Exemption notifications must be read by eligible goods only, and captive-use broke paper can qualify for relief.

An exemption notification confined to paper and paperboard made from specified non-conventional raw materials was to be applied only to that eligible class, so the aggregate quantity limit could not be computed by counting all varieties of paper cleared by the assessee. Broader clearances could not be used to deny or extend relief in a way that made the notification unworkable. Broke paper consumed within the same factory to manufacture wood pulp, which was then used in paper production, was also covered by the captive-consumption exemption because the goods were produced and consumed in the manufacture of a notified input. The duty demand was therefore unsustainable.

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Issues: (i) Whether the aggregate quantity limit for exemption under Notification No. 6/2000 was to be computed by taking into account all clearances of all varieties of paper and paperboard manufactured by the assessee, or only the clearances of paper and paperboard produced from non-conventional raw materials; (ii) whether broke paper consumed within the factory in the manufacture of wood pulp, which was subsequently used in paper manufacture, was eligible for exemption under Notification No. 10/96.

Issue (i): Whether the aggregate quantity limit for exemption under Notification No. 6/2000 was to be computed by taking into account all clearances of all varieties of paper and paperboard manufactured by the assessee, or only the clearances of paper and paperboard produced from non-conventional raw materials.

Analysis: The exemption entry covered only paper and paperboard manufactured starting from the stage of pulp where the pulp contained not less than 75% by weight of pulp made from materials other than the specified conventional inputs. On that language, the benefit was confined to the specified category of goods and could not be extended to unrelated varieties of paper. A construction that counted all varieties of paper for the quantity restriction would either confer the exemption on excluded goods or deny it to eligible goods merely because of the sequence of clearances. Such a reading would make the notification unworkable and was not permissible.

Conclusion: The quantity restriction was to be computed only with reference to the exempted goods, and the contrary view was rejected. The issue was decided in favour of the assessee.

Issue (ii): Whether broke paper consumed within the factory in the manufacture of wood pulp, which was subsequently used in paper manufacture, was eligible for exemption under Notification No. 10/96.

Analysis: The notification exempted goods produced in a factory and consumed in the manufacture of specified goods, and wood pulp was one of the specified goods. Broke paper arising in the course of manufacture was recycled within the same factory for production of wood pulp and then used in paper manufacture. The departmental clarification reinforced that waste paper and broke paper so used were covered by the exemption.

Conclusion: The assessee was entitled to exemption for broke paper used in the manufacture of wood pulp. The issue was decided in favour of the assessee.

Final Conclusion: The denial of exemption under both notifications was unsustainable, the duty demand could not survive, and the assessee obtained full relief.

Ratio Decidendi: An exemption notification confined to a specified class of goods must be construed by reference to that class alone, and a captive-consumption exemption applies where the goods are produced and used within the factory for manufacture of a notified input.

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