Revenue neutrality defeated additional excise duty demand on captive intermediate goods; interest was also held not leviable.

Notification No. 67/95-C.E. was confined to basic excise duty on inputs and capital goods used within the factory and did not extend to additional excise duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. However, the demand on captively consumed intermediate goods failed on the facts because the duty was revenue neutral: any duty paid at the intermediate stage would have been immediately available as credit and the final product had already borne a higher duty through PLA. Interest was also not leviable, as the statute contained no specific provision authorising interest on the additional excise duty demand.

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Issues: (i) whether Notification No. 67/95-C.E. exempted additional excise duty on intermediate goods captively consumed within the factory; (ii) whether the demand could be sustained despite the duty-paid final product and the available credit, on the ground of revenue neutrality; and (iii) whether interest was payable on the additional excise duty demand.

Issue (i): whether Notification No. 67/95-C.E. exempted additional excise duty on intermediate goods captively consumed within the factory.

Analysis: The notification granted exemption to inputs and capital goods manufactured in a factory and used within the factory in the manufacture of dutiable final products from the duty of excise leviable thereon and specified in the Schedule to the Central Excise Tariff Act, 1985. The additional excise duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 was not covered by that notification, which contained no reference to that Act. The exemption was therefore confined to basic excise duty and did not extend to the additional excise duty on the captively consumed bleached fabrics.

Conclusion: The exemption under Notification No. 67/95-C.E. did not cover additional excise duty, and the demand on that count was not barred by the notification.

Issue (ii): whether the demand could be sustained despite the duty-paid final product and the available credit, on the ground of revenue neutrality.

Analysis: The additional excise duty paid on the intermediate goods was available as credit under the credit scheme then in force, and the appellants had already paid a higher amount of additional excise duty on the final coated fabrics through PLA. If duty had been paid on the intermediate stage, it would have been immediately available for utilisation against the duty on the final product. The entire exercise was therefore revenue neutral, and the lower authorities had not rebutted the factual position that the duty now demanded was already discharged in substance through the final product.

Conclusion: The demand on the intermediate goods was not sustainable in the facts of the case because the situation was revenue neutral.

Issue (iii): whether interest was payable on the additional excise duty demand.

Analysis: Section 3(3) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 contained no provision for interest. In the absence of a specific charging or borrowing provision for interest, interest could not be levied merely because duty was held to be payable.

Conclusion: Interest was not leviable on the additional excise duty demand.

Final Conclusion: The appeal succeeded because, although the notification did not exempt the additional excise duty, the demand was defeated on the facts by revenue neutrality and the related interest demand was unsustainable.

Ratio Decidendi: An exemption notification confined to duty of excise under the Central Excise Act does not extend to additional excise duty under a separate enactment unless that enactment is expressly referred to, but a demand on an intermediate product may still fail where the duty is revenue neutral and the statute does not provide for interest.

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