Small-scale exemption turnover computation excludes inputs used in manufacture, preventing double counting under the exemption scheme.

Under Notification No. 175/1986-C.E., clearances of specified inputs used within the factory for further manufacture of specified goods were to be excluded from the aggregate value of clearances when the scheme of the notification was read as a whole. The SC noted that Explanation II excluded exempt or nil-duty clearances from turnover computation, while Explanation III separately excluded inputs used in further manufacture of specified goods. The combined effect was to leave out both exempt finished goods and the inputs used to make them, preventing double counting in the small-scale exemption scheme. The assessee was therefore entitled to the notification benefit.

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Issues: Whether, for computing the aggregate value of clearances under Notification No. 175/1986-C.E., the value of inputs used within the factory for further manufacture of specified goods was to be excluded when the finished goods were themselves cleared under other exemption notifications.

Analysis: The notification excluded, by Explanation II, clearances of excisable goods that were chargeable to nil duty or were wholly exempted under another notification from the computation of aggregate clearances. Explanation III further provided that where specified goods were used as inputs for further manufacture of specified goods within the factory, such clearances of inputs were not to be taken into account. Reading the two explanations together, the scheme of the notification showed that the value of exempt finished goods and the inputs used to manufacture them were both intended to be left out while arriving at the aggregate value, particularly because the notification was meant to extend relief to small scale industries and avoid double inclusion of the same goods in the turnover computation.

Conclusion: The value of the inputs was required to be excluded under Explanation III, and the assessee was entitled to the benefit of the notification.

Ratio Decidendi: For computing aggregate value under a small scale exemption notification, clearances of specified inputs used in the manufacture of specified exempt goods are to be excluded where the notification's scheme, read as a whole, shows an intention to exclude exempt clearances from turnover computation and to prevent double counting.

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