Captive consumption under a credit-based excise regime cannot justify double taxation or extended limitation without suppression.

Duty on captively consumed unbranded chewing tobacco was held unsustainable where the final branded product had already suffered duty and the input-duty credit scheme was intended to neutralise tax burden, so a further levy would amount to double taxation. The Department also could not rely on the extended period of limitation because the captive consumption was part of the known manufacturing process, the facts did not show clandestine removal, and the record indicated departmental awareness of the movement for captive use. On both merits and limitation, the duty demand and penalty were set aside, granting the assessee complete relief.

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Issues: (i) whether duty could be sustained on unbranded chewing tobacco captively consumed in the manufacture of branded chewing tobacco during the relevant period, and (ii) whether the demand could be upheld by invoking the extended period of limitation.

Issue (i): whether duty could be sustained on unbranded chewing tobacco captively consumed in the manufacture of branded chewing tobacco during the relevant period.

Analysis: The duty structure underwent successive changes during the relevant period, including extension of proforma credit and thereafter Modvat credit to the product. The unbranded tobacco was captively consumed in the manufacture of the final branded product, and duty on the branded product had been discharged. In these circumstances, insisting upon separate duty on the captively consumed unbranded tobacco would result in double taxation, particularly when the credit mechanism was intended to neutralise the tax burden on the input duty.

Conclusion: The duty demand on the captively consumed unbranded tobacco was not sustainable and the assessee succeeded on this issue.

Issue (ii): whether the demand could be upheld by invoking the extended period of limitation.

Analysis: The captive consumption of unbranded tobacco was part of the known manufacturing process and had been carried on both before and after the relevant date. The facts disclosed in the notice did not establish clandestine removal, and the Department was aware of the movement of goods for captive use. In such a situation, the ingredients necessary for invoking the extended period were absent, and the demand was also time-barred.

Conclusion: The extended period of limitation was not available to the Department and the demand failed on limitation as well.

Final Conclusion: The impugned duty and penalty were set aside in full, and the assessee obtained complete relief.

Ratio Decidendi: Where captively consumed inputs are brought within a credit-based excise regime, a further duty levy that produces double taxation is unsustainable, and the extended limitation period cannot be invoked absent proof of suppression, clandestine removal, or comparable conduct.

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