Captive intermediate goods remain dutiable absent exemption, with admissible Modvat credit reducing the recoverable duty liability.

In the absence of any exemption notification, captive manufacture of lead oxide or grey oxide from duty-paid lead was treated as dutiable, and the duty demand on the intermediate product was sustained. As the duty liability on the manufactured product survived, admissible Modvat credit relatable to the lead used in its manufacture had to be taken into account in computing the recoverable amount. The effective liability was therefore confined to the net duty after credit.

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Issues: (i) whether lead oxide or grey oxide manufactured from duty-paid lead and used captively in the assessee's factory was liable to excise duty in the absence of any exemption notification; (ii) whether Modvat credit on the lead used in such lead oxide was available while computing the net duty liability.

Issue (i): whether lead oxide or grey oxide manufactured from duty-paid lead and used captively in the assessee's factory was liable to excise duty in the absence of any exemption notification.

Analysis: In the absence of any exemption notification, the manufactured lead oxide or grey oxide was treated as dutiable. The question of marketability was not examined on merits in the order, and the duty demand on the manufactured intermediate product was sustained.

Conclusion: Yes. Duty was leviable on the lead oxide or grey oxide and the demand was upheld.

Issue (ii): whether Modvat credit on the lead used in such lead oxide was available while computing the net duty liability.

Analysis: Since the duty demand on lead oxide was sustained, the credit attributable to the lead used in its manufacture could not be ignored in determining the effective liability. The recoverable amount was therefore required to be worked out after granting the admissible Modvat credit linked to the lead entering the lead oxide.

Conclusion: Yes. Modvat credit was to be allowed and only the net duty liability remained recoverable.

Final Conclusion: The duty demand on lead oxide or grey oxide was maintained, but the recoverable amount was confined to the net figure after giving credit for the lead used in manufacture.

Ratio Decidendi: In the absence of an exemption notification, an excisable intermediate product used captively remains dutiable, but the duty recoverable must be adjusted by the admissible credit attributable to inputs used in its manufacture.

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