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