Captive input exemption for castings and moulds applies when intermediate goods are used in making dutiable final products.

Captively consumed iron castings used to make moulds for glassware were treated as eligible inputs for exemption under Notification No. 217/86-C.E., because the castings were not ready for use as machine parts and were only intermediate goods in the manufacture of dutiable final products. Classification was to follow the actual condition and use of the goods, not the Revenue's asserted heading. Unmachined moulds were also accepted as exempt under Notification No. 275/88-C.E. on the facts stated. The commentary therefore supports exemption treatment for intermediate castings and moulds where the notification covers inputs and contains no express exclusion.

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Issues: (i) Whether iron castings captively consumed in the manufacture of moulds for glassware were eligible for exemption under Notification No. 217/86-C.E. notwithstanding the Revenue's contention that they were classifiable under Chapter 73 and not Heading 8480.10. (ii) Whether unmachined moulds were exempt under Notification No. 275/88-C.E. dated 4-11-1988.

Issue (i): Whether iron castings captively consumed in the manufacture of moulds for glassware were eligible for exemption under Notification No. 217/86-C.E. notwithstanding the Revenue's contention that they were classifiable under Chapter 73 and not Heading 8480.10.

Analysis: The circular relied upon by the lower authority had been superseded. The applicable approach was that castings ready for use as machine parts may fall under the relevant machine part headings, but castings requiring further machining remain classifiable as castings under Chapter 73. On the facts, the iron castings were not ready for use as machine parts and were used as intermediate products for making moulds. The final product, namely glass bottles and glassware, was dutiable, and the Notification did not exclude castings or moulds from the expression "inputs". Captively consumed castings used in the manufacture of dutiable final goods were therefore covered by the exemption.

Conclusion: The iron castings were eligible for exemption under Notification No. 217/86-C.E. and the Revenue's objection on classification and exemption failed.

Issue (ii): Whether unmachined moulds were exempt under Notification No. 275/88-C.E. dated 4-11-1988.

Analysis: The alternative plea that unmachined moulds were independently entitled to exemption under the said notification was accepted as well founded on the facts presented.

Conclusion: Unmachined moulds were exempt under Notification No. 275/88-C.E. dated 4-11-1988.

Final Conclusion: The Revenue's challenge to the exemption treatment of the castings and moulds did not succeed, and the order under appeal was sustained in substance.

Ratio Decidendi: Captively consumed intermediate goods used in making dutiable final products remain eligible for exemption where the governing notification covers inputs and does not expressly exclude castings or moulds, and classification must follow the condition of the goods as actually used and not as asserted by the Revenue.

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