Captive-consumption exemption denied where goods were further processed, and undervaluation sustained duty demand.

Captive-consumption exemption under Notification No. 217/86 was unavailable because the cleared goods were not consumed as such in the exempted process; they were further processed and treated as a different input on return. The claim also did not address the allegation that the assessable value declared for excise purposes was materially below the assessee's own price list. The asserted Chapter X arrangement was not established on the record, so the notification was held inapplicable and the duty demand based on undervaluation was sustained.

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Issues: Whether the assessee was entitled to exemption under Notification No. 217/86 on the plea of captive consumption, and whether the duty demand based on undervaluation was sustainable.

Analysis: The benefit of the notification depended on the goods being captively consumed in the prescribed manner. The material on record showed that the product cleared by the assessee was not captively consumed as such, but underwent processing and was treated as a different input when returned. The claim under the notification also did not answer the allegation that the value declared for excise purposes was materially lower than the assessee's own price list. The transaction was not shown to be one covered by the asserted Chapter X arrangement, and the notification relied upon was held inapplicable on the facts.

Conclusion: The exemption claim failed and the duty demand based on undervaluation was upheld, in favour of the Revenue.

Final Conclusion: The appeals were dismissed and the order confirming duty and penalty was sustained.

Ratio Decidendi: A captive-consumption exemption cannot be claimed where the cleared goods are not consumed as such in the exempted process, and a misdeclared assessable value will sustain the duty demand.

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