Testing of duty-paid goods returned to factory was not dutiable, and a second penalty on the same goods was unsustainable.

Duty-paid goods returned to the factory only for testing under Rule 173H were not covered by the one-year limitation proviso meant for goods brought back for repair, reconditioning, remaking or similar purposes. Testing was not treated as manufacture, so the subsequent removal of such goods after testing did not attract duty. A second penalty on the same goods was also unsustainable because penalty had already been imposed earlier for the same matter. The earlier view on limitation and duty liability was held incorrect, and the duty demand and penalty were not sustainable.

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Issues: Whether duty and penalty were exigible on duty-paid goods received back into the factory only for testing under Rule 173H, and whether a second penalty and re-adjudication on the same goods were sustainable.

Analysis: The goods had originally been cleared on payment of duty and were taken back for testing only. The period of one year and the related proviso inserted by Notification No. 21/89 and later substituted by Notification No. 34/90 applied only to goods brought back for repair, reconditioning, remaking or similar purposes, not to goods returned for testing. Testing was not treated as manufacture, and the subsequent removal of the goods after testing therefore did not attract duty. The second penalty could not be sustained, as penalty had already been imposed earlier in respect of the same goods. The earlier view taken by the authority on limitation and duty liability was found to be incorrect.

Conclusion: The duty demand and the penalty were not sustainable, and the assessee succeeded.

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