Revenue-neutral excise demand on captive intermediate fabric fails where duty paid was available as credit.

Duty on intermediate bleached cotton fabrics used captively to manufacture plastic coated fabrics was held unsustainable because the duty paid at the intermediate stage was creditable under the Cenvat/Central Excise credit rules. Since the final coated fabrics had already suffered duty and the same incidence would be offset through available credit, the dispute was treated as revenue neutral. Applying the earlier decision in the assessee's own case and the settled credit principle, the Tribunal held that no maintainable demand arose on the intermediate product and the assessee succeeded.

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Issues: Whether the demand of additional excise duty on intermediate bleached cotton fabrics used captively in the manufacture of plastic coated fabrics was sustainable when credit of the duty paid at the intermediate stage would have been available and the final product had already suffered duty.

Analysis: The dispute related to intermediate bleached cotton fabrics consumed in the manufacture of coated fabrics. The relevant duty paid on the bleached fabrics was admissible as credit under Rule 57AB(1)(iv) of the Central Excise Rules, 1944 and Rule 3(1)(iv) of the Cenvat Credit Rules, 2001. The duty incidence at the intermediate stage was thus offset against the duty payable on the final coated fabrics, making the exercise revenue neutral. The Tribunal applied the earlier decision in the assessee's own case and the settled principle that where the duty demanded is available as credit, no sustainable demand arises on the intermediate product.

Conclusion: The demand on the intermediate bleached cotton fabrics was not maintainable and the assessee succeeded.

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