Captive consumption exemption for compounded rubber turned on the Chapter 40 intermediate product, not the final Chapter 64 footwear.

Compounded rubber used captively to manufacture intermediate vulcanised rubber sheets qualified for exemption under Notification No. 152/87 because the relevant input was first consumed in producing a Chapter 40 intermediate product within the factory of production. The Tribunal treated the tariff position of that intermediate product as decisive, and not the fact that the final goods were hawaii chappals classifiable under Chapter 64. Applying its earlier view in the assessee's own matter, it held that the exemption was available and the Revenue's challenge failed.

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Issues: Whether compounded rubber used in the manufacture of intermediate vulcanised rubber sheets, which were later used to make hawaii chappals classifiable under Chapter 64, was eligible for exemption under Notification No. 152/87 dated 25-5-1987.

Analysis: The exemption applied to compounded rubber falling under Heading 40.05 of the Central Excise Tariff Act, 1985 when such rubber was used in the factory of production for manufacture of goods falling under Chapter 40. The decisive question was whether the use of compounded rubber at the intermediate stage in the manufacture of unhardened vulcanised sheets brought the case within Chapter 40. The Tribunal followed its earlier decision in the same assessee's case and held that the compounded rubber was first utilised to make vulcanised sheets classifiable under Chapter 40, even though the final product was hawaii chappals under Chapter 64.

Conclusion: The compounded rubber was eligible for the benefit of Notification No. 152/87 dated 25-5-1987, and the Revenue's challenge failed.

Final Conclusion: The exemption was available because the relevant use of the compounded rubber was in the manufacture of a Chapter 40 intermediate product within the factory of production.

Ratio Decidendi: For exemption under a captive-consumption notification tied to manufacture of Chapter 40 goods, eligibility depends on the intermediate product manufactured from the input within the factory, not on the tariff heading of the final product.

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