Captive input exemption denied where clinker was used to make wholly exempt cement, despite partial duty-paid clearance.

Notification No. 67/95-C.E. grants exemption to inputs manufactured and captively used within the factory, but the proviso denies relief where those inputs are used in manufacture of a final product that is wholly exempt or chargeable to nil rate. Clinker used in making cement was therefore not eligible for exemption because cement was fully exempt under Notification No. 50/2003-C.E. The exception in clause (vi) of the proviso did not apply, as Rule 6 of the CENVAT Credit Rules, 2001 operates only where both dutiable and exempt final products are manufactured. Partial clearance of clinker on payment of duty did not change the exempt character of the final product.

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Issues: Whether clinker manufactured and captively consumed in the same factory was entitled to exemption under Notification No. 67/95-C.E. when the final product, cement, was fully exempt in the relevant area, and whether the exception in clause (vi) of the proviso applied because the manufacturer cleared part of the clinker on payment of duty.

Analysis: Notification No. 67/95-C.E. grants exemption to specified inputs manufactured in a factory and used within the factory in the manufacture of final products, but its proviso withdraws the benefit where the inputs are used in or in relation to the manufacture of final products that are exempt from the whole of duty or chargeable to nil rate. The clinker was an input used in the manufacture of cement, and cement was wholly exempt under Notification No. 50/2003-C.E. The exception in clause (vi) of the proviso was not attracted because Rule 6 of the CENVAT Credit Rules, 2001 applies where dutiable and exempt final products are both manufactured, whereas cement itself was wholly exempt. Partial clearance of clinker on payment of duty did not alter the character of the final product for this purpose.

Conclusion: The clinker was not eligible for exemption under Notification No. 67/95-C.E., and the Revenue's view was upheld.

Final Conclusion: The exemption claim failed since captive input used for a wholly exempt final product fell within the proviso barring relief, and the appeals were rejected.

Ratio Decidendi: Exemption for captive inputs is unavailable where those inputs are used in the manufacture of a final product that is wholly exempt from excise duty, and a manufacturer cannot invoke the Rule 6 exception unless the final products include both dutiable and exempt products.

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