Pre-marketable quality control samples are not excisable when they remain within manufacturing and are not marketable goods.

Cigarettes drawn at a pre-marketable stage for internal quality control testing were not excisable because the samples remained within the manufacturing process, were used only for inspection of packing, moisture and physical parameters, and were destroyed or returned for remanufacture if they failed the checks. On that basis, central excise duty was not payable on the tested samples. The extended limitation period was also unavailable because the department knew of the sampling practice and the factory was under departmental supervision, so suppression or intent to evade duty was not established.

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Issues: (i) Whether cigarettes drawn in the quality control laboratory for inspection, moisture testing and other physical tests at a pre-marketable stage were excisable and liable to central excise duty. (ii) Whether the demand could be sustained for the extended period on the ground of suppression and intent to evade duty.

Issue (i): Whether cigarettes drawn in the quality control laboratory for inspection, moisture testing and other physical tests at a pre-marketable stage were excisable and liable to central excise duty.

Analysis: The tests in question were not by actual smoking of finished cigarettes, but were confined to inspection of wrapping and packing, checking of moisture content, and checking of physical parameters and glueing/fixing processes. The samples remained within the manufacturing loop and, if they failed the prescribed checks, they were destroyed and sent back for remanufacture. On these facts, the cigarettes had not reached the stage of marketability and could not be treated as excisable goods merely because they were drawn for internal quality control.

Conclusion: The duty demand on cigarettes drawn for testing was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the demand could be sustained for the extended period on the ground of suppression and intent to evade duty.

Analysis: The department was aware of the practice of drawing samples for testing, and the factory was under physical control with departmental supervision. In that setting, invocation of the larger period of limitation was not justified. However, since the demand itself failed on merits, this finding did not affect the final result.

Conclusion: The extended period was not available to the Revenue.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Goods drawn at a pre-marketable stage and retained within the manufacturing process do not become excisable merely because they are used for internal quality control testing.

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