Factory-use exemption for intermediate goods is not lost merely because incidental by-products inevitably emerge during manufacture.

Ethylene and propylene manufactured and used within the same factory for further manufacture of final products remained eligible for exemption under Notification No. 217/86-C.E. The notification covered specified goods manufactured in the factory and used within the factory, or by the same manufacturer, in or in relation to manufacture of the final products. The inevitable emergence of ethane and methane during the cracking process did not alter the intended use of the exempted goods, and their incidental appearance was not a valid basis to deny the benefit where the goods themselves were used for the exempt purpose.

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Issues: Whether ethylene and propylene manufactured and used within the same factory in the further manufacture of final products were entitled to exemption under Notification No. 217/86-C.E. despite the inevitable emergence of ethane and methane during the manufacturing process.

Analysis: The notification exempted specified goods manufactured in the factory and used within the factory of production or by the same manufacturer in or in relation to the manufacture of final products specified in the table. The goods in question were used as refrigerants in the cracking of naphtha, and the process necessarily generated ethane and methane along with the exempted goods. The emergence of ethane and methane was found to be inevitable and not a circumstance that altered the use of ethylene and propylene in the manufacture of the final products. The mere fact that unspecified substances also emerged during the process did not justify denial of the exemption where the same goods were simultaneously used for the intended manufacturing activity.

Conclusion: The exemption could not be denied merely because ethane and methane inevitably emerged during manufacture; the appellant was entitled to the benefit of the notification.

Ratio Decidendi: Where exempted inputs are used within the factory in or in relation to the manufacture of final products, the inevitable emergence of other unspecified substances during the process does not by itself defeat the exemption.

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