Intermediate steam used for captive power generation was not separately excisable where the final electricity and light were exempt.

Steam used only as an intermediate input in the captive generation of exempt electric power and light was not taxable under Item 68 of the First Schedule to the Central Excises and Salt Act, 1944. The exemption notification then in force covered electric power and light produced for captive use, and the steam was not produced as an independent commercial commodity. Excise duty was therefore not attracted on the steam merely because it formed part of the manufacturing process for an exempt final product, and the levy of duty and penalty could not be sustained.

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Issues: Whether steam generated and used exclusively for producing electric power and light for captive consumption was taxable under Item 68 of the First Schedule to the Central Excises and Salt Act, 1944, for the period when electric light and power stood exempted.

Analysis: The exemption notification in force during the relevant period covered electric light and power falling under Item 68 when produced for captive use. The steam was not produced as an independent commercial commodity, but only as part of the process of producing exempt electric power and light. Since excise duty is attracted to the final product and not to the mere process by which that product is generated, steam in these facts did not assume independent taxability under the residuary item.

Conclusion: Steam used only as an intermediate component in the captive generation of exempt electric power and light was not taxable under Item 68, and the levy of duty and penalty could not be sustained.

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