Input exemption for shell sand upheld where sand moulds were intermediates and the final product remained dutiable iron castings.

Shell sand used to manufacture sand moulds, which were in turn used in the manufacture of iron castings, qualified for exemption under Notification No. 217/86 because the input was used within the factory in relation to the final dutiable product. The separate exemption available to sand moulds under another notification did not trigger the proviso to Notification No. 217/86, since the relevant final product for the manufacturing process remained iron castings and those castings were not exempt or nil-rated. On that basis, the exemption for shell sand was upheld and the duty demand could not stand.

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Issues: Whether shell sand used in the manufacture of sand moulds, which in turn were used in the manufacture of iron castings, was entitled to exemption under Notification No. 217/86 despite the exemption available to sand moulds under Notification No. 46/94.

Analysis: The notification exempted inputs manufactured in the factory and used within the factory in or in relation to the manufacture of the final product, unless the final product itself was exempt or chargeable to nil duty. The shell sand was used only as an input in the manufacture of sand moulds, and those moulds were themselves used in relation to the manufacture of the only final product, namely iron castings. The sand moulds were not the final product for the purposes of the assessee's manufacturing process, and the actual final product, iron castings, was dutiable. The exemption granted to sand moulds under a different notification did not attract the proviso to Notification No. 217/86, because the relevant final product was not exempt.

Conclusion: Shell sand was eligible for exemption under Notification No. 217/86, and the duty demand was unsustainable.

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