2002 (10) TMI 120 - AT - Central Excise

Tribunal confirms excise duty on control samples, emphasizing Central Excise Rules.

The Tribunal dismissed the appeal filed by M/s. Albert David Ltd. against the Order-in-Appeal confirming central excise duty and penalty. The Tribunal ... Control samples as excisable goods - deemed clearance under Rules 9 and 49 of the Central Excise Rules - quality control test determines completion of manufacture - non-applicability of marketability test to samples retained after manufacture - reduction/mitigation of penalty for excessivenessControl samples as excisable goods - deemed clearance under Rules 9 and 49 of the Central Excise Rules - quality control test determines completion of manufacture - Whether central excise duty is leviable on control samples of P or P medicines removed from the factory and retained as required under the Drugs and Cosmetics Act for the period August, 1994 to July, 1999. - HELD THAT: - The Tribunal found that the control samples consisted of P or P medicines which had been manufactured and became liable to central excise duty once the quality control tests on the batch were passed. The appellants' contention that samples were removed prior to RG-I stage or prior to completion of manufacture was rejected because control samples are retained only after successful testing of the batch; mere prior removal before formal RG-I entry does not render the goods non-excisable. The explanation to Rules 9 and 49 of the Central Excise Rules treats excisable goods manufactured and consumed or utilised as such as deemed clearances; consistent authority (Mapra Laboratories) supports that taking of samples to be retained inside the factory under the Drugs and Cosmetics Act is to be regarded as clearance. The Tribunal held the decision relied upon by the appellants concerning post-expiry marketability (Bayer Diagnostics) inapplicable, as the show cause related to medicines removed to be kept as control samples, not to expired goods sold in market. Applying these principles, the demand of duty in respect of the control samples for the stated period was confirmed.Demand of central excise duty in respect of control samples for August, 1994 to July, 1999 confirmed.Reduction/mitigation of penalty for excessiveness - Whether the penalty imposed should be maintained as originally quantified. - HELD THAT: - While sustaining the demand of duty, the Tribunal observed that the penalty originally imposed was excessive. Exercising its discretion, the Tribunal reduced the penalty to a token amount as reasonable mitigation in the circumstances of the case.Penalty reduced to Rs. 5,000/-.Final Conclusion: The appeal is disposed of by confirming the central excise duty demand in respect of control samples removed and retained during August, 1994 to July, 1999, and by reducing the penalty to Rs. 5,000/-. Other findings in the Commissioner (Appeals) order (including setting aside confiscation and demand on seized goods) were not challenged by the Department and remain undisturbed. Issues:- Appeal against Order-in-Appeal confirming central excise duty and penalty.- Treatment of control samples in relation to central excise duty.- Interpretation of Rules 9 and 49 of the Central Excise Rules.Analysis:1. Appeal against Order-in-Appeal:The appeal was filed by M/s. Albert David Ltd. against the Order-in-Appeal confirming the demand of central excise duty and penalty. The Additional Commissioner had earlier held that control samples should have been accounted for in the RG-I register and imposed duty on the seized control samples. The Commissioner (Appeals) set aside the confiscation of seized goods, confirmed duty on destroyed control samples, and reduced the penalty. The appellant argued that control samples are not finished goods and are not for sale, citing relevant case laws. However, the Tribunal upheld the demand of duty on control samples removed before passing quality control tests, deeming them excisable goods under the Central Excise Rules.2. Treatment of Control Samples:The Tribunal considered the nature of control samples kept by M/s. Albert David Ltd. as per the Drugs and Cosmetics Act. It was noted that the control samples were of medicines manufactured by the appellants and were retained until passing quality control tests. The Tribunal rejected the argument that these samples were not excisable goods, emphasizing that once the quality control test was successful, the goods became liable for central excise duty. The Tribunal referred to Rules 9 and 49 of the Central Excise Rules, which deem excisable goods utilized as samples to have been removed from the place of manufacture.3. Interpretation of Rules 9 and 49:The Tribunal clarified that under Rules 9 and 49 of the Central Excise Rules, excisable goods utilized as samples within the factory premises are deemed to have been removed from the place of manufacture. Citing a previous case, the Tribunal reiterated that taking samples for retention inside the factory, as per the Drugs and Cosmetics Act, constitutes clearance under the Central Excise Rules. The Tribunal found no merit in the appellant's argument that duty was confirmed on expired samples, affirming that duty was demanded on medicines removed for control samples. The Tribunal upheld the demand of duty but reduced the penalty imposed.In conclusion, the Tribunal dismissed the appeal and confirmed the demand of duty on control samples removed before passing quality control tests, emphasizing the applicability of the Central Excise Rules and previous case laws in determining excisability.