Captive consumption exemption for intermediate goods applies where the final product was cleared on duty without any refund claim.

Exemption under Notification No. 217/86-C.E. for an intermediate product depended on the duty status of the final product during the relevant period. Where sodium silicate was captively consumed in the manufacture of spray dried silica and the final product had been cleared on payment of appropriate duty, the captive-use benefit could not be denied merely because the exemption dispute was pending. The benefit remained available to the extent the final product was actually cleared on duty payment without any corresponding refund claim.

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Issues: Whether the appellants were entitled to the benefit of Notification No. 217/86-C.E. in respect of sodium silicate captively consumed in the manufacture of spray dried silica when the final product had been cleared on payment of duty during the period of dispute and no refund was claimed in relation to that duty payment.

Analysis: The entitlement to exemption on the intermediate product depended on the actual duty position of the final product during the relevant period. The final product had in fact been cleared on payment of appropriate duty while the exemption dispute remained pending, and the refund claim was confined only to a portion of duty relating to the period for which the appellants were not pressing the demand. In these circumstances, the denial of the captive consumption benefit on sodium silicate was not sustainable for the quantity linked to clearances made on payment of duty without a corresponding refund claim.

Conclusion: The appellants were entitled to the benefit of Notification No. 217/86-C.E. for sodium silicate captively used in the manufacture of spray dried silica to the extent the final product had been cleared on payment of duty without refund.

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