2018 (11) TMI 8 - AT - Central Excise

Captive consumption - part of the sulphuric acid manufactured by them is being used in demineralisation of water, which is being used by them captively for further manufacture of their final product - N/N. 67/95-CE dated 16.3.1995 - denial of benefit on the ground that DM water is the appellant s final product and is exempted from payment of duty. Held that - The Hon ble Supreme Court in the case of CCE, New Delhi vs. Hindustan Sanitaryware & Industries 2002 (9) TMI 103 - SUPREME COURT OF INDIA , has dealt with an identical issue. It stands held by the Hon ble Supreme Court that exemption to captive consumption of modvatable inputs is available even if intermediate product is exempt from duty, but final output is dutiable. As such it was held that plaster of paris used in making of moulds which in turn are used as inputs in relation to the manufacture of sanitaryware, would be eligible to exemption under Notification No.217/87-CE, which was an exemption on account of captive consumption. Inasmuch as, admittedly, the DM water comes into existence during the course of manufacture of the final product and is used captively, the same has to be held as an intermediate product and not a final product. In such a scenario, the same would earn exemption of captive consumption Notification No.67/95-CE dated 16.3.1995. Appeal allowed - decided in favor of appellant.

Summary

Issues: Interpretation of captive consumption notification for manufacturing process involving demineralised water.

In this case, the appellant, engaged in manufacturing sulphuric acid and fertilizers, used a part of the sulphuric acid for demineralisation of water, which was then used captively for further manufacturing. The revenue contended that the appellant, whose final product was demineralised water exempt from duty, was not entitled to the captive consumption notification for using sulphuric acid in the demineralisation process. A show cause notice was issued, demanding duty payment of &8377; 9,638 for a specific period, which was confirmed in the impugned order along with penalties. The appellant argued that demineralised water was an intermediate product, not the final product, and thus, they were eligible for the captive consumption notification.

The Tribunal examined the manufacturing process, where sulphuric acid was produced by converting SO2 gas to SO3, involving the use of demineralised water to regulate temperatures. The appellant's contention was supported by the fact that demineralised water was an intermediate product consumed in the manufacturing process, not the final product. The Tribunal referenced a Supreme Court case and Tribunal decisions that upheld exemption for captive consumption of inputs even if the intermediate product was exempt but the final output was dutiable. As demineralised water was an intermediate product used captively, the Tribunal held that the appellant was entitled to the captive consumption notification. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.