By TIOL News Service

MUMBAI, MAY 04, 2018: THE appellants manufacture excisable goods falling under Chapter 72 of the CETA, 1985.

They cleared four samples from each batch of Galvanized Cold Roll Coils in the form of white strips. These samples were taken for testing purpose. All such tested samples, after being tested for bending, locking properties and for extent of galvanization, are preserved till final disposal of the respective GP coils in the market, with a view to redress market complaints, if any.

The said samples are accumulated till a sizeable quantity is reached and then the same are cleared on payment of duty as scrap.

The case of the department is that the samples drawn is of finished goods and the same was used captively, therefore, such clearances should be made following the valuation principles in terms of rule 4 by virtue of Rule 11 of Valuation Rules, 2000. Inasmuch as it was alleged that the appellants had short-paid the duty and, therefore, demand notice was issued.

As the lower authorities confirmed the duty demand, the appellant is before the Tribunal.

The appellant submitted that samples were drawn captively for testing purpose as per the requirement of ISO 2000 and when the same were cleared as scrap, duty of fresh final product cannot be demanded. Reliance is placed inter alia on the decision in Hindustan Unilever Ltd. - 2016-TIOL-914-CESTAT-MUM.

The AR, while reiterating the findings of the impugned order, submitted that in terms of para 3.2 to Chapter 11 of CBE&C's Manual, it is provided that the sample drawn for testing should be accounted for in the stock account and appropriate duty shall be paid by the assessee on such samples before removal for testing purpose unless they are exempted by duty exemption notification and, therefore, the appellant should have paid the duty while drawing the sample of the finished goods as per the correct value in terms of Central Excise Valuation Rules, 2000.

The Bench observed -

++ We find that the appellant have drawn the sample captively within the factory for testing purpose, since the goods were not cleared from the factory, no duty was required to be paid and as and when the sample was cleared, the same was cleared in the form of waste and scrap and excise duty was paid on the transaction value of such waste and scrap. In this fact, there is no question of demanding duty on the captive consumption of sample for testing.

Referring to the Tribunal decision in Bhansali Engg. Polymers (affirmed by the apex court) wherein it was held that samples drawn before the RG-1 stage, the duty on the samples drawn for the testing is not liable& the decision in Hindustan Unilever Ltd. - 2016-TIOL-914-CESTAT-MUM (arrived at by relying upon the apex court decisions in Paper Product Ltd. - 2002-TIOL-84-SC-CX & ITC Ltd . - 2003-TIOL-39-SC-CX wherein it was held that sample drawn from each batch for testing in the in-house laboratory are not liable to Central Excise duty, the CESTAT noted that the appellant's case is on a better footing as the samples after testing were cleared as waste and scrap on payment of duty.

Concluding that the duty on the sample drawn for testing is not sustainable,the impugned orders were set aside and the appeals were allowed.

(See 2018-TIOL-1425-CESTAT-MUM)