Conditional exemption requires direct intended use under the prescribed clearance procedure; intermediate use through another product does not qualify.

Conditional exemption under Notification No. 75/86 applied only to filter inserts and elements intended for direct use in the manufacture of internal combustion engines, with Chapter X procedure forming an integral condition to ensure that use at clearance. Goods sent first to another unit for manufacture of filter assemblies, and only later moved under Chapter X, did not satisfy the notification because the phrase "intended for use" could not extend to indirect or intermediate use through a separate product. The cited precedent was distinguished since the goods there reached the actual end-user manufacturer under Chapter X. The exemption was therefore unavailable and the demand was sustained.

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Issues: Whether filter elements cleared by the assessee were entitled to exemption under Notification No. 75/86 as amended, when they were first used for manufacture of filter assemblies and not directly sent to manufacturers of internal combustion engines under Chapter X procedure.

Analysis: The exemption applied only to filter inserts and elements intended for use in the manufacture of internal combustion engines, with Chapter X procedure prescribed to ensure that condition at the time of clearance. The goods in question were not cleared directly to manufacturers of internal combustion engines; instead, they were sent to another unit for manufacture of filter assemblies under Rule 56B, and only thereafter were the assemblies moved under Chapter X. The phrase "intended for use" could not be stretched to cover a two-stage use through an intermediate product, and the procedural requirement was held to be integral to the conditional exemption. The cited precedent on intended use was distinguished on facts because there the goods were received under Chapter X by the actual end-user manufacturer.

Conclusion: The exemption was not available to the assessee, and the demand was sustained.

Final Conclusion: The appeal failed because the assessee did not satisfy the conditions of the conditional exemption notification governing direct intended use in the manufacture of internal combustion engines.

Ratio Decidendi: A conditional exemption notification granting benefit only to goods intended for use in a specified manufacture must be strictly applied according to its terms, and where the prescribed clearance procedure is integral to securing that intended use, indirect or intermediate use through another product will not satisfy the exemption.

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