Captive consumption duty fails where no distinct intermediate product emerges during blanket manufacture.

Duty on captive consumption can be sustained only where the department proves that a distinct excisable intermediate product came into existence during manufacture. Here, woollen yarn was woven directly into blankets on the power loom, with the blanket pieces and their fringes or dividing lines emerging in the weaving stage itself. On that factual basis, the record did not support the claim that woollen fabric arose as a separate intermediate product. The demand for additional excise duty therefore failed because the alleged dutiable intermediate fabric was not shown to exist.

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Issues: Whether woollen fabrics came into existence at an intermediate stage in the manufacture of blankets so as to attract additional excise duty on the alleged captive consumption of such fabrics.

Analysis: The process of manufacture showed that yarn was put on the power loom and blankets with fringes or dividing lines were produced on the loom itself, with each piece earmarked and separated in the weaving stage itself. On that basis, the record did not support the department's case that woollen fabric emerged as a distinct intermediate product during manufacture. Since the alleged intermediate fabric was not shown to have come into existence, the basis for demanding duty on captive consumption failed.

Conclusion: The issue was decided in favour of the assessee and against the revenue.

Final Conclusion: The demand of additional excise duty could not be sustained because the department failed to establish emergence of a separately dutiable intermediate product in the process of blanket manufacture.

Ratio Decidendi: Duty on captive consumption can be sustained only if the department proves that a distinct excisable intermediate product came into existence during the manufacturing process.

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