Captive consumption exemption denied where gas escaped into the atmosphere was not used in manufacture of another product.

Gas allowed to escape into the atmosphere during pipeline flushing and cleaning was not treated as captively consumed in the manufacture of a final product. The exemption under Notification No. 67/95-C.E. applies only to goods actually used within the factory as inputs in the manufacture of another product, and mere technical necessity for flushing did not convert escaped gas into captive consumption. The cited circular and precedents were found factually distinguishable. The exemption was therefore unavailable, and the denial of exemption was upheld.

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Issues: Whether gas allowed to escape into the atmosphere during flushing and cleaning of pipelines could be treated as captively consumed in the manufacture of the final product so as to qualify for exemption under Notification No. 67/95-C.E. dated 16-3-95.

Analysis: The exemption under Notification No. 67/95-C.E. applies to goods used captively in the manufacture of another final product in the factory. The gas that was allowed to escape into the atmosphere was not itself used in the manufacture of any further item. The claimed technical necessity of flushing the gas before producing a new gas did not change the character of the escaped gas into captive consumption. The circular and cited decisions were found distinguishable on their facts and not applicable to the case.

Conclusion: The gas released into the atmosphere was not captively consumed, and the exemption under Notification No. 67/95-C.E. was not available.

Final Conclusion: The appeals failed and the order denying the exemption was affirmed.

Ratio Decidendi: Goods allowed to escape in the atmosphere without being used in the manufacture of another product do not amount to captive consumption for the purpose of exemption meant for inputs used in manufacture.

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