Excise duty on in-factory quality control samples is not payable when their testing use and records are properly maintained

Samples drawn within the factory solely for quality control and marketability testing were treated as not liable to excise duty where their use and handling were duly recorded. On that basis, the duty demand on such samples was set aside. The composite penalty, being partly founded on the sample clearances, was reduced, and the penalty on the individual appellant was also set aside. The admitted duty liability on shortage of inputs remained unaffected because it was not in dispute.

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Issues: Whether samples drawn from batches of medicines for quality control and marketability testing were liable to excise duty, and whether the related penalty could be sustained.

Analysis: The samples were drawn only for testing whether the goods had attained the stage of marketability and the assessee maintained records of such samples. The duty demand on those samples was therefore not sustainable. Since the penalty was composite and also rested on the sample clearances, it required reduction, while the admitted duty liability on shortage of inputs was not in dispute.

Conclusion: The duty demand on quality control samples was set aside. The penalty was reduced and the penalty on the individual appellant was also set aside.

Ratio Decidendi: Samples drawn and used within the factory solely for quality control or marketability testing are not liable to excise duty when their use and handling are duly recorded.

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