Captive consumption exemption applies when intermediate plastic scrap is used indirectly in making dutiable final products.

Captive consumption exemption under Notification No. 67/95-C.E. was available where plastic waste and scrap were converted into granules and those granules were then used in the manufacture of dutiable tubes and pipes. Indirect or intermediate use in the production of the final dutiable goods was sufficient, and the exemption could be denied only if the granules were removed as such from the factory while remaining exempt. On these facts, the scrap formed part of the manufacturing chain for duty-paid final products, so denial of the notification benefit was not justified and the duty demand and penalties could not be sustained.

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Issues: Whether waste and scrap of plastics captively consumed in the manufacture of granules, which were in turn used in the manufacture of dutiable tubes and pipes, was entitled to exemption under Notification No. 67/95-C.E.

Analysis: The waste and scrap generated in the manufacture of plastic pipes and tubes was not the final product in isolation. It was first converted into granules, and those granules were subsequently used in the manufacture of tubes and pipes that were cleared on payment of duty. Inputs need not be directly used in the final product; indirect or intermediate use in the manufacture of the final dutiable goods is sufficient. The exemption could be denied only where the intermediate granules were cleared as such from the factory while remaining exempt. On the facts, the scrap was utilised indirectly in the manufacture of dutiable final products, so the authorities below erred in denying the benefit of the notification.

Conclusion: The exemption under Notification No. 67/95-C.E. was available and the duty demand and penalties could not be sustained.

Ratio Decidendi: Exemption for captive consumption is available where the allegedly exempt intermediate material is used, directly or indirectly, in the manufacture of final products that are cleared on payment of duty; denial is justified only when the intermediate goods are removed as such while remaining exempt.

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