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CAPTIVE CONSUMPTION

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Intermediate products

Since excise duty is on manufacture of goods, duty is payable as soon as goods are manufactured within the factory. Such goods are called ''intermediate products''

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Captive Consumption Captive Consumption : Captive Consumption

means the consumption of goods manufactured by one division or unit and consumed by another division or unit of the same organization or related undertaking for manufacturing another product(s).

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Exemption to intermediate products used for captive

consumption Captive consumption for dutiable final products The intermediate product manufactured within the factory is

exempt from duty, if is consumed captively for manufacture of

(a) Capital goods as defined in Cenvat Credit Rules (b) Used for in or in relation to manufacture of final products

eligible for Cenvat, made from inputs which are eligible for Cenvat.

The exemption is available for all intermediate products, except LDO, HSD and petrol.

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Final product should not be exempt from duty

This exemption is not available if final product is exempt from duty or is chargeable to nil rate of duty.

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Intermediate products exempt even if manufactured by third party

Intermediate products/ capital goods are exempt even if they are manufactured by third party

As long as the captive consumption is within the factory.

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Exemption if goods cleared under rule 6 of Cenvat Rules If final product is exempt from duty, normally duty is

payable on intermediate product.

However, if final product is cleared as per provisions of rule 6 of Cenvat Credit Rules [i.e. after paying 10% of price as ''amount'' or after reversing Cenvat credit],

intermediate product will be exempt from duty.

proviso (vi) to Notification No. 67/95-CE -- clarified and confirmed in CCE, Cochin TN 68/2001 dated 24.7.2001].

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Exemption if final product cleared for deemed export As per excise provisions, no duty is payable if final

product is cleared * to EOU * to a unit in Electronics Hardware Technology Park

to a unit in Software technology park.

In such cases, duty on intermediate product is not payable even if final product is cleared without payment of duty.

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Goods cleared to UN, WHO etc. Final products cleared to ILO, WHO, UNDP, UNIDO

programme etc. are exempt under Notification 108/95-CE.

In such case, intermediate product will be exempt from duty.

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Capital goods manufactured and used within factory

,capital goods (as defined in Cenvat Credit Rules) manufactured in a factory and used within the factory of production are exempt from excise duty.

Further, as per explanation 2 to rule 2(g) of Cenvat Credit Rules, inputs include goods used in manufacture of capital goods, which are further used in the factory of manufacturer.

Thus, if capital goods are manufactured and used within the factory, Cenvat credit can be availed of goods, which are used to manufacture such capital goods. Moreover, no duty will be payable on such capital goods.

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Capital goods manufactured within factory of production are exempt even if manufactured by third party

exemption is available even if the capital goods are manufactured in the factory of production by third party.

The tools are manufactured within the factory for manufacture of goods required by ultimate buyer .

In such a case invoice for buyer will be separately raised on buyer though tools may be captively consumed.

Exemption even if invoice is raised on the ultimate buyer.

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Cenvat credit on capital goods used in manufacture of exempt intermediate product

It may happen that capital goods may be used in manufacture of an exempt intermediate product, but final product may be dutiable.

In such case, Cenvat credit is available on such capital goods, if final product is chargeable to duty.

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Other exemptions to Intermediate products Parts manufactured within the factory for repairs – Goods manufactured in a workshop within the factory for use

within factory for repairs or maintenance of machinery installed within the factory are exempt from duty. Thus, no duty is payable on parts manufactured within the factory for repairs or maintenance of machinery within the factory.

Other exemptions to Intermediate products Other exemptions to Intermediate products

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Goods manufactured for defence/Government, etc.

Some goods are exempt from duty if they are supplied to defence, railways, defence stores, Indian Navy, or if manufactured in ordnance factories, mint, prison, mine, Government tool rooms, etc.

In such cases, if an intermediate product gets produced while manufacturing final product, such intermediate product is also exempt from duty - Notification No. 83/92 dated 16-9-92.

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Intermediate products manufactured and used within the factory for manufacture of final products are exempt from duty,

even if CT-3 certificate is not issued and Central Excise (Removal of Goods at Concessional Rate of Duty for manufacture of Excisable Goods), Rules [earlier Chapter X] procedure is not followed,

subject to the condition that documents / records are available with manufacturer that the intermediate goods have been used for export purpose only

Intermediate products used captively for

exported goods

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Intermediate products manufactured by exempted SSI units.

A SSI units with a turnover of less then 150 lakhs is exempt from duty, if it does not avail cenvat on inputs.

exempted such SSI units may manufacture an Intermediate product which is used in manufacturing of final product.

In such case no duty is payable on the Intermediate product even if final product is cleared without payment of duty.

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Transfer of Intermediate products by LTU to another unit

Intermediate goods / capital goods can be transferred from one unit to another without payment of duty, if these are to be in manufacture of excisable final products on which duty is payable

The removal should be under an invoice

It is not permissible in case if EOU/ STO units

It is not permissible if the unit is enjoying exemption available in

HP, UP , Sikkim , J&K Kutch or north eastern states.

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Valuation in case of captive consumption

In case of captive consumption, valuation shall be done on basis of cost of production plus 15% (Rule 8 of Valuation Rules).

Captive consumption means goods are not sold but consumed within the factory.

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partly sold and partly consumed if same goods are partly sold by assessee and partly consumed

captively, goods sold have to be assessed on basis of transaction value and goods captively consumed should be assessed on basis of rule 8. The reason is, as per new section 4,

captively consumed by 'related person In case goods are supplied to a ''related person'' but consumed by the

related person and not sold, valuation will be done on the basis of cost of production plus 10%.

this proviso applies when goods are transferred to a sister unit or

another unit of the same factory for captive consumption in their factory.

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Valuation when no other rule is applicable

Pole were manufactured and used in transmission of electricity .

These were not used in manufacturing of other goods rule 8 is not applicable

Since no other rule is applicable , adopting rule 8 ie. Cost of production plus 10% is resonable.

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The simplified provision has been probably made as in most of the cases, the buyer will be able to get Cenvat credit of duty paid on inputs and there is hardly any incentive to avoid any payment of duty.

Thus, the formula for determining value is simple. If the cost of production based upon general principles of costing of a commodity is Rs. 10,000 per unit, the assessable value of the goods shall be Rs. 11,000 per unit.

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Duty in certain cases on intermediate products

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intermediate product transfared to another factory of the same manufacturer

Some times intermediate product is transferred to another factory of the same manufacturer for further manufacture.

The product as such will not be sold .

In such case when the goods are transfared duty will be payable.

Valuation will be on the same bases as for captive consumption.

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duty by SSI on intermediate products if final product exempt If final product is fully exempt under any other notification

(notification other then the SSI exemption notification)

Duty will be payable on intermediate product or its value will be considered for calculating limit of rs 150 /400 lakhs

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Goods cleared under special procedure for concessional rate of duty

Goods can be cleared without payment of duty under central excise .

In such case the intermediate product which may be produced while manufacturing final product is dutiable.

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Thank You