Sample-based excise testing limits duty demand to tested consignments, while processing activity counts as manufacture.

Processed fabrics cleared by the appellant were treated as manmade fabrics on the basis of sample test reports and supporting records, so duty was payable and exemption under Notification No. 253/1982-CE was not available. The processor was also treated as the manufacturer for central excise purposes, and the plea that only the merchant manufacturers were liable was rejected. At the same time, test results drawn from selected consignments were applied only to those sampled clearances; the demand was not extended to untested consignments, and the balance demand was dropped for lack of sample evidence.

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Issues: (i) whether the processed goods cleared by the appellant were manmade fabrics removed in the guise of cotton fabrics so as to attract duty and deny exemption under Notification No. 253/1982-CE; (ii) whether the test results of samples drawn from certain consignments could be applied to the balance clearances not tested.

Issue (i): whether the processed goods cleared by the appellant were manmade fabrics removed in the guise of cotton fabrics so as to attract duty and deny exemption under Notification No. 253/1982-CE.

Analysis: The sample tests conducted by the Deputy Chief Chemist showed the fabrics to be manmade fabrics. The records and statements of the merchant manufacturers supported the finding that the samples drawn from the various places, including the appellant's premises, related to goods processed and cleared by the appellant. The plea that there was no co-relation with the lot register was rejected. The contention that the merchant manufacturers alone were liable was also rejected because the processing activity amounted to manufacture and the processor was the manufacturer for central excise purposes. The declaration under Notification No. 305/77 was held to relate only to differential duty on final assessment and not to the present dispute.

Conclusion: The appellant was rightly held liable for duty on processed manmade fabrics cleared in the guise of cotton fabrics and the exemption was inapplicable.

Issue (ii): whether the test results of samples drawn from certain consignments could be applied to the balance clearances not tested.

Analysis: The adjudicating authority confined the demand to the clearances for which the sample evidence was available and declined to extend the test results to consignments not sampled. This approach was consistent with the principle that test results apply only to the consignments from which samples were drawn. The benefit of doubt was extended for the balance demand where no test report existed.

Conclusion: The demand could not be extended beyond the sampled and tested consignments, and the dropping of the balance demand was upheld.

Final Conclusion: The common order sustained the duty demand to the extent supported by sample evidence while declining to enlarge liability to untested clearances, leaving both sides unsuccessful in their respective challenges.

Ratio Decidendi: In excise matters involving sample-based testing, the test result can be relied upon only for the consignments from which samples were drawn, while processing activity undertaken by the processor constitutes manufacture for duty purposes.

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