Captive consumption exemption limited for in-house parts used in exempt final products, with duty upheld on manufactured inputs.

Duty was upheld on in-house manufactured parts, components and sub-assemblies captively used to make exempt SRGMs, because Notification No. 67/95-CE was held inapplicable on these facts. The complete SRGMs cleared by the assessee were at nil rate, but that did not extend captive exemption to the manufactured items used in their assembly. Bought-out imported items and SRGMs imported in CKD condition were treated separately, and the original authority was left free to verify the correctness of duty already paid from the records. The core tax position on captive inputs used for an exempt final product remained unchanged.

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Issues: Whether duty was payable on parts, components and sub-assemblies manufactured in-house and captively used in the manufacture of exempt SRGMs, and whether the assessee could claim exemption for such captive consumption.

Analysis: The admitted position was that the complete SRGMs cleared by the assessee were liable to nil rate of duty, while the manufactured parts and sub-assemblies used in their assembly had already suffered duty at tariff rate. The exemption for captive consumption under Notification No. 67/95-CE was held inapplicable on the facts for the manufactured items used in the exempt final product. At the same time, bought-out imported items and SRGMs imported in CKD condition were not liable to duty in the same manner, and the original authority was left free to verify the correctness of the duty already paid from the records.

Conclusion: Duty liability on the in-house manufactured and captively consumed parts and sub-assemblies was upheld, and the assessee obtained no further relief on the substantive tax issue.

Final Conclusion: The impugned order was sustained on the core question of duty on captive inputs used for an exempt final product, and the appeal was disposed of without disturbing that legal position.

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