Excise on Sample trail

[Ganeshan Kalyani]

Dear Expert,

We procured an item and directly supply it to third party lab for testing. after testing a product will be manufactured and it will be supplied us back. we will then distribute it into the market as free sample. Here, while purchasing supplier has charged excise duty on invoice. My question is whether excise duty is applicable on a) supplying goods to third party lab. b) distributing as free sample. c) set off eligibility.

Important is that invoice is done at our Head office address as buyer and third party lab as consignee.

seeking your export comment in this regard,

regards,

ganeshan

[Rajagopalan Ranganathan]

Sir,

The free sample when cleared outside the factory is liable to excise duty unless they are exempted from payment of duty by way of an exemption Notification issued under Section 5 A of Central Excise Act, 1944. After testing if the sample is returned in full then you can take the credit of duty paid on the sample under Rule 16 of Central Excise Rules, 2002. If the sample gets destroyed during the test then the question returning the sample does not arise.

[YAGAY andSUN]

Dear Ganeshan,

Excise Duty on removal of samples (FOC) is payable. However, no VAT/CST will be payable but proportionate Input Tax Credit will be burnt out.

Regards,

NeelamTaneja- Executive Consultant

YAGAY and SUN - (Management, Business and Indirect Tax Consultant)

[PAWAN KUMAR]

Dear Sir,

As per my view, The point wise reply is as under :

(a)-No, goods directly supplied to any third party is not liable for excise duty.

(b)-Yes, Excise duty will be applicable on supply of foc samples.

(c)-Yes, Cenvat credit will be admissible on receipt of processed goods from the third party.

AI Summary

Excise duty on free samples: free distribution is generally chargeable but returned tested samples may allow credit. Removal of goods as free samples outside the factory is generally liable to excise duty unless an exemption notification applies. If a sample sent to a third party lab is returned in full after testing, duty paid may be taken as credit under Rule 16; if the sample is destroyed or consumed during testing, return and credit do not arise. One view treats direct supply to a third party for testing as not liable at that point, while subsequent distribution as free samples remains chargeable; VAT/CST implications differ and may result in loss of input tax credit.