Control Samples- not be chargeable to duty

Misc. Order No. M/37/2005-NB(C), dated 8-2-2005 in Appeal Nos. E/4039 & E/4043-4044/2003-NB(C) CASES CITED Albert David Ltd. v. Commissioner — 2002 (148) ELT 1183 (Tribunal) — Referred....... [Para 2] Aristo Pharmaceutical Ltd. v. Commissioner — 2000 (121) ELT 0386 (Tribunal) — Referred [Para 2] Bayer Diagnostics India Ltd. v. Commissioner — 2001 (133) ELT 0140 (Tribunal) — Referred [Para 5] Bhansali Engg. Polymers Ltd. v. Commissioner 1999 (114) ELT 0947 (Tribunal) — Referred [Para 5] I.T.C. Ltd. v. Collector 2003 (151) ELT 0246 (S.C.) — Referred...................................... [Para 5] Mapra Laboratories Pvt. Ltd. v. Commissioner 2001 (127) ELT 0695 (Tribunal) — Referred [Para 2] REPRESENTED BY : Shri Kumar Santosh, SDR, for the Appellant. S/Shri V. Lakshmikumaran, Advocate and Ravi Raghavan, Consultant, for the Respondent. [Order per : K.C. Mamgain, Member (T)]. - The appellants have filed appeals with regard to dutiability of control samples for medicine retained in the factory. The Division Bench which has heard the appellant found that there are conflicting decision on the issue. Accordingly, the matter was placed before the Larger Bench for decision on the issue involved. 2.Shri Kumar Santosh,  learned SDR pleaded that there is no exemption notification for the control samples retained by the appellants in their factory. The samples are therefore chargeable to duty. He further pleaded that as per Rule 9 read with Rule 49 of Central Excise Rules, 1944 excisable goods made in a factory if consumed or utilized - (i) as such or after subjection to any process or -(ii) for manufacture of any commodity; whether in a continuous process or otherwise, in a factory shall be deemed to have been issued out of, or removed from such factory, immediately before such consumption or utilization. In view of this the control samples shall be deemed to have been removed in terms of Rules 9 and 49 of Central Excise Rules and duty shall be chargeable on such samples. He relied on the following decisions of the Tribunal :- (1) Albert David Ltd. v. C.C.E. 2002 (148) ELT 1183 (2) Mapra Laboratories Pvt. Ltd. v. C.C.E. - 2001 (127) ELT 695 (3) Aristo Pharmaceuticals Ltd. v. C.C.E. - 2000 (121) ELT 386 wherein it was held that taking of samples for being retained inside factory in accordance with Drugs and Cosmetics Act, 1940 to be regarded as deemed clearance as per explanation to Rules 9 and 49 of erstwhile Central Excise Rules, 1944. He, therefore, pleaded that in the absence of any exemption, notification the samples retained in the factory for control purposes are chargeable to Central Excise duty. He also pleaded that Para 3.3.1 of Supplementary Instructions of C.B.E. & C.’s Manual is applicable only for the period from 1-9-2001 onwards and the instructions are not applicable for the period prior to that. The present appeals cover the period from 1999-2000 to 2000-2001.  3.Shri A. Lakshmikumaran, learned Advocate for respondent pleaded that the Basic Manual of Departmental Instructions on Excisable Manufactured Product as on 31-12-1979 deals with samples in Para 113 and Para 114. It gives the various categories of samples drawn which are as under :- “Categories of Samples 114 (i) for supply as trade samples to customers for trial; (ii) for test purposes; (iii) for supply against contracts or orders from the Government or for enforcement of control measures; (iv) for display at exhibitions, fairs and in show cases; (v) for market inquiries by Central Excise Officers Procedure for the drawal and accounting of these samples. I. Trade samples --------------------------------------------------------------------- II. Samples for test purposes The samples from this category will generally include - (a) Samples required for laboratory test in the factory and for preservation for investigation of complaints; (b) Samples required for tests at sister concerns and independent testing agencies; (c) Samples for Government Test house and other Government Departments; and (d) Samples required to be sent to the Chemical Examiners for test. In the case of samples at (a) above, required by laboratory for testing qualities and accuracy of the specification of various kinds of products, the same may be allowed and drawn as and when they are required without notice to the Range Officer, provided a proper account of receipts and the quantity utilised in the test is maintained in the laboratory. Issue entries for the goods already accounted for in RG I or EB 4 (or both) should be made in the register in the form given in Appendix XVIII and put up to the Range Officer for his information. While no duty will be charged on these samples, remnants of samples after the analysis must be returned to the process. Certain manufacturers ‘also preserve the samples of their product for some period for investigation of complaints, if received. No duty should be charged on these samples also, but an account of such samples should be maintained in the form prescribed in Appendix XIX”.  