Exemption under Notification 175/86 applies item-wise up to the prescribed limit, without depending on clearance sequence.

Notification No. 175/86 was construed to allow exemption up to 15 lakhs for each specified category of goods, subject to the other conditions of the notification. The benefit could not be denied merely because clearances of the first category, whether duty-paid or non-duty-paid, had already crossed 15 lakhs, as that would make eligibility depend on the sequence of clearances and create an irrational distinction between similarly situated manufacturers. On that reading, the exemption remained available for each specified item within the overall aggregate limit of 30 lakhs, and the refund claim could not be rejected on the basis adopted by the authorities below.

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Issues: Whether, under Notification No. 175/86, the exemption limit of 15 lakhs for each specified item was available notwithstanding that clearances of the first item had crossed 15 lakhs and included both duty-paid and non-duty-paid clearances, subject to the overall aggregate limit of 30 lakhs.

Analysis: The interpretation adopted by the lower authorities made the availability of exemption depend upon the order in which the assessee cleared different specified goods, so that a manufacturer following one production or sales pattern would lose the benefit for another item while a similarly placed manufacturer who arranged clearances differently would retain it. Such a construction created an irrational distinction between similarly situated manufacturers and was inconsistent with the notification's scheme. The proper reading was that, subject to satisfaction of the other conditions, the benefit of exemption upto 15 lakhs was available for each specified category of goods and was not to be denied merely because clearances of the first category, whether duty-paid or otherwise, had exceeded 15 lakhs.

Conclusion: The exemption under Notification No. 175/86 was available to the assessee for each specified item upto 15 lakhs, subject to the other conditions of the notification, and the refund claim could not be rejected on the ground adopted by the authorities below.

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