Clearance threshold computation excludes fully exempt goods under a prior Rule 8(1) notification; the demand fails.

Clearances of excisable goods fully exempted under Notification No. 46/81 could not be included in computing the clearance value threshold under Notification No. 77/85-C.E., because Explanation II(a) excluded goods exempted from the whole of duty under another Rule 8(1) notification unless that earlier exemption itself depended on annual value or quantity of clearances. The exemption under Notification No. 46/81 was unconditional as to clearance value, so the exclusion applied. The argument that "factory" should be read by reference to the Factories Act was rejected; the term had to be understood from the Central Excises and Salt Act, 1944 and the notification scheme.

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Issues: Whether clearances of excisable goods exempted under Notification No. 46/81 could be included in computing the value of clearances for the exemption limit under Notification No. 77/85-C.E. under Explanation II(a).

Analysis: Explanation II(a) excluded clearances of excisable goods exempted from the whole of duty by any other notification issued under Rule 8(1) of the Central Excise Rules, 1944, except where the earlier exemption itself was based on value or quantity of clearances in a financial year. Notification No. 46/81 granted full exemption without reference to value of clearances and was issued under Rule 8(1). The conditions of the exclusion were therefore satisfied. The objection that the word "factory" in the notifications should be read by reference to the Factories Act was rejected, as the relevant meaning had to be gathered from the Central Excises and Salt Act, 1944 and the scheme of the notifications.

Conclusion: The clearances under Notification No. 46/81 could not be counted for computing the value of clearances under Notification No. 77/85-C.E.; the demand was unsustainable.

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