In-factory consumption for exemption includes nitrogen used to purge tanker vessels before LPG filling, even if charges are recovered.
Nitrogen gas used inside the factory to purge tankers before filling them with LPG was treated as consumed within the factory of production for exemption under Notification No. 40/85-C.E. The purging was done on tankers brought into the factory and was required by Rule 7 of the Static and Mobile Pressure Vessels (Unfired) Rules, 1981, which mandated inert-gas purging before refilling. Recovery of charges for the purging activity did not change the in-factory consumption of the nitrogen or defeat the exemption. The operative principle is that, where an exemption depends only on consumption within the factory, actual in-factory use satisfies the condition.
Issues: Whether nitrogen gas used inside the factory for purging tankers before filling them with LPG was consumed within the factory of production so as to qualify for exemption under Notification No. 40/85-C.E. dated 17-03-1985, notwithstanding that charges were recovered for the purging activity.
Analysis: The exemption condition required only that nitrogen be consumed within the factory of production. The tankers were brought into the factory, purged there by using nitrogen, and then filled with LPG. Rule 7 of the Static and Mobile Pressure Vessels (Unfired) Rules, 1981 required purging of vessels by an inert gas before refilling, so the use of nitrogen was in compliance with a statutory requirement. Recovery of charges for purging did not alter the fact that the nitrogen was consumed within the factory.
Conclusion: The nitrogen gas was consumed within the factory of production and was eligible for exemption under Notification No. 40/85-C.E. dated 17-03-1985.
Ratio Decidendi: Where an exemption notification requires only consumption within the factory of production, such requirement is satisfied if the goods are actually used within the factory, and recovery of charges for the in-factory activity does not by itself negate exemption.
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