Captive consumption and Modvat credit prevent double duty demand on inputs used in further manufacture.

Captive consumption of defective printing ink within the factory for manufacture of another excisable product did not attract separate central excise duty because the ink was not cleared as such and was used in further manufacture. The demand on the catalytic agent was also unsustainable since it had been cleared on payment of duty through valid Modvat credit; omission to declare it as a final product did not create a fresh duty liability, particularly where the situation was revenue neutral. The duty demand and penalty were therefore set aside and the assessee succeeded on both issues.

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Issues: (i) Whether printing ink captively consumed in the manufacture of catalytic agent was liable to central excise duty. (ii) Whether duty could again be demanded on catalytic agent cleared on payment of duty through Modvat credit merely because it was not declared as a final product.

Issue (i): Whether printing ink captively consumed in the manufacture of catalytic agent was liable to central excise duty.

Analysis: The printing ink, though initially entered in the RG-1 record, was found defective and unfit for use as printing ink and was thereafter used captively with additional solvent in the manufacture of catalytic agent. Since the goods were not cleared as such and were consumed within the factory for manufacture of another excisable product cleared on duty payment, the levy on the ink was not sustainable.

Conclusion: The demand of duty on the captively consumed printing ink was not justified and was decided in favour of the assessee.

Issue (ii): Whether duty could again be demanded on catalytic agent cleared on payment of duty through Modvat credit merely because it was not declared as a final product.

Analysis: The catalytic agent was admittedly cleared on payment of duty by debiting Modvat credit. The omission to declare it as a final product did not create a fresh duty liability, because credit once validly earned could be utilised for payment of duty on any final product. The situation was revenue neutral, as any debit would only be recredited and available for subsequent use.

Conclusion: The second demand was not justified and was decided in favour of the assessee.

Final Conclusion: The duty demand and penalty were set aside, and the appeal succeeded on both counts.

Ratio Decidendi: Captive consumption of goods within the factory for manufacture of another duty-paid final product does not attract separate duty, and valid Modvat credit may be utilised for payment of duty on any final product, making a second demand unsustainable where the exercise is revenue neutral.

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