Exemption for inputs used in intermediate products extends to final manufacture when sand-moulds are captively used for steel castings.

Notification No. 217/86-C.E. was treated as covering sand-mix used to make sand-moulds when those moulds were captively consumed in producing steel castings. The discussion accepted that an input used in an intermediate product can be regarded as used in the manufacture of the final product for exemption purposes where the intermediate product forms part of the same manufacturing chain and is itself used in making duty-paid castings. The contrary view, limiting use only to the mould stage, was not accepted.

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Issues: Whether the benefit of Notification No. 217/86-C.E. was available to sand-mix used in the manufacture of sand-moulds, where the sand-moulds were themselves captively used in the manufacture of steel castings.

Analysis: The dispute turned on whether sand-mix, though first used to make sand-moulds, could be treated as having been used in the manufacture of the final product, namely steel castings, when the moulds were an intermediate product in the same manufacturing chain. The Tribunal followed its earlier decision in TELCO and the Larger Bench view that such sand-mix is covered by the exemption where the moulds are ultimately used in the manufacture of duty-paid castings. The contrary view treating the input as used only in moulds was not accepted.

Conclusion: The benefit of Notification No. 217/86-C.E. was held applicable to the sand-mix used for making sand-moulds employed in the manufacture of steel castings, and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and both appeals were allowed with consequential relief.

Ratio Decidendi: An input used in making an intermediate product is treated as used in the manufacture of the final product for exemption purposes where the intermediate product is itself used captively in the manufacture of duty-paid final goods.

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