Captive consumption exemption for demineralised water used in manufacture was upheld as an intermediate product.

Demineralised water generated during manufacture and used only captively within the factory was treated as an intermediate product eligible for captive consumption exemption under Notification No. 67/95-CE. The applicable principle was that goods consumed within the factory in the manufacture of final dutiable products can qualify for exemption even if the intermediate product itself is exempt. On that basis, the demand was unsustainable and the impugned order was set aside with consequential relief.

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Issues: Whether demineralised water generated during the manufacturing process and consumed captively within the factory was an intermediate product entitled to captive consumption exemption under Notification No. 67/95-CE dated 16.3.1995.

Analysis: The demineralised water arose in the course of manufacture and was not a final product marketed separately. It was used only within the factory as part of the manufacturing process for the final dutiable goods. On these facts, the product answered the description of an intermediate product consumed captively. The established principle applied was that captive consumption exemption is available where the goods are used within the factory in the manufacture of final products, even if the intermediate product itself is exempt.

Conclusion: The demineralised water was an intermediate product covered by captive consumption exemption, and the demand could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

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