Captive consumption of intermediary goods attracts excise duty, while duty valuation may still be remanded for fresh assessment.

Cushion compound captively consumed in making tread rubber with cushion backing was treated as excisable under Item 16A(2), supported by earlier case law and retrospective deeming provisions covering captive intermediary products, so the levy challenge failed. The demand under Rule 9(2) was upheld because the manufacture and captive use had not been disclosed in the classification lists, distinguishing cases involving proper declaration and nil assessment. However, the valuation of duty was not properly examined below, so the computation was set aside and remanded for fresh reassessment on the correct intermediary-product prices during the relevant period.

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Issues: (i) Whether cushion compound captively consumed in the manufacture of tread rubber with cushion backing was liable to excise duty under Item 16A(2) of the Central Excise Tariff; (ii) Whether demand could be sustained under Rule 9(2) of the Central Excise Rules despite the plea that there was no clandestine removal and the Department was aware of the manufacture and captive use; (iii) Whether the duty valuation required reconsideration on the basis of the correct prices of the intermediary product during the relevant period.

Issue (i): Whether cushion compound captively consumed in the manufacture of tread rubber with cushion backing was liable to excise duty under Item 16A(2) of the Central Excise Tariff.

Analysis: The product had already been held by the Kerala High Court in the assessee's own case to fall within Item 16A(2), and the same view had been followed by the Tribunal in an earlier decision. The retrospective amendment introduced by Section 51 of the Finance Act, 1982, read with Notification No. 20/82-C.E., reinforced the position that goods captively consumed as intermediary products were liable to duty. The plea that the article was only a semi-finished internal product was therefore rejected.

Conclusion: The goods were held excisable and the challenge to levy failed.

Issue (ii): Whether demand could be sustained under Rule 9(2) of the Central Excise Rules despite the plea that there was no clandestine removal and the Department was aware of the manufacture and captive use.

Analysis: The majority distinguished the authorities relied upon by the assessee on the ground that those cases involved proper declaration and nil assessment, whereas here the manufacture and captive consumption of cushion compound had not been disclosed in the classification lists. On that factual basis, the invocation of Rule 9(2) was treated as justified, and Rule 10 was held irrelevant to the demand as confined by the appellate order.

Conclusion: The demand under Rule 9(2) was upheld.

Issue (iii): Whether the duty valuation required reconsideration on the basis of the correct prices of the intermediary product during the relevant period.

Analysis: The valuation aspect had not been properly examined below. The assessee's objection that the relevant prices were those prevailing during 1970-72 and that the intermediary product could not be valued at the same level as the finished tread rubber with cushion backing required verification.

Conclusion: The duty computation was set aside and the matter was remanded for fresh reassessment on proper valuation.

Final Conclusion: The levy on cushion compound and the invocation of Rule 9(2) were sustained, but the quantification of duty was reopened for fresh determination on valuation.

Concurring Opinion: Shri S. Venkatesan concurred with the majority.

Dissenting Opinion: Shri S.D. Jha disagreed on Rule 9(2), holding that the Department was already aware of the manufacture and captive use and that, on those facts, clandestine removal was not established. He would have treated the show cause notice and demand as barred by limitation.

Ratio Decidendi: An intermediary product captively consumed is exigible where it is not disclosed in the classification list and is otherwise covered by the tariff and retrospective statutory deeming provisions; the valuation of duty may nevertheless be remanded where the basis of assessment has not been properly examined.

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