Input exemption cannot extend to chemicals used in a different factory stage where the notified goods were manufactured separately.

Notification No. 201/79 allowed exemption only where Item 68 inputs were received and used in the factory manufacturing the notified goods, following the prescribed declaration procedure. The scheme did not permit credit for chemicals used in an earlier manufacturing stage at a different factory when the intermediate pulp was later cleared under Notification No. 118/75. Because the relevant inputs for the Bhopal unit were the pulp itself, not the chemicals used to make it at Jaykaypur, the exemption conditions were not met. The claim for proforma credit therefore failed.

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Issues: Whether the appellants were entitled to the benefit of Notification No. 201/79 dated 4-6-1979 in respect of the chemicals used in the manufacture of pulp, when the pulp was cleared to another unit under Notification No. 118/75 and the chemicals were not used in the factory manufacturing the final goods.

Analysis: Notification No. 201/79 granted exemption in respect of excisable goods manufactured with Item 68 inputs, subject to the prescribed procedure in the Appendix. The scheme contemplated declaration of the final goods and the inputs, receipt of the inputs in the manufacturing factory, and their utilisation in that factory. Here, the appellants had removed pulp to the Bhopal unit under Notification No. 118/75 without paying duty on the pulp itself, and sought to treat the chemicals used in the Jaykaypur factory as the relevant inputs for the Bhopal manufacture. The arrangement did not satisfy the notification because the chemicals were used in a different factory and were not the inputs received and used in the factory manufacturing the said goods. The proper input for the later stage was the pulp, not the chemicals used to make it.

Conclusion: The appellants were not entitled to the benefit of Notification No. 201/79. The claim for exemption and proforma credit failed.

Final Conclusion: The exemption scheme could not be extended to duty paid on chemicals used in a different factory for making pulp that was itself removed under a separate exemption notification.

Ratio Decidendi: A beneficiary of an exemption notification permitting set-off of duty on inputs must show that the relevant inputs were received and used in the factory manufacturing the notified goods, and cannot claim credit for inputs used in an earlier, separate manufacturing stage in another factory.

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