Marketability controls excise duty on diagnostic samples; testing samples and expired retained samples were held not dutiable.

Central excise duty on diagnostic samples depends on marketability. Samples consumed in testing during manufacture were not packaged or fit for sale, and retained finished samples had expired and were no longer marketable. As marketability is a necessary condition for excise duty, neither category of samples was dutiable. On that basis, issues of captive consumption, factory clearance, suppression, extended limitation, and penalty did not require separate determination, and the duty demand failed.

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Issues: Whether duty was leviable on diagnostic samples drawn during manufacture and on retained finished samples under Rule 74 of the Drugs and Cosmetics Rules, 1945, in the light of the requirement of marketability under the central excise law.

Analysis: The samples drawn at the manufacturing stage were consumed in testing and were not packaged or fit for sale when drawn. The retained samples were kept in finished, packaged form but had crossed the expiry date and were no longer marketable. In both situations, marketability was absent, and goods that are not marketable do not attract central excise duty. Since the samples were not dutiable, the questions of captive consumption, clearance from the factory, suppression, extended period, and penalty did not survive for decision.

Conclusion: Duty was not payable on either category of samples and the demand failed.

Final Conclusion: The appeals succeeded, the duty demands were set aside, and consequential relief followed.

Ratio Decidendi: Goods are chargeable to central excise duty only if they are marketable, and samples that are consumed in testing or retained beyond expiry so as to lose marketability are not dutiable goods.

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