Captive consumption exemption applies to internal plant infrastructure and maintenance goods integral to manufacturing operations.

Goods manufactured and consumed within the factory for repair and maintenance of plant and machinery, and for construction of internal roads and fencing facilitating movement of raw materials and plant operations, qualified for captive consumption exemption. The tribunal treated these internal structures and maintenance inputs as integral to manufacture because they supported transportation of materials and the functioning of production units. Their incidental departmental use did not defeat exemption where the dominant use was in or in relation to manufacture. The appellant was therefore entitled to exemption under the notifications, and the demand, interest, and penalty were set aside as unsustainable.

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Issues: Whether goods manufactured and used within the factory for repair and maintenance of plant and machinery, and for construction of internal roads and fencing facilitating movement of raw materials and operation of the plant, qualified for exemption under the captive consumption notifications.

Analysis: The goods on which duty was demanded were used either in repair and maintenance of existing plant and machinery engaged in manufacture of final products, or by the Plant Civil Engineering Department for construction of roads and fencing within the plant. Such internal roads and related structures enabled transportation of inputs and materials to the production units and were found to be integral to the manufacturing activity. The fact that the goods were also used for departmental or ancillary purposes did not disqualify them where their dominant use was in or in relation to manufacture. The reasoning was supported by the principle that infrastructure inside the plant, when inseparable from production and necessary for commercial production, forms part of the manufacturing process.

Conclusion: The appellant was entitled to the benefit of the exemption notifications, and the demand, interest, and penalty were unsustainable.

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