Dutiability of intermediate products and captive consumption :
Captive consumption in the context of excise law means utilisation of goods produced or manufactured within the factory of production. This is normally prevalent in large factories with several departments in diverse manufacturing processes with their departmental and intra-departmental stock transfers. The goods internally consumed to manufacture the final product are termed as intermediate goods. In terms of the definition of manufacture under section 2(f) of the Act, manufacture takes place even at an intermediate stage of the manufacturing process, if the intermediate product is known commercially as a distinct and identifiable product.
The Supreme Court in its decisions in Union Carbide India Ltd. Vs. Union of India (1986) (24) ELT- 169 and in Bhor Industries Ltd. Vs. C.C.EX. (1989) (40) ELT-280 has held that an intermediate product would be excisable only if it is a complete product in the sense that it is capable of being sold to a consumer. Thus marketability is essential for charging an article to duty. Therefore where the intermediate product is not capable of being sold, it is not dutiable even if it is included in the Tariff Entry. In other words intermediate goods will be chargeable to duty under law only if the test of marketability is met.
Intermediate goods which are bought into being insitu in the process will not be chargeable to duty since they are not marketable. Moreover, transient and unstable intermediate goods would also not be chargeable to duty on the same basis. However, other kind of intermediate products, which are capable of being marketed as goods in their own right, will be chargeable to duty, notwithstanding that they are not packed or stored separately but are used as part of a continuous process.
| Thus to conclude, intermediate goods will be chargeable to duty if they arise in the course of manufacture/production, are moveable and marketable in such intermediate stage, listed in the Tariff, and are subject to duty of excise in the Tariff. |
Exemption for Captive Consumption: Although excise duty is chargeable on manufactured goods under section 3 of the Act, the collection of the levy is postponed under rule 4 of Central Excise Rules, 2002 to the time of removal of goods from the factory. In case of Collector v. Vazir Sultan Tobacco Co. Ltd. 1996 (83) E.L.T. 3, the Supreme Court has held that the words used in section 3(1) “in such manner” applies to “collection”. Hence, the section creates the “levy” itself and collection is left to be regulated by the Rules.
Therefore, removal of goods emerged in one process for being used in another process (captive consumption) would be a ‘clearance‘ in terms of rule 4 of Central Excise Rules, 2002, which requires payment of duty. However, since paying duty on all captive consumption will cause inconvenience to manufacturers, exemptions have been given in many cases. Notification No. 67/95 CE 16.03.95 grants exemption from excise duty payable on capital goods and inputs (except light diesel oil, high diesel oil and petrol) manufactured in a factory and used within the factory of production in or in relation to manufacture of final products, if duty is payable on such final products.