Judgment
1. The assessees manufactured track shoes which were component parts of battle tanks and cleared them to the Defence Factories in terms of Notification No. 165/87-C.Ev dated 10-6-1987 following the procedure set out in Chapter X of the Central Excise Rules, 1944. The material was later subjected to rigorous tests by the buyers during which some of the material was damaged/destroyed. The RT 12 Return of the assessee for the period May, 1990 to September, 1990 showed that such material amounting to Rs. 98,735/- was destroyed in tests. Vide show cause notice dated 22-11-1990 duty was demanded on this value. The Assistant Collector held that where the goods were destroyed during testing, they should not be deemed to have been used as O.E. parts in the tanks. He held that the goods were fully manufactured when they were cleared. He also observed that as per contract between parties the payment was to be made for the samples destroyed during testing also. On this observation he confirmed the demand. The assessees then filed an appeal. The Collector observed that unless the goods cleared quality control test they could not deemed to be fully manufactured. She also observed that what was destroyed was a small percentage of the total and set aside the lower order. The Revenue is in appeal before us against this order.2. Shri S. Nunthuk, learned JDR reiterating the submissions in the memorandum claimed that the goods were cleared under Chapter X Procedure and, therefore, it has to be held that they were fully manufactured. He also said that the fact that they were entered in the RG 1 Register also supports his belief. He requested for setting aside the order of the Commissioner.
3. The respondents were not present although due notice was sent to them.
4. We have carefully considered the submissions made before us and have seen the impugned notification.
5. The fact that the goods were entered in the RG 1 Register and the fact that the contract indicates that the payment could be made for goods destroyed during sample indicates that the goods were fully manufactured. The Collector perhaps had relied upon the judgment of the Tribunal cited before him in the case of Collector of Central Excise v.General Cement Products (P) Ltd., reported in 1989 (39) E.L.T. 689 (Tribunal) in which it has been held that where the quality control was a mandatory clause, the goods could not be held to be fully manufactured until they were so tested. That ratio will hold good where the goods are tested in the factory of manufacturer before entry is made in the RG 1 Register before their clearance. Here the goods were fully manufactured and the quality control test was for acceptance as parts and not for determination of whether the goods were fully manufactured or not.
6. On the observation that the goods should have actually been used in the tanks the demand for duty cannot sustain. The notification speaks of parts "intended for use". The Supreme Court in their judgment in the case of Steel Authority of India Ltd. v. Collector of Central Excise, reported in 1996 (88) E.L.T. 314 (S.C.) have interpreted this phrase.
Even, otherwise, there was no doubt that the intention behind their clearance was for use in the battle tanks alone since the goods have no alternative use. As regards destruction during testing. We observe, that the language of Rule 192 itself acknowledge and permits such loss during "handling" which phrase is of wide import and can cover testing also.
7. We, thus, find that the goods cleared under this notification which were destroyed during sample testing in the factory of recipient did not attract any duty. On this ground we do not feel it necessary to restore the order of the Assistant Collector. This appeal is accordingly dismissed.