as captively consumed goods. The applicable departmental manual contemplated that duty would arise when samples were cleared for testing, not when they were merely retained in the factory. The reasoning in the relied-upon larger bench decision and the High Court decision supported the view that no duty was chargeable on such retained samples in the facts presented.

Conclusion: Excise duty was not payable on the samples retained in the factory for testing purposes, and the demand of duty, interest, and penalties could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal succeeded.

Ratio Decidendi: Excise duty is not exigible on samples drawn from finished goods and retained in the factory for testing, where there is no clearance of the samples and the governing instructions contemplate duty only upon their removal for testing.

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