In-house quality control samples before clearance are not subject to excise duty; related penalty also falls.

Samples drawn from production batches before the RG-1 stage and tested in an in-house laboratory within the factory were treated as not exigible to central excise duty where they were removed only for quality control and separate records were maintained. The Tribunal relied on the principle that such samples are not cleared for sale and therefore do not attract duty; the reference to the Explosives Rules also supported testing before clearance of the production batch. On that basis, the duty demand was unsustainable and the consequential penalty could not survive.

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Issues: Whether samples drawn from production batches for quality control testing in an in-house laboratory within the factory premises were exigible to central excise duty, and whether the consequential penalty could survive.

Analysis: The samples were drawn before the RG-1 stage and were tested within the factory for quality control. The Tribunal relied on the earlier view that where goods are removed only for in-house testing and proper separate records of the samples are maintained, no duty is payable. The record did not show that the assessee had failed to maintain such records. The reference to the Explosives Rules also supported the practice of testing samples before clearance of production batches. On that basis, the demand of duty could not be sustained, and the penalty based on the same demand also could not survive.

Conclusion: The samples were not liable to excise duty, and the demand and penalty were set aside in favour of the assessee.

Final Conclusion: The appeal succeeded and the impugned order was set aside, leaving no duty liability on the samples tested in-house.

Ratio Decidendi: Samples drawn from production for in-house quality control testing, with proper separate records maintained and no clearance for sale, are not exigible to excise duty.

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