Captive consumption exemption under Notification 67/95 survives where a manufacturer complies with Rule 6 for mixed final products.

Notification No. 67/95-C.E. exempts inputs manufactured and used within the factory in or in relation to specified final products, but the proviso withdraws the benefit for inputs used in exempt final products. Clause (vi) preserves the exemption for a manufacturer producing both dutiable and exempt final products who complies with Rule 6 of the CENVAT Credit Rules, 2001. The Supreme Court clarified that this carve-out does not require the same final product to be partly dutiable and partly exempt. Where the manufacturer satisfies the Rule 6 obligation, the exemption remains available for captive consumption of clinker used to manufacture exempt cement.

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Issues: Whether cement clinker captively consumed in the manufacture of exempt cement was entitled to exemption under Notification No. 67/95-C.E. despite the proviso excluding inputs used in exempt final products, where the manufacturer also produced dutiable final products and had discharged the obligation under Rule 6 of the CENVAT Credit Rules, 2001.

Analysis: The exemption under Notification No. 67/95-C.E. extends to inputs manufactured in the factory and used within the factory in or in relation to the manufacture of the specified final products. The proviso withdraws the benefit where the inputs are used in exempt final products, but clause (vi) carves out an exception for a manufacturer of both dutiable and exempt final products who discharges the obligation under Rule 6 of the CENVAT Credit Rules, 2001. The relevant question was therefore whether clause (vi) required the same final product to be partly dutiable and partly exempt. The Court held that Rule 6 is concerned with a manufacturer producing dutiable as well as exempt final products, and does not impose any requirement that one and the same final product must be partly dutiable and partly exempt. Since the manufacturer had complied with the Rule 6 obligation, the proviso did not defeat the exemption claim.

Conclusion: Clinker captively consumed for manufacture of cement was entitled to exemption, and the denial of the benefit by the Tribunal was incorrect.

Ratio Decidendi: Where an exemption notification contains a carve-out for a manufacturer of both dutiable and exempt final products who complies with Rule 6, the benefit cannot be denied on the ground that the same final product is not simultaneously partly dutiable and partly exempt.

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