2008 (2) TMI 60 - HC - Central Excise

Excise duty not applicable on control samples in factory premises. Upheld decision emphasizes record-keeping.

The High Court upheld the decision of the CESTAT, ruling that excise duty is not chargeable on control samples withdrawn and retained within the factory ... Whether excise duty is leviable on Control Samples withdrawn & removed without accountal in RG 1- when a manufacturer preserve the samples for some period, no duty shall be charged on these samples considering that those goods remain within the factory - no allegation that the proper account was not being maintained - in the daily account register only those items are to be entered, which are withdrawn from factory, not the samples not removed – penalty not imposable u/s 11AC Issues:Levy of excise duty on control samples withdrawn without accountal in daily stock register.Analysis:The appeal was filed by the revenue under Section 35G of the Central Excise Act, 1944 against the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) which allowed the respondent-assessee's appeal and set aside the Commissioner's order. The main question raised was whether excise duty is leviable on control samples withdrawn without being accounted for in the daily stock register. The respondent, a pharmaceutical company, was found withdrawing controlled samples without paying the central excise duty and not recording them in the register during a visit by Central Excise officers. The company later paid the due amount along with interest. A show cause notice was issued for confirmation of the duty, interest, and imposition of penalties on the partner of the assessee.The Additional Commissioner confirmed the demand for excise duty, interest, and imposed a penalty under relevant rules. However, the CESTAT allowed the assessee's appeal based on a previous decision in CCE, Chandigarh v. Dabur India Limited, stating that control samples retained in the factory for laboratory tests are not subject to duty. The Tribunal relied on departmental instructions and held that duty is only charged when samples are cleared from the factory, not when they are preserved for investigation or testing.The High Court upheld the CESTAT's decision, emphasizing that duty is not chargeable on control samples kept within the factory premises for testing purposes. The court noted that maintaining proper records of sample receipts and utilization in the laboratory is essential, but there was no requirement to account for them in the daily stock register. The court dismissed the appeal, stating that no substantial question of law arose from the CESTAT's order, as per the decision in CCE v. Dabur India Limited. The argument for imposing a penalty under Section 11AC of the Act was rejected, as there was no evidence of improper accounting, and the duty was not chargeable on the control samples as per the established legal position.In conclusion, the High Court dismissed the appeal, affirming the CESTAT's decision that excise duty is not leviable on control samples withdrawn and retained within the factory premises for testing purposes, as per the departmental instructions and legal precedents.