Revenue neutrality in captive consumption can defeat a duty demand where corresponding CENVAT credit is fully available.

Captively consumed cement used to erect structures in the course of expanding a cement plant was treated as revenue neutral because the final product was cleared on payment of duty and any duty on the cement would have been available as corresponding CENVAT credit. On that basis, the demand was held unsustainable, as the revenue-neutral position supported the limitation defence. The demand was therefore set aside as barred by limitation, and the assessee succeeded.

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Issues: Whether the demand on captively consumed cement used for erection of structures in the course of expansion of the cement plant was liable to be set aside on the ground of revenue neutrality and limitation.

Analysis: The captively consumed cement was used for erection and installation of structures employed in the manufacture of cement, and the final product was cleared on payment of duty. On that basis, even if duty were payable on the captively consumed cement, corresponding CENVAT credit would have been available. The matter was therefore treated as revenue neutral. Following the settled principle that a demand hit by such revenue neutrality can be barred by limitation, the demand was held not sustainable.

Conclusion: The demand was set aside as barred by limitation, and the assessee succeeded.

Ratio Decidendi: Where duty paid on captively consumed inputs would be fully available as CENVAT credit in relation to dutiable final products, the demand is revenue neutral and may be defeated on limitation.

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