Captive inputs used in manufacture are excluded from aggregate clearance value under Notification No. 175/86 when covered by the exemption explanation.

Explanation III to Notification No. 175/86 excluded clearances of specified inputs used further within the factory for manufacture of specified goods, and that exclusion applied to parts of power driven pumps made in-house and captively consumed in producing the final pumps. The exemption available to the final product did not change the treatment of the captive inputs for computing aggregate clearances. On that basis, the Tribunal view supporting exclusion of such captive inputs was followed, and the duty demand on the parts was held unsustainable.

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Issues: Whether the value of parts of power driven pumps, manufactured within the factory and captively used in the manufacture of exempt final products, was to be included for computing the aggregate value of clearances under Notification No. 175/86.

Analysis: Explanation III to Notification No. 175/86 excluded from the aggregate value of clearances the clearances of specified inputs used for further manufacture of specified goods within the factory of production. The parts manufactured by the appellants were inputs used captively in the manufacture of power driven pumps, and the exemption available to the final product did not alter the operation of Explanation III. The reliance placed on the earlier Tribunal view supporting exclusion of captive inputs was accepted.

Conclusion: The duty demand on the parts captively used in the manufacture of power driven pumps was not sustainable and the issue was decided in favour of the assessee.

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