In-house testing samples are not dutiable when retained within the factory; later waste and scrap clearance does not trigger extra duty.

Samples drawn from finished goods within the factory for in-house testing were not liable to Central Excise duty because they were never cleared from the factory at that stage and were used only for testing integral to manufacture and marketability. The later clearance of the residue as waste and scrap, on payment of duty on transaction value, did not justify an additional demand on the earlier captive samples. Following its earlier decisions on the same issue, CESTAT Mumbai held that such testing samples are not exigible to duty on the facts presented and set aside the impugned orders, allowing the appeals in favour of the assessee.

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Issues: Whether samples drawn from finished goods within the factory for testing purposes were liable to Central Excise duty, and whether their later clearance as waste and scrap attracted further duty.

Analysis: The sample material was drawn captively within the factory only for testing and had not been cleared from the factory at that stage. The sample was later cleared as waste and scrap on payment of duty on the transaction value of such waste and scrap. On the facts, there was no basis to demand duty on the captive consumption of the samples for testing. The Tribunal followed its earlier decisions holding that samples drawn for in-house testing before the relevant clearance stage are not exigible to duty, especially where testing is integral to manufacture and marketability. The assessee's own earlier appeal on the same issue had also been allowed.

Conclusion: The duty demand on the samples drawn for testing was not sustainable. The impugned orders were set aside and the appeals were allowed in favour of the assessee.

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