Central excise on quality-control samples: waste yarn cleared on its own value could not be taxed as finished yarn.

Waste yarn arising after drawal of quality-control samples from synthetic filament yarn was not chargeable to central excise duty as finished yarn when the samples were taken before packing, before RG-1 entry, and were properly accounted for. The relevant principle applied was that quality-test samples maintained in proper records are not liable to duty, and duty attaches only to the goods actually removed from the factory. Because the goods cleared were waste yarn and duty had been discharged on that waste yarn's own value, treating it as finished yarn for duty purposes was unsustainable. The demand was therefore set aside.

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Issues: Whether waste yarn emerging after drawal of quality-test samples of synthetic filament yarn was liable to central excise duty as finished yarn, and whether the samples drawn for testing attracted duty when proper records were maintained.

Analysis: The samples were drawn from the production stream before packing and before entry in RG-1, and the drawal was duly accounted for. After testing, the samples became waste yarn, and the goods actually cleared from the factory were waste yarn, not finished yarn. In such circumstances, duty could not be demanded on the basis of finished yarn value. The settled position relied upon by the Tribunal was that samples drawn for quality control are not liable to duty when proper accounts are maintained, and duty is payable only on the goods removed from the factory. The clearance of waste yarn on payment of duty on its own value was therefore held to be in accordance with law.

Conclusion: The demand based on treating the waste yarn as finished yarn was unsustainable, and the order confirming such demand was set aside in favour of the assessee.

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