2007 (7) TMI 79 - AT - Customs

EOU - Revenue contended that appellant is not eligible for benefit of Notification No. 8/97-C.E. on the ground that he utilizes the imported wax disc for the manufacture of cotton yarn made of indigenous/imported cotton - Matter allowed by way of remand

Summary

Issues Involved:
1. Eligibility of concessional rate under Notification No. 8/97-C.E. for cotton yarn cleared to DTA.
2. Definition and classification of "consumables" versus "raw materials."
3. Applicability of case law and CBEC clarifications to the current case.

Issue-wise Detailed Analysis:

1. Eligibility of Concessional Rate under Notification No. 8/97-C.E. for Cotton Yarn Cleared to DTA:
The main issue revolves around whether the cotton yarn manufactured by M/s. Meridian Industries Limited (MIL), a 100% EOU, using both imported and indigenous materials, qualifies for the concessional rate under Notification No. 8/97-C.E. The Notification extends a concessional rate to products manufactured wholly using indigenous raw materials and cleared to DTA by an EOU. The cotton yarn in question was manufactured using a combination of imported/indigenous cotton and imported wax, which was applied to the yarn during the winding process. The wax coating, essential for knitting the yarn into hosiery, remains part of the yarn at the time of clearance. The Commissioner had initially accepted the argument that the imported wax was a consumable, thus qualifying the yarn for the concessional rate. However, the Revenue argued that the wax was not a consumable but a raw material, thereby disqualifying the yarn from the concessional rate.

2. Definition and Classification of "Consumables" versus "Raw Materials":
The Revenue's case relied heavily on the definition of "consumables" as per para 3.13 of the Exim Policy 1997-02, which states that consumables are items that participate in or are required for a manufacturing process but do not form part of the end product. Items substantially or totally consumed during the manufacturing process are deemed consumables. The Revenue contended that since the wax remained part of the yarn, it could not be classified as a consumable. The Commissioner had accepted the plea that cotton yarn manufactured using cotton that had suffered duty on import was at par with indigenous cotton, but this was not in accordance with the terms of the Notification. The Tribunal considered various case laws and CBEC clarifications, including the definition provided by the Apex Court in CCE v. Ballarpur Industries Limited, which categorized raw materials based on their retention in the end product. The Tribunal concluded that the imported wax, which remains part of the yarn, must be considered a raw material, not a consumable.

3. Applicability of Case Law and CBEC Clarifications to the Current Case:
The Tribunal examined several case laws and CBEC clarifications to determine the applicability of the concessional rate. The Revenue cited the case of Ginny International Ltd. v. CCE, Jaipur-I, where the Tribunal had denied the benefit of Notification No. 8/97 to goods manufactured using imported raw materials. The Tribunal also considered the case of Century Denim, where the use of imported dye disqualified the finished product from the concessional rate. Conversely, the respondents cited cases like Maruti Cotex Ltd. v. CCE, Hyderabad, and Forbes Gokak Ltd. v. CCE, Belgaum, where the Tribunal had considered certain materials as consumables and allowed the concessional rate. However, the Tribunal noted that in these cases, the materials classified as consumables were either washed off or did not remain in the end product. The Tribunal reaffirmed the definition of raw materials as those that remain in the end product, as laid down by the Apex Court in the Ballarpur Industries case.

Conclusion:
The Tribunal concluded that the imported wax used in the manufacture of the cotton yarn could not be considered a consumable but must be classified as a raw material. Consequently, the cotton yarn manufactured using imported cotton and wax did not qualify for the concessional rate under Notification No. 8/97-C.E. The Tribunal set aside the Commissioner's order and allowed the Revenue's appeal by way of remand, directing the Commissioner to adjudicate the proposals contained in the Show Cause Notice afresh, following the Tribunal's findings.

Order Pronounced in Open Court on 17-7-2007.