Cenvat credit and marketability principles govern duty on testing samples, exhibit batches, and non-use clearances in pharma manufacturing.

Duty under Notification No. 43/2001-CE (NT) could be discharged through available Cenvat credit because no statutory bar prevented such utilisation, and the cited precedent accepted that mode of payment. Cenvat credit was also admissible on inputs and packing materials used for trial manufacture, testing and quality control of exhibit batches, since those activities formed part of the manufacturing process and credit could not be denied merely because the batches were later destroyed within the factory. Medicaments cleared under non-returnable challans for testing and sampling were not liable to excise duty because they had not attained marketability and samples consumed or destroyed in testing do not attract levy.

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Issues: (i) Whether duty payable on goods procured under Notification No. 43/2001-CE (NT) could be discharged through utilisation of Cenvat credit; (ii) Whether Cenvat credit was admissible on inputs and packing materials used for manufacturing exhibit batches that were tested and then destroyed or disposed of within the factory; (iii) Whether medicaments cleared under non-returnable challans for testing and sampling were liable to excise duty.

Issue (i): Whether duty payable on goods procured under Notification No. 43/2001-CE (NT) could be discharged through utilisation of Cenvat credit.

Analysis: The liability arose only for non-use of the goods procured under the concessional notification, and there was no statutory prohibition against discharge of such duty through available Cenvat credit. The cited precedent on identical facts had permitted payment through Cenvat credit.

Conclusion: The issue was decided in favour of the assessee, and duty could be paid by utilising Cenvat credit.

Issue (ii): Whether Cenvat credit was admissible on inputs and packing materials used for manufacturing exhibit batches that were tested and then destroyed or disposed of within the factory.

Analysis: Inputs and packing materials used for trial manufacture, testing, and quality control formed part of the manufacturing process of pharmaceutical products. Since such testing was integral to determining marketability and the materials were used in relation to manufacture, credit could not be denied merely because the exhibit batches were later destroyed.

Conclusion: The issue was decided in favour of the assessee, and Cenvat credit was admissible.

Issue (iii): Whether medicaments cleared under non-returnable challans for testing and sampling were liable to excise duty.

Analysis: The goods were sent out for testing and sampling and had not attained marketability. Marketability remained the decisive test for levy of excise duty, and samples consumed or destroyed in the testing process were not liable to duty.

Conclusion: The issue was decided in favour of the assessee, and no excise duty was payable on such clearances.

Final Conclusion: The demand did not survive, the impugned order was set aside, and the assessee obtained full relief.

Ratio Decidendi: Goods or samples used for mandatory testing and quality control, and consumed or destroyed in that process before attaining marketability, do not attract excise duty, and duty otherwise payable on such transactions may be discharged through available Cenvat credit absent a specific statutory bar.

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