In-factory use exemption under Notification 67/95-CE sustained, while revenue neutrality failed for inter-unit clearances.

Goods consumed within the factory in the manufacture of excisable goods were held eligible for exemption under Notification No. 67/95-CE, because the goods were not physically cleared from the factory and no contrary evidence showed that duty had to be demanded on their in-factory use; the demand on that part was set aside. For goods cleared to another unit, the plea of revenue neutrality was rejected for want of material showing their subsequent use or credit availability, and the clear duty demand supported invocation of the extended period; the demand and penalty on those clearances were sustained.

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Issues: (i) Whether goods used within the factory of production for manufacture of excisable goods were eligible for exemption under Notification No. 67/95-CE. (ii) Whether the demand in respect of goods cleared to the Pune unit could be defeated on the plea of revenue neutrality and whether the extended period was invocable.

Issue (i): Whether goods used within the factory of production for manufacture of excisable goods were eligible for exemption under Notification No. 67/95-CE.

Analysis: The exemption under Notification No. 67/95-CE was held to apply where goods were not physically cleared from the factory and were used within the factory for manufacture of excisable goods. The cited decisions were distinguished because one related to use in non-excisable activity and the other did not displace the view that, where tools and moulds are used in the factory for manufacture of excisable goods and no contrary evidence is shown regarding amortisation in the final product, duty cannot be demanded.

Conclusion: The demand of duty on the goods used within the factory was set aside and was in favour of the assessee.

Issue (ii): Whether the demand in respect of goods cleared to the Pune unit could be defeated on the plea of revenue neutrality and whether the extended period was invocable.

Analysis: The plea of revenue neutrality was rejected because no supporting material was produced to show the manner of use of the goods in the Pune unit or the availability of credit there. The exemption was treated as clear and the circumstances were held sufficient to support invocation of the extended period for the clearances made to the Pune unit.

Conclusion: The demand and penalty on goods cleared to the Pune unit were upheld and the issue was decided in favour of the revenue.

Final Conclusion: Relief was granted only for the goods used within the factory of production, while the demand, penalty, and limitation finding were sustained for the clearances made to the Pune unit.

Ratio Decidendi: Goods used within the factory in the manufacture of excisable goods are not denied exemption under Notification No. 67/95-CE merely because they are consumed in the manufacturing process, but the plea of revenue neutrality must be supported by evidence and cannot displace a clear duty demand for goods cleared out of the factory.

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