ORDER
V.T. Raghavachari, Member (J)
1. The issue involved in all these appeals is common and hence they were all heard together.
2. M/s. Bata India Limited had been served with a series of show cause notices under which they have been called upon to show cause why central excise duty alleged to have been evaded by them should not be recovered for the various periods mentioned in the said notices. We extract the ground stated in one such notice since the same ground had been repeated in the various notices, the dates and the amounts alone varying: “On scrutiny of records it is detected that the footwear samples in odd pieces were cleared from the factory for domestic market during the period from 1-7-76 to 30-6-77 covered by commercial gate passes, but proper account of such clearances were not maintained inasmuch as neither the footwear were returned back to the factory for matching and accounting in the RG-1 nor for destruction of the goods in case of non-approval of the samples. So the clearances of odd pieces of samples of footwear were effected in an unauthorised manner.” The Company replied in all the cases that the sample odd piece removed from the factory would not be goods on which excise duty would be payable and that in any event the Deptt. was fully aware of such removals and the show cause notices were barred by time. According to them the sample odd pieces so removed would in course of time be destroyed. Under a series of orders the Assistant Collectors concerned rejected the defence and confirmed the demands. The same was upheld by the Appellate Collectors. The Company preferred revision petitions against the said orders which are the present deemed appeals before us.
3. We have heard Shri M. Chandrasekaran, Advocate for the appellants and Smt. Saxena for the Department.
4. In order to understand the issue it would be necessary to state the procedure followed by Batas in the matter of preparation of samples of footwear and removal thereof from the factory. We may at this stage point out that though the Deptt. as well as M/s. Batas have been calling these pieces of footwear as samples it appears to us that the word used was not proper. In fact it strikes us that it was the use of this wrong word ‘samples’ that may have led to what appears to us were incorrect demands. The procedure of production and disposal of the samples has been mentioned by the Company as follows :
“(a) Samples manufacturing action is initiated by our Sales Office situated at No. 6-A, S.N. Banerjee Road Calcutta-700 013. This is the office of our Marketing Division. That office furnishes to the Designs Department the specifications for production of a sample odd of a particular design.
(b) The designs Department is situated within the Bata Nagar footwear factory premises. It produces the odd according to the said specifications. Costing of the proposed product is then made by the Costing Department at Batanagar. Thereafter, the odd is reviewed by the Marketing Division. After final approval by the Marketing Division orders are placed on the Designs Department for reference samples.
(c) The Designs Department then makes two other odds, thus bringing the total numbers of odds for the design to three, two right odds and one left odd. the left odd goes to the Sales Office for preservation in its sample room. Of the two right odds, one is retained in the Factory Master Sample Room while the other is used in the factory as Production guide. The right odds are never sent out of the factory.
(d) The left odd is always removed duly mutilated that is, with a hole duly punched in its sole.
(e) The odds so mutilated have no commercial value nor are they capable of being sold or dealt with as-footwear. Further, since they, are made design-wise, they swell in volume with the passage of time-encroaching upon valuable storage space. Therefore, at that stage we destroy them. The destruction takes place at the Sales Office as well as at the Factory.”
5. It therefore appears to us that the issue relates to production and removal from the factory of what we may, for want of a better word, call a design sample or prototype, rather than a sample as is usually understood in commercial parlance. Samples in commercial parlance would be pieces taken out of the regular production line for being distributed to customers or prospective customers for development of trade in the said goods by expanding the market. But the goods in issue before us would not be samples in this sense. What were being prepared and sent out were design pieces, evidently to obtain the reaction of the market to the said design so that if the market reaction was favourable production on regular scale may be taken up for normal sales. As pointed out in the earlier extract, the left odd piece would always be multilated by punching a hole in the sole so that it may not be available for sale.
6. The central issue therefore would be whether this left odd piece sent out of the factory would be goods on which excise duty could be demanded. It is common knowledge that footwear is always sold in pairs and never in odd pieces of left or right. Hence an odd piece, either left or right, could never be termed goods coming on the market for sale since that would have no saleable value whatever. That is why the Company had also been always showing these odd pieces in their commercial gate passes as of nil value.
7. It may also be noted that it is not the case of the Department that the so called sample pieces we being removed in pairs. It may also be noted that it is not denied for the Deptt. that the left odd piece removed would always be mutilated by punching a hole in the sole. It may also be noted that it is the case tor Batas that even in instances where the left odd piece is received back approved, the same would be matched with the corresponding right piece and included in the number of items produced, duty evidently being paid thereon as and when they would be removed.
8. Therefore the position appears to be that if the left odd piece is not approved by the market the same is destroyed and if approved it is either destroyed if it had become unusable or matched with the right and thereupon included in the excisable goods included in the RG-1. But as earlier mentioned, the left odd pieces (which alone are the subject matters of these appeals) were not ‘goods’ when they were removed from the factory. Hence they are not goods on which duty could be demanded.
9. On this ground itself we are of opinion that the orders of the lower authorities are to be set aside and the demands set aside. Accordingly all these appeals are allowed and the orders of the lower authorities are set aside with consequential relief, if any.