SSI exemption computation excludes captively used duty-paid inputs from aggregate clearances when used for further manufacture within the factory.

For computing the small-scale industry exemption limit, duty-paid intermediate goods used captively as inputs in the manufacture of final products were excluded from the aggregate value of clearances. Clause 3 of Notification No. 16/97 (N.T.) treated specified goods used within the factory for further manufacture as not countable for aggregate-clearance purposes and deemed them exempt from excise duty. On that basis, the value of such captively consumed inputs could not be added to determine the SSI limit, and the demand based on such inclusion was unsustainable.

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Issues: Whether, for computing the small scale industry exemption limit, the value of duty-paid intermediate goods used captively as inputs in the manufacture of final products is to be included in the aggregate value of clearances.

Analysis: Clause 3 of Notification No. 16/97 (N.T.) provided that clearances of specified goods used as inputs for further manufacture within the factory were not to be taken into account for determining the aggregate value of clearances and were to be deemed exempt from the whole of excise duty. On that legal basis, the value of the intermediate product used as input could not be added for computing the SSI limit.

Conclusion: The inclusion of the value of the captively consumed duty-paid input in the aggregate clearances was unsustainable and the demand could not be upheld.

Final Conclusion: The impugned order was set aside and the appeal was allowed in full.

Ratio Decidendi: Where a notification excludes specified inputs used for further manufacture within the factory from the aggregate value of clearances, such captively consumed inputs cannot be counted for SSI exemption computation even if duty has been paid on them.

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