Captive consumption exemption upheld for oxygen used in copper anode manufacture, where sulphuric acid emerged only as a by-product.

Captively used oxygen in copper anode manufacture was treated as eligible for exemption under Notification No. 67/95-CE because the oxygen was used in producing the dutiable final product, not in manufacturing sulphuric acid. The process showed that sulphur dioxide emerged as waste gas and was converted into sulphuric acid only as an environmental necessity, while the extra oxygen needed for that conversion came from the atmosphere and water, not from the oxygen plant. On that basis, the duty demand and penalties were unsustainable.

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Issues: Whether oxygen gas captively consumed in the manufacture of copper anode was entitled to exemption under Notification No. 67/95-CE when sulphuric acid emerged only as a by-product and was cleared at nil rate.

Analysis: The manufacturing process showed that oxygen was used in the smelter and furnace for purification of copper concentrate to produce copper anode, while sulphur dioxide arose as waste gas and was converted into sulphuric acid only as an environmental necessity. The additional oxygen required for conversion of sulphur dioxide into sulphur trioxide and then sulphuric acid was taken from the atmosphere and water, not from the oxygen plant. The exemption under Notification No. 67/95-CE applied where the captively consumed input was used in the manufacture of dutiable final products, and the record did not support the department's view that the oxygen was used in the manufacture of exempt sulphuric acid. The cited Supreme Court authority on sulphuric acid as a by-product and the treatment of technological necessity supported this conclusion.

Conclusion: The oxygen plant product was eligible for exemption under Notification No. 67/95-CE, and the duty demand and penalties were unsustainable.

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