Captive consumption exemption denied for factory-cleared trolleys; extended limitation and penalty also rejected absent suppression.

Trolleys cleared out of the factory for packing and transportation of auto parts were held not to satisfy the condition of captive consumption, so exemption under Notification No. 67/1995-CE was not available. The extended limitation period and penalty were found unsustainable because the manufacture and use of the trolleys were reflected in statutory records and earlier audits raised no objection, leaving no basis to infer suppression or mala fide conduct. The demand was therefore confined to the normal limitation period, with the time-barred portion and penalty set aside and re-quantification directed.

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Issues: (i) Whether trolleys manufactured and cleared from the factory for use in packing and transportation of auto parts were eligible for exemption as captively consumed goods under Notification No. 67/1995-CE. (ii) Whether the extended period of limitation and penalty were invocable in the absence of mala fide intent or suppression.

Issue (i): Whether trolleys manufactured and cleared from the factory for use in packing and transportation of auto parts were eligible for exemption as captively consumed goods under Notification No. 67/1995-CE.

Analysis: The trolleys were not retained within the factory for captive use. They crossed the factory gate and were cleared by the assessee for use in packing and transportation of goods. On these admitted facts, the condition of captive consumption was not satisfied, and the exemption was not available.

Conclusion: The exemption under Notification No. 67/1995-CE was not admissible to the trolleys so cleared.

Issue (ii): Whether the extended period of limitation and penalty were invocable in the absence of mala fide intent or suppression.

Analysis: The manufacture and use of the trolleys were reflected in the statutory records, and earlier audits had also taken place without objection. In the absence of contrary evidence, no suppression or misstatement could be attributed to the assessee. The demand beyond the normal period was therefore unsustainable, and no penalty was justified.

Conclusion: The extended period of limitation was not available to the revenue, and the penalty was set aside.

Final Conclusion: The demand was sustained only to the extent of the normal limitation period, while the time-barred portion and the penalty were set aside, with the matter remanded for re-quantification accordingly.

Ratio Decidendi: Goods cleared out of the factory are not captively consumed for the purpose of exemption, and the extended limitation period cannot be invoked without evidence of suppression or mala fide conduct.

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