Captive-use exemption for assembly parts survives even when finished fork lift truck loses exemption, with demand remanded

Captive-consumed parts used in assembling a fork lift truck were treated as eligible for the benefit of Notification No. 217/86, even though exemption for the finished fork lift truck under Notification No. 70/77 was not available. The notice and confirmation of demand were also found deficient because they did not clearly explain the basis on which the amount was demanded as duty on parts. The demand could not be sustained on the existing record, and the matter required fresh consideration by the original authority after hearing the assessee.

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Issues: (i) Whether, where exemption under Notification No. 70/77 was held unavailable to the fork lift truck, the benefit of Notification No. 217/86 could still be claimed in respect of the parts used in assembling the fork lift truck; (ii) whether the demand as confirmed could be sustained when the notice and order did not clearly disclose why the amount was being demanded as duty on parts.

Issue (i): Whether, where exemption under Notification No. 70/77 was held unavailable to the fork lift truck, the benefit of Notification No. 217/86 could still be claimed in respect of the parts used in assembling the fork lift truck.

Analysis: Once exemption on the finished fork lift truck was found unavailable and duty on the fork lift truck was otherwise required to be paid, the parts used in its assembly, having been consumed captively, could not be denied the benefit of Notification No. 217/86 merely on the ground that the finished product was treated as non-exempt under Notification No. 70/77.

Conclusion: The benefit of Notification No. 217/86 on the parts was held to be available.

Issue (ii): Whether the demand as confirmed could be sustained when the notice and order did not clearly disclose why the amount was being demanded as duty on parts.

Analysis: The notice and the impugned order did not clearly explain the basis on which the demanded amount was treated as duty on the parts. In the absence of clear material showing how the demand was worked out, the matter required fresh consideration by the original authority after hearing the assessee.

Conclusion: The confirmation of demand was set aside and the matter was remanded for fresh adjudication.

Final Conclusion: The assessee obtained relief to the extent that the matter was sent back for reconsideration, and the demand could not stand as confirmed on the existing record.

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