Exemption for captive intermediate plastic products denied duty demands where notifications and binding circulars supported non-liability.

Captively manufactured intermediate plastic pouches and bags used in medical drainage sets were treated as classifiable under Heading 39.23 and covered by the relevant exemption notifications, including the notification already accepted in earlier proceedings and left undisturbed. The analysis notes that for part of the period the demand was based on a notification not then in force, while the governing exemption framework and binding Board circulars supported exemption for intermediate plastic products made from duty-paid material, even where manufacture was not continuous. On that basis, the duty demands were stated to be unsustainable and the show cause notices required setting aside.

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Issues: Whether the intermediate plastic pouches/bags used captively in the manufacture of medical drainage sets were classifiable and exempt from duty so as to invalidate the duty demands raised in the show cause notices.

Analysis: The product was treated as a plastic article falling under Heading 39.23 and the benefit of Notification No. 15/94-CE dated 01-03-1994 had already been granted in earlier proceedings and had attained finality. For the earlier period, the demands were founded on a notification that was not in force for part of the relevant time, while Notification No. 14/92-CE dated 01-03-1992 governed the field. The Board's circulars and telexes regarding plastic bags and pouches supported the view that intermediate plastic products emerging in the course of manufacture, even where the process is not continuous, could still be treated as eligible for exemption when made out of duty-paid material falling within the relevant plastic headings. In these circumstances, the lower authorities could not sustain the duty demands by ignoring the exemption framework and the binding instructions.

Conclusion: The duty demands were unsustainable and the show cause notices were required to be set aside.

Ratio Decidendi: Where an intermediate plastic product is manufactured captively from duty-paid plastic material and the applicable exemption notification and binding departmental circulars support exemption, duty cannot be demanded by disregarding that exemption regime.

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