Exemption for captive consumption cannot cover imported inputs when the notification is limited to factory-manufactured inputs.

Imported inputs used in a factory for manufacture of final products were held outside the scope of Notification No. 217/86-C.E. because the exemption applied only to inputs manufactured in the same factory and captively consumed there. The analysis distinguished imported goods from factory-produced inputs and treated mere use in the factory as insufficient to satisfy the notification's condition of captive consumption. A prior Supreme Court ruling on countervailing duty and a different notification was found inapposite because the present exemption was expressly limited to factory-manufactured inputs. The result was that the exemption could not be extended to imported inputs.

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Issues: Whether imported inputs used in the factory for manufacture of final products were eligible for exemption under Notification No. 217/86-C.E., which applies to inputs manufactured in a factory and captively consumed in the same factory.

Analysis: The exemption notification was directed to inputs manufactured in a factory and used within the same factory in the manufacture of final products. The goods in question were imported, not manufactured in the respondents' factory, and their use in the factory did not amount to captive consumption within the meaning of the notification. The distinction drawn from the earlier Supreme Court decision concerning countervailing duty and a different notification did not assist the respondents, because the present notification itself was limited to factory-manufactured inputs.

Conclusion: The imported goods were not covered by Notification No. 217/86-C.E. and the exemption was wrongly granted; the issue is decided in favour of Revenue.

Ratio Decidendi: An exemption notification confined to inputs manufactured in a factory and captively consumed therein cannot be extended to imported inputs merely because they are used in the factory for manufacture of final products.

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