Captive consumption exemption protects in-factory moulds even where invoices were issued and payment was received.

Captively used moulds manufactured and consumed within the same factory remained eligible for the captive-consumption exemption, because the governing condition was in-factory use and not outward clearance or ownership. Duty could not be demanded merely because invoices were raised and payment received when the goods were not removed from the factory. As the duty demand on the moulds failed, the penalties based on that demand also could not survive. The separate issue relating to amortization cost was not decided on merits and was left undisturbed.

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Issues: Whether moulds manufactured and used captively within the factory were liable to central excise duty despite invoices having been raised and payment received; and whether the penalties based on that demand could survive.

Analysis: The moulds were not cleared out of the factory. The applicable exemption for captive consumption was available where the manufactured capital goods were used within the factory of production, and ownership of the goods was not material. Since the condition of captive use stood satisfied, duty could not be demanded merely because invoices had been raised for receipt of payment. As the duty demand on the moulds was unsustainable, the penalties founded on that demand also could not stand. The separate component relating to amortization cost was not adjudicated on merits in this part of the demand.

Conclusion: The demand of duty on captively used moulds was not sustainable and the connected penalties were liable to be set aside.

Final Conclusion: The appeals succeeded to the extent of the duty and penalty demand relating to moulds used within the factory, while the issue relating to amortization cost was left undisturbed.

Ratio Decidendi: Goods manufactured in a factory and captively consumed within that factory cannot be denied exemption merely because invoices were raised or consideration was received, where the governing exemption turns on in-factory use and not on ownership or outward clearance.

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