Dutiability of intermediate products and captive consumption:

The definition of manufacture under section 2(f ) of the Act would also imply that manufacture would take place at an intermediate stage of the process, as long as the intermediate product was known commercially as a distinct and identifiable product. However, although excise duty is chargeable on manufactured goods ,the collection of the levy is postponed to the time of removal of goods from the factory . In other words even though section 3 of the Act imposes the levy on the event of manufacture ,the rules require the duty to be paid only at the time of removal from the factory.

Captive consumption in the context of excise law signifies utilization of goods produced or manufactured within the factory of production. Captive consumption would amount to removal of goods from the factory or from the approved place of storage and is ‘clearance’ in law as per rule 4 read with rule 49 of the Rules   ,which require payment of duty.

It is important to note that the Supreme Court in its decisions in UNION CABIDE India Ltd. Vs. Union of India (1986) (24) ELT-169 and in Bhor Industries Limited 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 i.e. 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. :