Captive consumption duty and marketability of electric motors in pump sets determined duty liability and demand rejection

Electric motors captively consumed in manufacturing power-driven pump sets were examined for duty liability and marketability. The majority view was that the department had not established the motors as marketable goods distinct from the final pump product, and that duty could not be demanded merely because the item was captively consumed; the earlier appellate view was therefore sustained and the demand rejected. The concurring member also treated marketability as essential for captive-consumption duty. The dissent held that the motors were fully manufactured before captive use, were required to be accounted for in RG-1, and were dutiable at the stage of removal for captive consumption.

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Issues: Whether electric motors captively consumed in the manufacture of power driven pumps were exigible to duty before their use in the pump set, and whether the department had established that the motors were marketable goods distinct from the final pump product.

Analysis: The majority held that the department had not effectively met the finding that the motors used in the pump set were not marketable and became an integral part of the pump. In the absence of a rule comparable to the deferred-collection mechanism relied upon by the department and in view of the material supporting the view that duty could not be demanded merely because the item was captively consumed, the earlier appellate view was sustained. The concurring member agreed that marketability had to be shown for captive consumption duty and that the assessee's case was supported by the Tribunal precedent and departmental clarification relied upon before the lower appellate authority.

Conclusion: The duty demand on the electric motors was not sustained and the appeal was rejected.

Dissenting Opinion: The Vice President held that, on the material available, the electric motors were fully manufactured before captive use, were required to be accounted for in RG-1, and were liable to duty at the stage of removal for captive consumption. He therefore would have allowed the departmental appeal.

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