Excise duty on factory samples not payable when retained for in-house testing or reintroduced into production.

Excise duty was not exigible on samples drawn during manufacture where the samples were retained in the factory, tested in-house, or reintroduced into production, because such samples were not treated as removed from the factory. The distinction lay between drawing samples and removing them for test purposes; only samples removed from the factory could attract duty unless exempted. Where samples were consumed or destroyed within the factory as part of the testing process, no separate duty liability arose at that stage, since the value was ultimately reflected in the duty-paid finished product.

---

---

Issues: Whether excise duty was leviable on samples drawn from the manufacturing process and tested or retained within the factory premises.

Analysis: The circular instructions recognised different categories of samples and indicated duty payment on samples removed for test purposes, unless exempted. The decisive distinction was between drawing of samples and removal of samples. Samples retained in the factory for prescribed testing or reintroduced into the production process were not regarded as having been removed from the factory, and the testing process was treated as an integral part of manufacture. Where samples are consumed or destroyed within the factory during in-house testing, no separate duty liability arises at that stage, since the value ultimately forms part of the duty-paid finished product when cleared.

Conclusion: Duty was not payable on samples tested or retained within the factory premises; the demand on such samples was unsustainable and the issue was decided in favour of the assessee.

---