Captive consumption counts toward base clearances, but non-excisable manufacturing waste cannot be included in exemption calculations.
Captive consumption is generally treated as removal from the factory for exemption-notification purposes and, where not expressly excluded, may be counted in computing base clearances. However, waste paper or broke arising in manufacture, repulped within the factory and not marketable as excisable goods, cannot be included in the clearance computation merely because it is produced during manufacturing. The operative distinction is between goods deemed removed for captive use and material that is only waste and not excisable goods. On that basis, the disputed broke was excluded from the base clearance calculation.
Issues: (i) Whether waste paper captively consumed within the factory and repulped could be taken into account while computing base clearances under the exemption notification; (ii) Whether such broke or scrap paper was excisable goods so as to be includible in the clearances for the purpose of the notification.
Issue (i): Whether waste paper captively consumed within the factory and repulped could be taken into account while computing base clearances under the exemption notification.
Analysis: The notification governed clearances of specified goods from a factory for home consumption during the relevant period in excess of the base clearance. Although the expression used was clearance from a factory for home consumption, the statutory scheme treated goods removed for captive consumption as removed from the factory. The notification also showed that captive consumption was excluded only in the specific instances expressly mentioned therein. On that basis, captive consumption of goods not so expressly excluded had to be counted for computing clearances. The result also followed the understanding that home consumption is opposed to export and includes consumption within the country, together with the deeming effect of the excise removal rules.
Conclusion: Captive consumption was, in principle, required to be taken into account in computing base clearances.
Issue (ii): Whether such broke or scrap paper was excisable goods so as to be includible in the clearances for the purpose of the notification.
Analysis: The material in question was not saleable paper or paper board and was only waste arising in the course of manufacture, repulped within the factory and not cleared as a marketable product. Goods which are not excisable goods within the meaning of the notification cannot be brought into the computation of clearances merely because they arise in manufacture. Since the notification applied to excisable goods and scrap paper or broke of this kind was not excisable goods, its inclusion in the clearance computation would be unwarranted.
Conclusion: Such waste paper or broke was not includible in the clearance computation as excisable goods.
Final Conclusion: The appeals succeeded, and the disputed captive consumption of broke repulped within the factory was held not liable to be included in the base clearance calculation because the material itself was not excisable goods.
Ratio Decidendi: Where the item in question is only waste or broke arising in manufacture and is not excisable or marketable goods, it cannot be included in the clearance computation under an exemption notification, even though captive consumption may otherwise be treated as removal for excise purposes.
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