Captive intermediate goods exemption and input record failures led to duty, prescribed recovery, and penalty being sustained.

Duty remained payable on clinker captively consumed in making cement cleared under exemption, because the benefit for captive intermediate goods arose only from a later amendment and could not be applied retrospectively. Where separate records were not maintained for inputs used in exempted and dutiable clearances, pro rata credit reversal was insufficient and the prescribed 8% of the value of exempted clearances was recoverable. Penalty was also sustained, as the duty and credit reversal were made only after departmental detection rather than through voluntary compliance.

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Issues: (i) Whether duty was payable on clinker captively consumed in the manufacture of cement cleared under exemption; (ii) whether 8% of the value of exempted clearances was recoverable where no separate input records were maintained; and (iii) whether penalty was sustainable.

Issue (i): Whether duty was payable on clinker captively consumed in the manufacture of cement cleared under exemption.

Analysis: The clinker was an intermediate product used captively in the manufacture of cement cleared under the exemption notification. The benefit of the exemption notification for captive deemed intermediate products was held not to be available, as the amendment granting such benefit could not be given retrospective effect.

Conclusion: Duty on clinker was payable and the assessee was not entitled to the claimed exemption.

Issue (ii): Whether 8% of the value of exempted clearances was recoverable where no separate input records were maintained.

Analysis: The assessee was required under the relevant rule to maintain separate records for inputs used in exempted and dutiable clearances. Since no such record was maintained, a pro rata reversal of credit was held insufficient. The amount equal to 8% of the value of exempted clearances was recoverable, and the objection that no machinery existed for such recovery was rejected.

Conclusion: The demand of 8% on exempted clearances was upheld.

Issue (iii): Whether penalty was sustainable.

Analysis: The duty and credit reversal were made only after departmental detection and not voluntarily in accordance with law. The conduct was held to justify penal consequences.

Conclusion: Penalty was rightly imposed.

Final Conclusion: The assessee's appeal failed on the issue of duty on clinker and penalty, while the Revenue's challenge to the deletion of the 8% demand succeeded; the impugned order was sustained in part and set aside in part accordingly.

Ratio Decidendi: Where separate input records for exempted and dutiable clearances are not maintained, pro rata reversal does not satisfy the statutory requirement and the prescribed percentage demand is recoverable; an exemption amendment beneficial to captive intermediate products does not operate retrospectively unless expressly so provided.

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