Waste arising in manufacture during testing and repacking qualifies for duty remission on destruction under Rule 56A(3)(iv)(c).

Damaged medicinal capsules arising during testing and repacking of duty-paid life-saving drugs were treated as waste generated in manufacture, because repacking of medicinal preparations was regarded as manufacture under Section 2(f) of the Central Excise Act. Rule 56A(3)(iii) applies to materials or components taken on credit and cleared as such on duty payment, whereas Rule 56A(3)(iv)(c) governs waste arising in the manufacturing process that is unfit for further use or not worth the duty payable. On that basis, destruction of the damaged capsules in the presence of the proper officer entitled them to remission of duty.

---

---

Issues: Whether damaged medicinal capsules arising during testing and repacking of duty paid life-saving drugs were governed by Rule 56A(3)(iii) or by Rule 56A(3)(iv)(c), and whether duty could be remitted on destruction of such damaged capsules.

Analysis: The capsules were received under proforma credit for testing and repacking, and the activity of repacking medicinal preparations was treated as manufacture under Section 2(f) of the Central Excise Act. Rule 56A(3)(iii) applies where materials or component parts taken credit for are cleared as such on payment of duty. Rule 56A(3)(iv)(c) applies where waste arises in the process of manufacture and is found unfit for further use or not worth the duty payable thereon, in which event destruction in the presence of the proper officer results in remission of duty. Since the capsules became damaged in the course of testing and repacking, they constituted waste arising in manufacture and not goods sought to be destroyed as such on receipt into the factory.

Conclusion: Rule 56A(3)(iv)(c) applied, and the damaged capsules were eligible to be destroyed with remission of duty.

---