Additional excise duty on captive consumption fails where basic excise duty is fully exempt under the notification.

Additional excise duty on captively consumed HDPE/PP tapes was treated as dependent on the basic excise duty chargeable on the goods. Because Notification No. 67/95-C.E. granted full exemption from basic excise duty on the captively consumed goods, the base duty became nil. As the additional duty under the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 is calculated as a percentage of excise duty chargeable, no additional excise duty could arise where the basic duty itself was nil. The notification was also treated as outside the exclusion in Section 3, with the result that the additional duty was not payable and the show cause proceedings were to be dropped.

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Issues: Whether additional excise duty under the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 was payable on captively consumed HDPE/PP tapes in view of Notification No. 67/95-C.E. dated 16-3-95.

Analysis: The liability to additional duty was held to be dependent on the basic excise duty chargeable on the goods. Since Notification No. 67/95-C.E. fully exempted the captively consumed goods from basic excise duty, the base duty became nil. As the additional duty under Section 3 of the 1978 Act is calculated as a percentage of the excise duty chargeable, no additional excise duty could arise where the basic duty itself was nil. The notification was also held not to fall within the exclusion contemplated by Section 3 of the 1978 Act.

Conclusion: Additional excise duty was not payable on the captively consumed goods, and the show cause proceedings were liable to be dropped in favour of the assessee.

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