Case Note & Summary
The dispute concerned the levy of central excise duty on control samples drawn for testing by a manufacturer of bulk drugs. The assessee, RPG Life Sciences Ltd., operated a factory in Navi Mumbai and drew samples for in-house testing within the factory premises, which were entirely consumed during the testing process. On 30 December 1998, a show cause notice was issued by the revenue demanding duty on such control samples and proposing a penalty. The assessee contended that no duty was payable because the samples were not removed outside the factory but were consumed within. The adjudicating authority confirmed the duty and levy of penalty, and the Commissioner (Appeals) upheld that order. On further appeal, the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) relied on the larger Bench decision in Commissioner of Central Excise v. Dabur India Ltd., 2005 (182) E.L.T. 185 (Tri-LB), and held that no excise duty was leviable on samples drawn for testing. The revenue preferred an appeal to the Bombay High Court, which was admitted on a substantial question of law: whether control samples drawn for testing are chargeable to central excise duty under the Central Excise Act, 1944 and the Rules made thereunder. The revenue urged that the Dabur India Ltd. decision had been distinguished in Positive Packaging Industries Ltd. v. Commissioner of Central Excise, New Panvel, 2010 (249) E.L.T. 57 (Tri-Mumbai), where the Tribunal held that in the absence of an exemption notification, duty would be payable on samples drawn for testing as per the Board's supplementary instructions. The High Court, however, noted that the assessee's specific case that the samples were drawn and consumed within the factory was never controverted by the revenue, and there was no allegation that the assessee had failed to maintain proper accounts. Citing the Supreme Court's decision in ITC Ltd. v. Collector of Central Excise, Patna, 2003 (151) E.L.T. 246 (S.C.), particularly paragraph 11 thereof, the Court held that where goods are not cleared out of the factory premises but are drawn for testing and in fact consumed within the factory during testing, no duty can be demanded. The Court distinguished Positive Packaging Industries Ltd. on the ground that in that case the samples were cleared out of the factory and sold as scrap, whereas here the samples were destroyed during testing inside the factory. Accordingly, the High Court dismissed the revenue's appeal, answering the question in favour of the assessee and against the revenue, with no order as to costs.
Headnote
A) Central Excise - Levy of Duty on Samples Drawn for Testing - No duty payable if samples are drawn and consumed within factory premises during testing, as there is no 'removal' of goods - Central Excise Act, 1944 - Control samples drawn for testing within the factory and consumed during testing are not chargeable to central excise duty as there is no removal of goods from the factory. The Court held that where samples are consumed/destroyed during testing inside the factory, the event of 'removal' does not occur, and therefore, no duty liability arises. The revenue's appeal was dismissed. (Paras 4-6)
Issue of Consideration
Whether control samples drawn for testing are chargeable to central excise duty under the provisions of Central Excise Act, 1944 and Rules made thereunder ?
Final Decision
Appeal dismissed; question of law answered in favour of the assessee and against the revenue; no order as to costs.
Law Points
- Excise duty not leviable on control samples drawn for testing that are consumed within the factory premises during testing
- as there is no removal of goods
- duty arises only upon clearance of excisable goods from factory
- samples consumed/destroyed within factory during testing are not 'removed' under Central Excise Act
- 1944.
