Cess on jute removals to another factory is not captive consumption under the separate cess regime.

Clearance of jute manufactures to another factory of the same manufacturer under Chapter X procedure was not treated as captive consumption for cess purposes, because Rule 3 of the Jute Manufactures Cess Rules, 1984 fastens cess on finished goods removed for sale or subsequent sale and a central excise exemption notification does not govern levy under the separate cess law. The cess remained leviable on removal. On limitation and penalty, the matter was remitted for fresh consideration because the record lacked a categorical finding on when cess became payable and the relevant factual aspects needed re-examination; in the absence of suppression, the penalty was set aside.

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Issues: (i) whether jute manufactures cleared to another factory of the same manufacturer under Chapter X procedure could be treated as captive consumption so as to avoid cess under the Jute Manufactures Cess Rules, 1984; (ii) whether the demand was barred by limitation and whether penalty was sustainable.

Issue (i): whether jute manufactures cleared to another factory of the same manufacturer under Chapter X procedure could be treated as captive consumption so as to avoid cess under the Jute Manufactures Cess Rules, 1984.

Analysis: Rule 3 of the Jute Manufactures Cess Rules, 1984 fastens cess on finished jute manufactures removed for sale or subsequent sale, and the reasoning in the earlier decision on captive use within the same factory did not extend to removals to a different factory. The exemption under Notification No. 121/94-C.E. related to central excise duty and could not control levy under the separate cess enactment. Clearance to another factory under Chapter X procedure was therefore not treated as captive consumption for cess purposes.

Conclusion: The clearance to the other factory was held not to be captive consumption, and cess remained leviable on the removal.

Issue (ii): whether the demand was barred by limitation and whether penalty was sustainable.

Analysis: The plea that cess was to be paid only at the time of final removal by the recipient factory required examination, and the record did not contain a categorical finding on that aspect. The demand period and the prior intimation given by the assessee also required consideration on limitation. As there was no suppression, the penalty could not stand. The matter was therefore sent back for fresh consideration on limitation and related factual issues.

Conclusion: The question of limitation was remitted for de novo decision, and the penalty was set aside.

Final Conclusion: The dispute on captive consumption was decided against the assessee, but the matter was remanded for reconsideration of limitation and other factual aspects, with no penalty to be imposed in the fresh proceedings.

Ratio Decidendi: Clearance of jute manufactures to another factory of the same manufacturer under Chapter X procedure is not, by itself, captive consumption for cess purposes, and a central excise exemption notification does not govern levy under the separate Jute Manufactures Cess Act, 1983.

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