Captive consumption exemption for gauges denied where measuring instruments were not treated as inputs under the notification.

Gauges manufactured and cleared for captive consumption were held not to fall within Notification No. 217/86-C.E. because the decisive question was whether they could be treated as inputs covered by the captive consumption exemption. The analysis distinguished the broader treatment of measuring instruments as capital goods under Rule 57Q of the Central Excise Rules, 1944, noting that that reasoning did not convert such instruments into inputs for the exemption notification. On that basis, the notification was held inapplicable and the duty demand was sustained.

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Issues: Whether gauges manufactured and cleared for captive consumption were entitled to the benefit of Notification No. 217/86-C.E. dated 02.04.1986.

Analysis: The deciding factor was whether the gauges could be treated as inputs covered by the notification. Relying on the Larger Bench view under Rule 57Q of the Central Excise Rules, 1944, the expression "used for producing or processing" was understood broadly for capital goods purposes, and measuring instruments were treated as eligible for capital goods credit in that context. On that reasoning, such instruments could not be regarded as inputs for the purpose of Notification No. 217/86-C.E., which governs captive consumption exemption for inputs.

Conclusion: The gauges were not covered by Notification No. 217/86-C.E. and the duty demand was sustainable; the appeal failed.

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