Captive inputs under a small-scale exemption are excluded from aggregate clearances when the notification expressly so provides.

Exemption notification for small-scale clearances was interpreted as a whole, with Explanation VI excluding captive clearances of specified inputs used within the factory for manufacture of specified goods from the aggregate value of clearances. On that reading, parts of wick stoves captively consumed in making wick stoves were not to be added to turnover for denial of the exemption, because both the inputs and the final products fell within the notified specified goods. The resulting duty demand was unsustainable.

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Issues: Whether the value of parts of wick stoves captively consumed in the manufacture of wick stoves was liable to be included while computing aggregate clearances under the small scale exemption notification.

Analysis: The notification treated the relevant goods as specified goods, and Explanation VI provided that where specified goods used as inputs are further used within the factory for manufacture of specified goods, the clearances of such inputs are not to be taken into account for computing aggregate value of clearances. The Court relied on the earlier settled interpretation that exemption notifications are to be read as a whole, and that the exclusion for captive inputs applies when both the inputs and the final goods fall within the specified goods covered by the notification.

Conclusion: The captive clearances of the parts were excludible from the aggregate turnover under the notification, and the demand of duty was unsustainable.

Ratio Decidendi: Where an exemption notification expressly excludes captive clearances of specified inputs used further within the factory for manufacture of specified goods, such inputs cannot be added to the aggregate value for denial of the exemption.

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