Exemption for parts used in tractor manufacture cannot be denied merely because the input falls under a different tariff heading.

Exemption under Notification No. 6/2002-CE was available for IC engines used in the manufacture of tractors under Heading 87.01, because the notification covered parts used within the factory for such manufacture and the benefit could not be denied merely on the ground that the input fell under Heading 84.08 rather than Section XVII. Note 2(e) to Section XVII did not defeat the exemption where the goods were, in substance, parts of the exempted final product and the notification conditions were satisfied. The denial of benefit was therefore unsustainable and was set aside with consequential relief.

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Issues: Whether IC engines falling under Chapter Heading 84.08 and used in the manufacture of tractors under Heading 87.01 were entitled to the benefit of exemption under serial No. 296 of Notification No. 6/2002-CE, notwithstanding Note 2(e) to Section XVII of the Central Excise Tariff Act, 1985.

Analysis: The exemption had been denied on the footing that goods of Heading 84.08 are not parts and accessories of goods of Section XVII by reason of Note 2(e) to Section XVII. The deciding factor, however, was that the Tribunal had already taken the same view in the appellant's own earlier case, following the earlier decision in High Energy Batteries (I) Ltd. and the CBEC circular then in force. The later Board circular clarified that where Notification No. 6/2002 exempts parts used within the factory of production for manufacture of goods of Heading 87.01, the benefit cannot be denied merely because the product does not itself fall under the same chapter, so long as it is a part of goods of Heading 87.01.

Conclusion: The exemption under Notification No. 6/2002-CE was available to the IC engines used in tractors of Heading 87.01, and the denial of benefit was unsustainable.

Final Conclusion: The impugned order was set aside and the assessee's claim for exemption was accepted with consequential relief.

Ratio Decidendi: Where an exemption notification extends to parts used in the manufacture of goods of a specified heading, the benefit cannot be denied merely because the input product falls under a different tariff heading if it is in substance a part of the exempted final product and the notification's conditions are satisfied.

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