In-house testing samples destroyed inside the factory were not dutiable, and extended limitation failed for lack of suppression.

Excise duty was held inapplicable to in-house testing and control samples that were drawn at an intermediate stage, consumed or destroyed within the factory, and not shown to have been cleared outside. Internal records and SOPs supported the absence of removal, and the cited CBEC instructions and prior decisions aligned with that position. The extended period of limitation was also found unavailable because the dispute rested on legal interpretation, regular returns had been filed, and no wilful suppression or comparable basis for extended limitation was shown. The demands and consequential adjudications were therefore unsustainable.

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Issues: (i) Whether excise duty was payable on samples drawn for in-house testing and control purposes when the samples were consumed or destroyed within the factory and were not cleared outside; (ii) Whether the extended period of limitation could be invoked on the facts of the case.

Issue (i): Whether excise duty was payable on samples drawn for in-house testing and control purposes when the samples were consumed or destroyed within the factory and were not cleared outside.

Analysis: Excise duty is attracted on manufacture of excisable goods, but the samples in question were drawn at an intermediate stage for testing, were either consumed in the testing process or destroyed within the factory, and were not shown to have been cleared from the factory. The internal records and SOPs showed destruction or consumption of the samples, and the Revenue did not produce contrary evidence of removal. The cited CBEC instructions and the prior decisions relied upon supported the principle that samples retained and dealt with inside the factory, without clearance, are not dutiable as such.

Conclusion: Excise duty was not payable on the in-house testing and control samples that were not cleared outside the factory.

Issue (ii): Whether the extended period of limitation could be invoked on the facts of the case.

Analysis: The demands were raised by successive notices over a period of time, while the appellants had regularly filed returns and the dispute turned on legal interpretation rather than suppression of facts. In the absence of evidence of wilful suppression or other ingredients required for extended limitation, the invocation of the extended period was not justified.

Conclusion: The extended period of limitation could not be validly invoked.

Final Conclusion: The demands and consequential adjudications were unsustainable, and the appeals were allowed.

Ratio Decidendi: Samples drawn for testing and consumed or destroyed within the factory, without clearance from the factory and without contrary proof of removal, are not liable to excise duty; extended limitation cannot be invoked absent suppression or other qualifying circumstances.

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