Captive use of acetylene gas in plant railway maintenance qualifies for exemption where internal transport is integral to manufacture.

Acetylene gas captively consumed within the factory for repair and maintenance of railway tracks, wagons, locomotives and related departments was treated as used in relation to manufacture. The plant railway system was regarded as an integral and inseparable part of production because it enabled movement of inputs, intermediate products and finished goods, making its operation essential to the manufacturing process. On that basis, the captive use of gas in the traffic department and other shops was considered eligible for exemption under the cited notifications, and the duty demand was held unsustainable.

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Issues: Whether acetylene gas captively consumed within the factory for repair and maintenance of railway track, railway wagon, loco and other departments was eligible for exemption under Notification No. 65/95-CE or Notification No. 67/95-CE.

Analysis: The exemption under the notifications was examined in the context of captive use of acetylene gas inside the factory. The railway system within the plant was treated as an integral and inseparable part of production, since it was used for movement of inputs, intermediate products and dispatch of finished goods, and its operation was essential for the manufacturing process. The use of acetylene gas in the traffic department and in various shops and departments for repair and maintenance was therefore considered to be in relation to manufacture. The conclusion was supported by the principle that railway tracks within the plant form part of the manufacturing process when they are necessary for production and internal material movement.

Conclusion: The assessee was held entitled to the exemption, and the duty demand was held unsustainable.

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