Exemption for tractor engine parts remains available despite Section XVII classification exclusion when notification conditions are met.

IC engines used in the manufacture of tractors were treated as eligible for exemption under Notification No. 6/2002-C.E. where they functioned as parts of specified goods and the notification's conditions were otherwise satisfied. Exclusion under Note 2(e) to Section XVII, which prevents Heading 84.08 goods from being classified as parts or accessories of Section XVII goods for tariff purposes, did not by itself defeat the exemption. The reasoning was supported by prior Tribunal authority and a CBEC circular clarifying that goods falling under other chapters may still qualify for the relevant exemption if used as parts of the specified goods. The demand and penalty were set aside.

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Issues: Whether IC engines used in the manufacture of tractors were entitled to exemption under Serial No. 296 of Notification No. 6/2002-C.E. dated 01.03.2002 despite Note 2(e) to Section XVII of the Central Excise Tariff Act, 1985 treating goods of Heading 84.08 as not being parts and accessories of goods of Section XVII.

Analysis: The exemption could not be denied merely because, for classification purposes, the goods were excluded from being treated as parts or accessories by virtue of the section note. A prior Tribunal decision had extended the exemption in an analogous situation where the same reasoning based on Section XVII notes was rejected. The reasoning was reinforced by CBEC Circular No. 512/8/2000-CX dated 10.02.2000, which clarified that goods falling under other chapters would still be covered by the relevant exemption notification if they functioned as parts of specified goods and the other conditions of the notification were satisfied.

Conclusion: The denial of exemption was unsustainable, and the demand and penalty were set aside in favour of the assessee.

Ratio Decidendi: Where an exemption notification specifically covers parts of specified goods, exclusion from classification as parts under Section XVII notes does not by itself defeat the exemption if the notification's conditions are otherwise met.

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