Exemption for special purpose motor vehicles upheld where duty was paid on chassis and manufacture inputs.

Special purpose motor vehicles cleared under Heading 87.05 were held to qualify for exemption under Notification No. 162 of 1986 where duty had been paid on the chassis and on all inputs used in manufacture. The expression "equipment used" was construed as referring to the inputs and materials used in producing the final vehicle, not to the finished body as a separate dutiable article under Heading 87.07, especially where the demand itself proceeded on the basis of complete vehicles under Heading 87.05. On the facts, the exemption applied and the duty demand and penalty could not be sustained.

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Issues: Whether special purpose motor vehicles cleared under Heading 87.05 were entitled to exemption under Notification No. 162 of 1986 when excise duty had been paid on the chassis and on all inputs used in their manufacture, and whether the expression "equipment used" in the notification referred to the final body or to the inputs and materials used in manufacture.

Analysis: The relevant tariff scheme treated special purpose motor vehicles, chassis, and bodies as separate classes under distinct headings. The notification exempted special purpose motor vehicles subject to duty having been paid on the chassis and the equipment used in their manufacture. The Court held that the expression "equipment used" could not be read as referring to the final body as a separate dutiable product under Heading 87.07, because the demand itself proceeded on the footing that the assessee was clearing complete special purpose motor vehicles under Heading 87.05, not bodies sold separately. On the facts, duty had been paid on the chassis and on all inputs used in manufacturing the vehicles.

Conclusion: The assessee was entitled to the exemption under Notification No. 162 of 1986, and the duty demand and penalty could not be sustained.

Final Conclusion: The appeal succeeded, and the impugned order was set aside in favour of the assessee.

Ratio Decidendi: Where a conditional exemption for a specifically classified final product requires duty to have been paid on the chassis and on the equipment used in manufacture, the phrase "equipment used" is construed as referring to the inputs and materials used in manufacturing the final product, not to treating the finished body as a separate dutiable article when the demand is for the complete vehicle.

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