Captive consumption exemption upheld where oxygen was used for copper processing and sulphuric acid arose only as a by-product.

Captive oxygen used in the purification of copper concentrate was held eligible for exemption under Notification No. 67/95-C.E. even though sulphuric acid emerged in the process and was cleared at nil rate. The decisive point was that the oxygen was not used as an input in the manufacture of sulphuric acid; the sulphuric acid was only a by-product or technological consequence of the metallurgical process. Applying the Supreme Court ruling on similar facts, the Tribunal held that the captive consumption exemption could not be denied merely because the by-product was cleared without duty, and the resulting duty demand was unsustainable.

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Issues: Whether oxygen captively consumed in the manufacture of copper cathodes and sulphuric acid was eligible for exemption under Notification No. 67/95-C.E. even though sulphuric acid was cleared at nil rate.

Analysis: The exemption could not be denied merely because sulphuric acid emerged in the process and was cleared without duty. The operative question was whether the captive oxygen was actually used in the manufacture of the exempted sulphuric acid or whether it was consumed only in the manufacture of the dutiable final product and the sulphuric acid was only a by-product arising from the metallurgical process. Applying the binding Supreme Court ruling on similar facts, the Tribunal accepted that the oxygen generated in the captive plant was used in the purification of copper concentrate and not as an input in the manufacture of sulphuric acid. On that basis, the condition for denial of the captive consumption exemption was not attracted.

Conclusion: The oxygen was entitled to exemption under Notification No. 67/95-C.E., and the duty demand based on its alleged use in exempt sulphuric acid was unsustainable.

Ratio Decidendi: Where a captive input is used in the manufacture of a dutiable final product and the exempt goods are only a by-product or technological consequence of the process, the captive consumption exemption cannot be denied merely because the by-product is cleared at nil rate.

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