Captive-consumption exemption upheld for molasses used to make dutiable denatured alcohol, defeating duty demand and penalty.

Notification No. 67/95-C.E. was held applicable to molasses captively consumed in producing denatured ethyl alcohol, because the final product was cleared on payment of duty and the record did not show any duty-free clearance of rectified alcohol during the relevant period. The presence of an intermediate exempt product did not by itself defeat captive-consumption exemption where the end product remained dutiable. On that basis, the duty demand, interest and equal penalty could not be sustained.

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Issues: Whether the benefit of Notification No. 67/95-C.E. was available to molasses captively consumed in the manufacture of denatured ethyl alcohol, and whether the resulting duty demand and penalty could be sustained.

Analysis: The molasses were used captively in the manufacture of denatured alcohol, which was cleared on payment of duty. The record did not show any clearance of rectified alcohol without duty during the relevant period. The dispute was governed by the settled principle that exemption for captive consumption is available where the final product is dutiable, and the existence of an intermediate exempt product does not by itself defeat the exemption. The earlier Tribunal and Supreme Court decisions relied upon were applied as governing the issue.

Conclusion: The notification benefit was held admissible, and the duty demand with interest and equal penalty could not stand.

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