Captive consumption exemption for PET bottles upheld where aerated water was assessed under Section 4A, defeating the packaging exclusion.

PET bottles captively consumed for packing aerated waters were eligible for exemption under Notification No. 67/95-C.E. because the exclusion for packaging materials applied only where the final product's cost was not included in assessable value under Section 4 of the Central Excise Act, 1944. Since the aerated water was assessed under Section 4A, the exclusion could not be used to deny the exemption. The later amendment to the notification also supported this interpretation. Accordingly, the duty demand and penalty were unsustainable and were set aside.

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Issues: Whether PET bottles captively consumed for packing aerated waters were entitled to exemption under Notification No. 67/95-C.E. despite the final product being assessed under Section 4A of the Central Excise Act, 1944, and whether the consequent duty demand and penalty could be sustained.

Analysis: The notification exempted specified inputs manufactured and used within the factory in the manufacture of specified final products, but the exclusion in clause (ii) of the Explanation applied to packaging materials or containers only where their cost was not included in the assessable value of the final products under Section 4 of the Central Excise Act, 1944. The final product in the present case was assessed under Section 4A, not under Section 4, so the exclusion could not be applied to deny the exemption. The later amendment to the notification also supported the assessee's case. The reasoning was consistent with the view that a value-linked exclusion cannot be extended to a different mode of assessment merely by implication.

Conclusion: The PET bottles were eligible for the exemption, and the duty demand and penalty were unsustainable and set aside.

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