Control samples not cleared from factory cannot attract duty; related penalty also falls with the same allegation.

Control samples of pharmaceutical products marked "not for sale" and drawn under the Drugs and Cosmetics Act were treated as retained in the factory for representative purposes. As the record did not dislodge the claim that the samples subject to demand had not been cleared from the factory, the condition under Notification No. 171/70 was not breached. In the absence of factory clearance, the duty demand failed, and the penalty, resting on the same alleged contravention, was also unsustainable. Both the duty demand and penalty were set aside in favour of the assessee.

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Issues: Whether duty was payable on control samples of pharmaceutical products on the footing that they were cleared from the factory in violation of Notification No. 171/70 dated 21-11-1970, and whether penalty could be sustained.

Analysis: The dispute related to pharmaceutical products classifiable under Chapter 30 of the Schedule to the CETA, 1985 and to the condition attached to Sl. No. 24, Col. 5 of Notification No. 171/70 dated 21-11-1970. The appellants maintained that the control samples were marked as not for sale, drawn as per the Drugs and Cosmetics Act, 1940, and retained in the factory for representative purposes. The record did not contain any finding to dislodge the claim that the samples subject to demand had not been retained but had been cleared from the factory. In the absence of clearance from the factory, the foundation for duty demand did not survive, and the penalty, being dependent on the same alleged contravention, also could not stand.

Conclusion: No duty was payable on the control samples and the penalty was unsustainable; both were set aside in favour of the assessee.

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