1985 (6) TMI 114 - AT - Central Excise

Summary

Issues Involved:
1. Entitlement to the benefit of Notification No. 201/1979.
2. Application of Notification No. 118/1975.
3. Correlation of inputs purchased from the market and the final product.
4. Procedural requirements for claiming exemptions.
5. Interpretation of "inputs" and "final products" under the relevant notifications.

Detailed Analysis:

1. Entitlement to the Benefit of Notification No. 201/1979:
The core issue was whether the respondents were entitled to the benefit of Notification No. 201/1979 for inputs purchased from the open market and used in manufacturing intermediate products exempted under Notification No. 118/1975. The Assistant Collector denied this benefit, asserting that the bought-out inputs were utilized for manufacturing intermediate products, which were exempt from duty and not the final products. The Appellate Collector, however, allowed the benefit, holding that the two notifications could work together. The Tribunal upheld the Appellate Collector's decision, stating that the benefit under Notification No. 201/1979 could not be refused merely because the inputs were used for producing intermediate goods which were later used in the final product.

2. Application of Notification No. 118/1975:
Notification No. 118/1975 provided an exemption for goods falling under Item No. 68, manufactured in a factory and intended for use within the same factory or another factory of the same manufacturer. The Assistant Collector's interpretation was that since the intermediate products (falling under T.I. 68) were exempt from duty, the benefit under Notification No. 201/1979 could not be claimed. The Tribunal disagreed, emphasizing that the final product's duty relief could be claimed even if the intermediate product was exempt, provided the inputs were used in the final manufacturing process.

3. Correlation of Inputs Purchased from the Market and the Final Product:
The Assistant Collector argued that it was impossible to correlate the market-purchased inputs with the final product due to their mixing with similar inputs manufactured in the factory. The Tribunal found this reasoning flawed, referencing the Supreme Court's judgments, which stated that the mixing of duty-paid and non-duty-paid materials should not deny the benefit of exemption if the statutory conditions were met. The Tribunal suggested procedural arrangements to allocate and assign the quantity of the final product resulting from the duty-paid inputs.

4. Procedural Requirements for Claiming Exemptions:
The Review Show Cause Notice highlighted procedural issues, stating that the bought-out inputs were not stored and consumed separately, making it difficult to determine the exact duty relief under Notification No. 201/1979. The Tribunal dismissed this argument, noting that the statutory conditions and procedures set out in the notifications were adequately followed, and the procedural arrangement between the department and the assessee could address any allocation issues.

5. Interpretation of "Inputs" and "Final Products" under the Relevant Notifications:
The Tribunal referenced its previous decision in the case of Collector of Central Excise, Bhubaneshwar v. M/s. Tataghur Paper Mills, explaining that an input or raw material does not need to go directly into the finished product to qualify for exemption. As long as it is consumed and utilized in the manufacturing process, it qualifies as an input for the finished product. This interpretation supported the respondents' claim for the benefit under Notification No. 201/1979, even if the inputs were first used to produce intermediate products.

Conclusion:
The Tribunal upheld the Appellate Collector's order, granting the benefit of Notification No. 201/1979 to the respondents for their bought-out inputs under T.I. 68. The appeal was dismissed, and the Review Show Cause Notice was discharged, affirming that the procedural and interpretative issues raised by the Assistant Collector and the Review Show Cause Notice did not warrant denying the exemption benefits.