Full Judgment
2. By the notice issued on 30th May, 1990 the Department proposed to recover duty on samples cleared during the period of 1st June, 1986 to 23rd February, 1987. The notice alleged suppression of the fact that the samples were taken to the laboratory for testing as a reason for invoking the extended period contained in the proviso to Section 11A of the Act. Advocate for the appellant contends that it suppressed nothing. Thee was no requirement for it to intimate the Department of the quantity issued for the test. He says that Rule 94 does not require any account to be maintained of samples removed for such testing. The notice does not allege or the Additional Collector find that the appellant was required to keep an account of such removal. He lays emphasis on the fact that the factory was under physical control. The Departmental officials posted to the factory would in the course of their duty would have been aware that samples were being taken for testing, in accordance with the long established practice not only in the appellant's factory but generally in the industry. He also advanced various arguments on merits.
3. The Departmental Representative contends that the role of the officer posted in a factory under physical control is confined to assessment of finished excisable goods under Rule 52A and therefore the presence of the officers is not of significance in this matter. He further contends that the account of cigarettes produced as specified in Rule 94 has not been maintained.
4. Factories manufacturing cigarettes, are under physical control. That is to say that there are officers posted at the factory who undertake various checks as prescribed by the Department. While Rule 52 speaks of the officer assessing the application for removal of excisable goods in such a factory under physical control, it does not flow from this that the functions of the officers are limited to such assessment alone. It would be futile to attempt to say that the officers posted in such factory did not undertake other checks, and relating to manufacture of excisable goods, stock of raw materials etc., in order to ensure, as far as possible, there is no escapement of duty. The finding of the Tribunal in LML Ltd. v. C.C.E. - 1991 (51) E.L.T. 434 that payment of duty beyond six months is time barred because 'the charge of clandestine removal is incongruous in a unit under physical control" has significance.
5. Apart from this, the Basic Manual of Departmental Instructions on Excisable Manufactured Products corrected upto 31st August, 1989 provided in para 113 that "no excise duty is charged on samples issued for test purposes inside the factory subject to the condition that they are irretrievably lost as excisable goods in the process of test or are otherwise, properly accounted for." It is not disputed that in the course of testing the cigarettes has to be opened and those are lost as such cigarettes although the tobacco may perhaps be reused.
6. Now the provision of this paragraph of the Manual are significant for the purposes of application of the extended period. They consequently support the contention of the appellant that it was not required to maintain any account, since the samples were lost. Further, existence of the instructions and the conduct of the officers in implementing their instructions, which were administratively holding on them would have led the appellant to believe that the no duty was payable on such samples. There was therefore no incentive for the appellant to suppress the removal with intent to evade duty. Therefore, it has to be held that the assessee did not remove these cigarettes with intent to evade duty. For this requirement is to be established, as the Supreme Court has held in Camphar Drugs Liniment v. Union of India - 1989 (40) E.L.T. 276 something positive other than mere inaction is required. There is no such allegation in the notice. Even the Additional Collector does not find the existence of any such positive step or action by the appellant. Therefore, the appeal succeeds on limitation. Hence I do not consider it necessary to go into the arguments advanced by the appellant on merits.