Used capital goods removed after long factory use may not attract excise duty merely on transaction value

Used furnace components cleared after more than eight years of captive factory use were treated as retained capital goods, not fresh manufactured goods. On that reasoning, central excise duty was held inapplicable on mere removal after prolonged use, because the goods had not lost their character as used capital goods or been shown to be cleared as such in a manner attracting the levy. The associated confiscation, redemption fine, interest, and penalty were therefore set aside, and the appeal succeeded.

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Issues: Whether central excise duty was payable on furnace components cleared after long use in the factory, and whether the goods retained the character of used capital goods so as to deny duty demand and associated penalty.

Analysis: The furnace was manufactured for captive use, remained in use in the factory for more than eight years, and was not shown to have been removed as such or to have lost its character as capital goods merely because it was later cleared. The reasoning accepted that used capital goods do not become fresh manufactured products on removal after prolonged use. The exemption and levy provisions relied upon by the department were therefore not attracted in the manner asserted.

Conclusion: Duty demand, confiscation, redemption fine, interest, and penalty were unsustainable; the appeal succeeded.

Ratio Decidendi: Used capital goods removed after substantial factory use do not, by that fact alone, become excisable manufactured goods liable to duty on the basis of transaction value.

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