Court rules control samples kept in factory for testing not subject to excise duty if not removed.

The court held that excise duty is not leviable on control samples retained within the factory for testing and complaint investigation purposes, as long as proper accounts are maintained. The judgment clarified that duty is only applicable when such samples are cleared from the factory for specific purposes. The court emphasized that control samples are not subject to excise duty unless removed from the factory, aligning with departmental instructions and circulars. Consequently, the appeal was dismissed, affirming that control samples kept within the factory for designated objectives are not chargeable to excise duty.

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Issues Involved:
1. Whether excise duty is leviable on "control samples" drawn and retained by the party, considering it to be deemed removal under Rule 9 and Rule 49 of the erstwhile Central Excise Rules, 1944.

Issue-Wise Detailed Analysis:

1. Excise Duty on Control Samples:
The primary issue revolves around the applicability of excise duty on control samples retained within the factory premises. The judgment scrutinizes whether such samples are subject to excise duty under the concept of "deemed removal" as per Rule 9 and Rule 49 of the Central Excise Rules, 1944.

Facts of the Case:
The party, a manufacturer of medicaments, claimed refunds for excise duty paid on control samples preserved during 1999-2000. The Adjudicating Authority rejected the refund claim, stating no exemption notification existed for such samples during the relevant period. The Commissioner (Appeals) overruled this decision, stating no duty is due unless goods are cleared from the factory gate or captively consumed.

Arguments by the Appellant:
The appellant argued that under Rule 9 and Rule 49, goods manufactured and utilized within the factory are deemed to have been removed from the place of manufacture. The appellant cited several Supreme Court judgments emphasizing that utilization of goods, even without destroying their identity, constitutes "consumption" or "utilization," thereby making them liable for excise duty.

Larger Bench of CESTAT's Position:
The Larger Bench of CESTAT clarified that control samples kept within the factory for testing and complaint investigation purposes are not chargeable to duty, provided proper accounts are maintained. Duty becomes applicable only when such samples are cleared from the factory for purposes like testing or destruction.

Departmental Instructions and Circulars:
The court noted that departmental instructions from 1979 and supplementary instructions from 2001 consistently indicated that no duty should be charged on control samples retained within the factory. These instructions were binding on the department, reinforcing that control samples are not subject to excise duty unless removed from the factory.

Court's Conclusion:
The court concluded that the question of whether excise duty is leviable on control samples retained within the factory does not constitute a substantial question of law. The court upheld the view that control samples kept for laboratory tests and complaint investigation are not chargeable to excise duty, provided proper accounts are maintained. The explanations in Rule 9 and Rule 49 do not explicitly mandate excise duty on control samples.

Final Judgment:
The appeal was dismissed, affirming that control samples retained within the factory for specified purposes are not subject to excise duty, aligning with the established departmental instructions and circulars.

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