Captive consumption exemption for intermediate products upheld where hydrochloric acid was used in a manufacturing chain leading to dutiable goods.

Hydrochloric acid cleared for captive consumption was considered for exemption under Notification No. 217/86-C.E. when it was used in the manufacture chain leading to dutiable final products through demineralised water. The Tribunal accepted that multiple intermediate products may qualify for the captive consumption exemption if they are among the products specified in the notification's Table, and followed the Board's circular and earlier decisions applying that approach. On that basis, the duty demand was held not sustainable and the penalty was set aside.

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Issues: Whether hydrochloric acid cleared for captive consumption was entitled to exemption under Notification No. 217/86-C.E. when used in the manufacture of demineralised water, an exempt final input in the chain leading to dutiable final products.

Analysis: The duty demand was based on denial of the captive consumption exemption on the ground that hydrochloric acid was used for producing demineralised water which itself was exempt from duty. The Tribunal noted that several intermediate products arose in the course of manufacture and that the Board's circular clarified that more than one intermediate product could qualify for exemption under Notification No. 217/86, provided the intermediate product was one of those specified in the Table to the notification. The Tribunal also followed earlier decisions applying the circular and granting similar exemption, but found that the intermediate products in question were not different from those covered by the Table to the notification.

Conclusion: The duty demand was not sustainable and the penalty was also liable to be set aside. The appeal was allowed.

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