Captive use of fabricated equipment without sale clearance defeats excise duty demand on job-work manufactured pots.

Excise duty on reacting pots and distillation pots fabricated through job workers was held unsustainable where the items were installed in the factory and used captively in manufacturing dutiable chemicals. In the absence of the procedure under Notification No. 214/86-C.E. for shifting duty liability, the job workers would ordinarily be the manufacturers; even otherwise, no duty could arise because the goods were not cleared for sale and were consumed within the factory. As there was no allegation of sale clearance, the demand failed and the consequential penalties were set aside.

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Issues: Whether duty was payable on reacting pots and distillation pots fabricated through job workers and installed in the appellant's factory for use in manufacture of dutiable chemicals, and whether the related penalties could survive.

Analysis: The appellant had supplied steel to job workers for fabrication of reacting pots and distillation pots used in its manufacturing process. On the facts, the fabrication was undertaken by the job workers and, in the absence of the procedure contemplated for shifting the duty liability under Notification No. 214/86-C.E., the job workers would be the manufacturers. Even assuming the appellant could be treated as manufacturer, no excise duty could arise because the fabricated items were not cleared for sale but were installed in the factory and used captively in the manufacture of chemicals on which duty had already been discharged. In the absence of an allegation of sale clearance, the demand could not be sustained.

Conclusion: The duty demand was not sustainable and the consequential penalties were also liable to be set aside in favour of the assessee.

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