Captive consumption exemption applies to unit-packed inputs used within the factory, defeating excise duty demand on milk products.

Skimmed milk powder, branded butter and branded ghee consumed within the factory as inputs for regeneration of milk were held not liable to central excise duty. Notification No. 67/95 contained no exception for captive consumption, and Notification No. 8/98 treated specified captive clearances as exempt from excise duty. The fact that the goods were packed in unit containers did not change their exempt character because they were not cleared for sale but used captively within the factory. The Revenue's appeal therefore failed.

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Issues: Whether skimmed milk powder, branded butter and branded ghee packed in unit containers and consumed within the factory premises for captive use were liable to central excise duty.

Analysis: The goods were admittedly consumed within the factory and were used as inputs for regeneration of milk due to shortage of milk and milk products. Notification No. 67/95 did not carve out any exception against captive consumption, and the goods were also covered by Notification No. 8/98 dated 02/06/98, under which captive clearances of specified goods as inputs were deemed exempt from the whole of excise duty. The unit-container aspect did not alter the position where the goods were not cleared for sale but were used captively within the factory. The reasoning of the first appellate authority, supported by the Larger Bench view in Universal Electrical Ind., was accepted.

Conclusion: The captively consumed goods were not dutiable, and the Revenue's appeal failed.

Ratio Decidendi: Where excisable goods are consumed captively within the factory as inputs, and the applicable exemption notification deems such captive clearances exempt, duty cannot be demanded merely because the goods were packed in unit containers or were otherwise capable of sale.

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