Captive consumption exemption upheld where sulphuric acid was only an incidental by-product in copper manufacture.

Captive use of oxygen in the manufacture of copper products was treated as eligible for exemption under Notification No. 67/95-CE where sulphuric acid emerged only as an incidental by-product of the process. The analysis followed the settled position that sulphuric acid generated during processing of sulphur dioxide is not the final product of the manufacturing activity, and relied on the principles recognised in Hindustan Zinc and Sterlite Industries. The Tribunal's factual findings were found consistent with the evidence and not perverse, so the exemption could not be denied merely because the by-product was cleared at nil rate and the duty demand was unsustainable.

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Issues: Whether oxygen captively consumed in the manufacture of sulphuric acid, which arose as a by-product in the manufacture of copper products, was eligible for exemption under Notification No. 67/95-CE and whether the Tribunal's order calling for no interference suffered from any legal infirmity.

Analysis: The Tribunal's view was examined in the light of the settled position that sulphuric acid generated in the course of processing sulphur dioxide is a by-product and not the final product of the manufacturing activity in issue. The manufacturing process showed that oxygen produced in the captive plant was used in the manufacture of copper products and that the emergence of sulphuric acid was only incidental to the process adopted to control emissions and complete the chemical conversion. The earlier decision of the Supreme Court in Hindustan Zinc and the Tribunal's decision in Sterlite Industries were treated as governing the controversy, and on that basis the exemption notification was held applicable. The factual findings recorded by the Tribunal were found to be neither perverse nor contrary to the evidence on record.

Conclusion: Notification No. 67/95-CE was held applicable to the oxygen so captively consumed, the duty demand was unsustainable, and the Revenue's challenge failed.

Final Conclusion: No substantial question of law arose from the Tribunal's order, and the Revenue's appeal stood dismissed with the assessee succeeding on the exemption issue.

Ratio Decidendi: Where oxygen is captively consumed in a manufacturing process and the resulting sulphuric acid is only a by-product, exemption meant for captive consumption cannot be denied merely because the by-product is cleared at nil rate.

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