Appellant entitled to captive consumption notification for using demineralised water in manufacturing process

The Tribunal held that the appellant, engaged in manufacturing sulphuric acid and fertilizers, was entitled to the captive consumption notification for using sulphuric acid in the demineralisation process involving demineralised water, which was considered an intermediate product in the manufacturing process. Despite the final product being exempt from duty, the appellant was deemed eligible for the notification as demineralised water was consumed in the manufacturing process. The impugned order demanding duty payment and penalties was set aside, and the appeal was allowed with consequential relief.

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Issues: Interpretation of captive consumption notification for manufacturing process involving demineralised water.

In this case, the appellant, engaged in manufacturing sulphuric acid and fertilizers, used a part of the sulphuric acid for demineralisation of water, which was then used captively for further manufacturing. The revenue contended that the appellant, whose final product was demineralised water exempt from duty, was not entitled to the captive consumption notification for using sulphuric acid in the demineralisation process. A show cause notice was issued, demanding duty payment of &8377; 9,638 for a specific period, which was confirmed in the impugned order along with penalties. The appellant argued that demineralised water was an intermediate product, not the final product, and thus, they were eligible for the captive consumption notification.

The Tribunal examined the manufacturing process, where sulphuric acid was produced by converting SO2 gas to SO3, involving the use of demineralised water to regulate temperatures. The appellant's contention was supported by the fact that demineralised water was an intermediate product consumed in the manufacturing process, not the final product. The Tribunal referenced a Supreme Court case and Tribunal decisions that upheld exemption for captive consumption of inputs even if the intermediate product was exempt but the final output was dutiable. As demineralised water was an intermediate product used captively, the Tribunal held that the appellant was entitled to the captive consumption notification. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.

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