Captive consumption exemption for DMT residue upheld where in-factory use and revenue neutrality defeated the duty demand.

DMT residue used within the factory for generating steam in the boiler for further manufacture was treated as captively consumed goods eligible for the applicable exemption notifications. The Tribunal followed its earlier decision in the assessee's own case and held that the exemption applied on this factual basis, while also accepting that Modvat credit on the residue made the position revenue neutral. As the correct duty liability was not first determined by considering the exemption notifications, the demand on the residue was held unsustainable and the impugned order was set aside.

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Issues: Whether the DMT residue arising during manufacture was exigible to central excise duty, and whether the assessee was entitled to the benefit of the exemption notifications for captive use.

Analysis: The Tribunal followed its earlier decision in the assessee's own case and reiterated that the residue was used within the factory for generation of steam in the boiler for further manufacture of DMT. On that factual basis, the exemption notifications granting relief for captive consumption were held to apply. The Tribunal also accepted that credit of Modvat duty paid on the residue was available and could be utilized for payment of duty on the final product, making the situation revenue neutral. It further held that the adjudicating authority had failed to determine the correct duty liability by considering the applicable exemption notifications.

Conclusion: The assessee was entitled to the benefit of the exemption notifications, and the demand based on the residue was not sustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed, with relief granted to the assessee on the issue of duty demand on DMT residue.

Ratio Decidendi: Goods captively consumed within the factory for further manufacture are eligible for the applicable exemption notification, and where Modvat credit renders the position revenue neutral, duty demand cannot be sustained without first determining the correct exemption entitlement.

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