Captive consumption defeats the passing-on bar to refund where duty-paid inputs are used in manufacturing the final product.

Duty-paid soft ice-cream used as an input in the assessee's own manufacturing process for hardened ice-cream was treated as captively consumed, and duty was also paid on the final product. On those facts, the doctrine that refund is barred where the duty burden has been passed on to customers was held inapplicable. The cited precedents were applied to support the view that passing-on does not defeat refund where the intermediate goods are used within the same manufacturing process and the duty incidence is not shifted to buyers of the final product. The refund claim was therefore stated to be admissible with consequential relief.

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Issues: Whether the refund claim was barred on the ground that the incidence of duty had been passed on to customers, or whether the duty-paid soft ice-cream was captively consumed in the process of making hardened ice-cream so that refund could not be denied on that basis.

Analysis: The duty-paid soft ice-cream purchased from other manufacturers was taken into the factory and subjected to the process of hardening for manufacture of the final product. The Revenue did not dispute that the process was undertaken and that duty was paid on the final hardened ice-cream. On these facts, the intermediate goods were treated as captively consumed in the manufacturing process. The principle that refund is denied where the duty burden has been passed on to customers was held inapplicable in such a situation, and the reasoning of the cited precedents was found applicable to the facts of the case.

Conclusion: The refund could not be denied on the ground of passing on the burden of duty, and the claim ought to have been allowed.

Final Conclusion: The appeal succeeded and the assessee was held entitled to refund with consequential relief.

Ratio Decidendi: Where duty-paid goods are used in the assessee's own manufacturing process as captively consumed inputs and duty is also paid on the final product, the doctrine of passing on the duty burden does not bar refund.

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