4.He stated that in the Supplementary Instructions to Excise Manuals effective from 1-9-2001, the same position is repeated in Chapter 11 and it is clarified in para 3.3.1 of the said Chapter that where samples are required for the purposes specified at (iii), (iv) and (v) of Para 2.1 above the procedure specified in paragraph 3.2 shall be followed. However it is clarified that when a manufacturer preserve the samples of their product for some period for investigation of complaints, if received, no duty should be charged on these samples considering that goods remain within the factory. Duty shall be charged, unless exempted by a notification, once the samples are cleared from the factory. If at any time the manufacturer desires to destroy these samples, procedure specified in Rule 21 of the said Rules shall be followed.  5.Thus, from the instructions, it is clear that right from 1979 the Department have clarified that no duty is required to be charged on the samples, which are retained in the factory for control purposes unless these are cleared from the factory. He relied on the following decisions in support of his claim :- (i) I.T.C. v. C.C.E., Patna -- 2003 (151) ELT 0246 (S.C.) (ii) Bhansali Engg. Polymers Ltd. v. C.C.E. - 1999 (114) ELT 947 which was confirmed by the Hon’ble Supreme Court as reported in 2002 (143) ELT A175 (iii) Bayer Diagnostic India Ltd. v. C.C.E., Vadodara - 2001 (133) ELT 140 wherein it was held that “As regards the samples drawn and store in fully manufactured and packaged condition under sub-rule (1) of the aforesaid Rules, it has come in the proceedings that these samples were kept for a period well beyond the date of expiry printed thereupon. The goods which have crossed the date of expiry cannot be marketed and applying the drawing test of marketability, the goods cannot be called to be dutiable goods. Therefore the question of short payment or non-payment of duty upon them also does not arise”. He also referred to Rules 9 and 49 of the Central Excise Rules, 1944 and pleaded that the explanation to Rule 49 makes it clear that deemed clearance will only be considered when the excisable goods are utilised as such or are used for manufacture of any other commodities in a continuous process or otherwise in the factory. In the present case the samples are only kept for control purposes in the factory and these are not used or cleared in terms of Rules 9 and 49. When these will be cleared, the appellant will be liable to duty, if these are not unfit for consumption or marketing.  6.We have carefully considered the submissions made by both sides. We find that the Basic Excise Manual issued by the C.B.E. & C’s and the Supplementary Instructions to the Excise Manual from 1-9-2001 clarifies the position that the samples required for laboratory test in the factory and for preservation for investigation of complaints may be allowed to be drawn provided that a proper account of receipts and utilisation in the test in the laboratory is maintained. Manufacturer can preserves the samples of their product for some period for investigation of complaints, if any. No duty should be charged on these samples but an account of such samples should be maintained in the prescribed form. If at any time the manufacturer desires to clear these samples then these should be assessed to duty as applicable. Therefore, the control samples as long as these are kept in the factory and not cleared from there, these will not be chargeable to duty if proper account is maintained. When these samples are cleared for test or for destruction at that time assessment should be made for duty, if any, leviable as per law.  7.Since the reference was made to the Larger Bench only on the issue whether control samples are required to be charged to duty or not when they are retained in the factory, the reference is decided as above. The appeals are sent back to the Division Bench for final disposal.