Broader exemption for mixed xylene used in paints and varnishes prevailed over partial relief, with no clandestine removal found.

Mixed xylene cleared for use in making paints and varnishes was treated as eligible for the broader exemption under Notification No. 276/67, because the term "chemicals" in the scheduled industrial use was construed to cover paints and varnishes on the materials before the Tribunal. Notification No. 35/73, though specifically addressing mixed xylene as a solvent, diluent or thinner for paints and allied products, provided only partial relief. Where both notifications could apply, the one granting greater exemption was preferred on the facts. Clearances made on central excise documents also negatived any allegation of clandestine removal, and the token penalty was held unsustainable.

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Issues: Whether mixed xylene cleared for use in the manufacture of paints and varnishes was eligible for complete exemption under Notification No. 276/67 or only for partial exemption under Notification No. 35/73, and whether any penalty was sustainable.

Analysis: Notification No. 276/67 exempted goods falling under the relevant tariff items when cleared to another factory under Chapter X procedure for use in the manufacture of commodities specified in the annexed schedule, including chemicals and chemical formulations. The expression "chemicals" was broad enough, on the materials before the Tribunal, to include paints and varnishes as understood in the tariff grouping and departmental practice. Notification No. 35/73, however, specifically dealt with mixed xylene intended for use as solvent, diluent or thinner in the manufacture of paints, varnishes, lacquers and allied materials, but granted only partial exemption. Since both notifications were capable of application, the notification conferring the greater relief was held to be the appropriate one on the facts. In view of the clearances having been made on central excise documents, the allegation of clandestine removal was also negated.

Conclusion: The assessee was entitled to the benefit of Notification No. 276/67, and even the token penalty was not justified.

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