Control samples retained in factory for testing were not dutiable, and penalty could not stand for non-entry in stock records.

Control samples retained within the factory for laboratory testing or complaint verification were treated as not cleared from the factory, so excise duty was not leviable merely because they were not entered in the daily stock account. On that basis, non-accountal of such samples did not, by itself, justify penalty where no duty liability was otherwise established and the record did not show failure to maintain proper control for internal use. The assessee therefore succeeded on both duty and penalty, and the revenue challenge failed.

---

---

Issues: (i) Whether excise duty was leviable on control samples withdrawn and retained within the factory without entry in the daily stock account register under the erstwhile excise rules; (ii) Whether penalty was warranted for non-accountal of such control samples.

Issue (i): Whether excise duty was leviable on control samples withdrawn and retained within the factory without entry in the daily stock account register under the erstwhile excise rules.

Analysis: The dispute concerned samples preserved for laboratory testing and complaint verification. The controlling departmental instructions, as relied upon by the Court, treated such samples as remaining within the factory until actually cleared. On that basis, duty was held not to arise merely because the samples were kept aside for internal use and not entered as removals in the daily stock register.

Conclusion: Excise duty was not leviable on the control samples in the facts of the case, and the assessee succeeded on this issue.

Issue (ii): Whether penalty was warranted for non-accountal of such control samples.

Analysis: The Court held that once duty was not chargeable on the control samples retained for internal purposes, the absence of entry in the daily register did not, by itself, establish a penalty-worthy default. The Court further noted that the material did not show any failure to maintain proper account of the samples for laboratory use.

Conclusion: Penalty was not sustainable against the assessee on this issue.

Final Conclusion: The revenue's challenge failed, and the order relieving the assessee from duty demand and penalty was upheld.

Ratio Decidendi: Control samples retained within the factory for laboratory or complaint-related purposes are not dutiable unless and until they are actually cleared from the factory, and penalty cannot be imposed merely for their non-entry in the daily stock account when no duty liability is otherwise established.

---