In-factory consumption exemption applied to liquid nitrogen used for freezing semen; later clearance of containers did not defeat relief.

Liquid nitrogen used captively for freezing semen qualified as consumption within the factory of production under Notification No. 40/85-C.E. The exemption for hydrogen and nitrogen required only in-factory consumption, not use in the manufacture of an excisable product. Because the liquid nitrogen was used inside the factory in specially constructed containers for freezing semen, its later clearance with the container did not negate the initial in-factory consumption. On that basis, the duty demand could not be sustained and the exemption applied.

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Issues: Whether liquid nitrogen used captively for freezing semen was consumed within the factory of production so as to satisfy Notification No. 40/85-C.E., dated 17-3-1985, and whether the duty demand could therefore be sustained.

Analysis: The exemption entry covered hydrogen and nitrogen if consumed within the factory of production. The condition did not require the gas to be used in the manufacture of an excisable product. Liquid nitrogen was used within the factory for freezing semen in specially constructed containers, and the fact that the container was later cleared did not alter the initial consumption of the nitrogen within the factory. On that basis, the use fell within the scope of the notification.

Conclusion: The demand was not sustainable and the appeal succeeded.

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