Meaning of Captive Consumption

In case of a factory, produces a product but does not sell it and uses it for further production, it is called captive consumption.


For example

A factory purchases cotton and makes clothe from it, Later it uses cloth to make shirt.

In this case, there is captive consumption of cloth.Cloth is called intermediate product and shirt final product.


Whether Excise Duty charged on captive consumption?

Yes, as process of making intermediate product and later final product both amounts to manufacture.

Hence, Excise duty is applicable on both intermediate product and final product.

However, Central Government has issued a notification that

If final product is taxable, then intermediate product is exempt

This is done for the ease of manufacturer so that he does not have to pay excise duty twice

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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 13 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.