Captive consumption of by-product in non-excisable manufacture cannot attract excise duty; jurisdictionally flawed show cause notice is unsustainable.

Duty on carbon dioxide captively consumed during manufacture of beer is not attracted where the final product is non-excisable. The note states that Section 3 of the Central Excise Act and Notification No. 67/95-C.E. operate in relation to excisable or dutiable final products, and that the proviso addresses cases where the final product is exempt or chargeable at nil rate. It further states that a writ petition may be maintained against a show cause notice issued without jurisdiction, and that a notice based on an impermissible levy on a by-product is liable to be quashed.

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Issues: Whether a writ petition can be maintained against a show cause notice issued under the Central Excise Act on the ground of lack of jurisdiction, and whether duty can be demanded on carbon dioxide captively consumed in the manufacture of beer when the final product is non-excisable.

Analysis: The statutory levy under Section 3 of the Central Excise Act applies to excisable goods produced or manufactured in India. The concept of captive consumption and the exemption under Notification No. 67/95-C.E. operate in the context of dutiable final products, and the proviso to the notification is directed to cases where the final product is exempt from duty or chargeable at nil rate. Where the final product is non-excisable, the notification does not contemplate fastening duty on an intermediate or by-product merely because it is captively consumed. Carbon dioxide arising in the fermentation process was treated as a by-product generated in the course of manufacture of a non-excisable product, and its internal use was viewed as part of the efficient manufacture of beer rather than a taxable captive consumption attracting duty.

Conclusion: The show cause notice was held to have been issued on an erroneous premise and without jurisdiction, and the writ petition was allowed in favour of the petitioner.

Ratio Decidendi: Duty under the Central Excise Act cannot be demanded on a captively consumed by-product arising in the manufacture of a non-excisable final product, and a show cause notice premised on such a levy is liable to be quashed as without jurisdiction.

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