Exemption for biomass energy parts was confined to captive factory use, making the manufacturer liable to duty on clearance.

Exemption under Notification No. 6/2002-C.E. was confined to the specified energy device and parts covered by List 9, and did not extend to parts cleared to another factory for further use where captive consumption in the manufacturer's factory was required. Parts could not be treated as the exempt device itself, and clearance without satisfying the exemption conditions rendered the goods dutiable. The duty demand was therefore correctly raised on the manufacturer at the time of removal, and the cenvat credit reversed under Rule 6(3)(b) had to be adjusted against the duty liability.

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Issues: (i) Whether parts manufactured for a biomass energy producing system were eligible for exemption under Notification No. 6/2002-C.E. read with List 9 of the notification, and whether the exemption extended to parts not captively consumed within the factory of production; (ii) Whether the duty demand was correctly made on the manufacturer and whether the cenvat credit reversed under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 required adjustment against the duty liability.

Issue (i): Whether parts manufactured for a biomass energy producing system were eligible for exemption under Notification No. 6/2002-C.E. read with List 9 of the notification, and whether the exemption extended to parts not captively consumed within the factory of production.

Analysis: The exemption under Sl. No. 237 is confined by List 9 of the notification. Parts cannot be treated as a "device" producing energy under Sl. No. 16, and Sl. No. 21 covers only parts consumed within the factory of production for manufacture of the specified goods. The parts cleared to another factory for further use were not captively consumed in the manufacturer's factory. The reasoning was reinforced by the cited precedent applying the same principle of exemption being restricted to manufacture of the complete eligible device or captively used parts.

Conclusion: The goods were not eligible for exemption, and the demand of duty on the manufacturer was upheld.

Issue (ii): Whether the duty demand was correctly made on the manufacturer and whether the cenvat credit reversed under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 required adjustment against the duty liability.

Analysis: The liability to satisfy the duty demand arose on removal of goods from the factory without satisfying the exemption conditions. Responsibility of the buyer for end-use could not displace the manufacturer's liability at the stage of clearance. Since the goods were held dutiable, the goods ceased to be exempted goods and the credit already reversed under Rule 6(3)(b) could not remain unreconciled.

Conclusion: The duty was rightly demanded from the manufacturer, and the reversed cenvat credit was required to be adjusted against the total duty liability.

Final Conclusion: The departmental appeal succeeded, the appellate order granting exemption was set aside, and the adjudication confirming duty was restored with adjustment of the reversed cenvat credit.

Ratio Decidendi: Exemption notifications covering specified energy devices do not extend to parts cleared outside the factory unless the notification expressly permits such parts, and captive consumption within the factory of manufacture is a necessary condition where the notification so stipulates.

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