Input exemption under Notification No. 201/79 survives where exempt intermediate product is captively used to make dutiable final goods.

Notification No. 201/79 remained available for an input used to make an intermediate product that was itself exempt, where that intermediate product was subsequently captively consumed in manufacturing the final product and the final product was cleared on payment of duty. The exemption status of the intermediate product did not, by itself, defeat the input notification claim when the input ultimately formed part of the manufacture of a dutiable final product. The decisive factor was the captive consumption of the intermediate product in the production chain leading to the duty-paid final product.

---

---

Issues: Whether the benefit of Notification No. 201/79 was admissible in respect of an input used to manufacture an intermediate product that was exempt from duty, where the intermediate product was further consumed captively in the manufacture of the final product cleared on payment of duty.

Analysis: The input was used in the manufacture of the intermediate product, and that intermediate product was not the final end product of the assessee's manufacturing chain. The decisive fact was that the intermediate product was captively consumed in the manufacture of the final product, and the final product was cleared on payment of duty. In that situation, the mere fact that the intermediate product stood exempt under another notification did not by itself defeat the benefit of the notification claimed for the input. The notification benefit could not be denied when the input ultimately formed part of the manufacture of a dutiable final product.

Conclusion: Notification No. 201/79 was held to be available to the input in question, notwithstanding that it was first used in the manufacture of an exempt intermediate product.

---