2018 (6) TMI 328 - AT - Central Excise

100% EOU - Violation of condition of notification - N/N. 23/2003-CE dated 31.03.2003 - Exemption notification is subject to the condition that the goods are manufactured wholly from the raw materials produced or manufactured in India - denial of benefit on the ground that the goods were imported and not domestically manufactured. Whether the consumables are included in the term raw materials for the purpose of N/N. 8/97-CE, and consequently if goods are cleared to DTA which are manufactured using imported consumables, is the benefit of N/N. 8/97 available to the assessee? - Held that - Tribunal in the case of Premium Tools Pvt. Ltd. 2017 (1) TMI 290 - CESTAT MUMBAI held that the benefit of N/N. 8/97 is available even if the final products are manufactured using imported consumables because the limitation when the notification is only that the goods should be manufactured using raw materials manufactured or produced in India. There is no restriction that the consumables which are used in the manufacture also have to be domestically manufactured - benefit of notification allowed. Whether the goods in question are raw materials or consumables? - Held that - We find nothing in the order of Commissioner (Appeals) that the assessee had produced any evidence to substantiate their claim that these are consumables and not raw materials - Commissioner (Appeals) has erred in holding that these items as consumables merely on the assertion of the assessee without any basis to substantiate it, as the assessee has not produced any evidence to substantiate that the goods in question are consumables, we hold that the assessee is not entitled to the benefit of the notification. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Interpretation of exemption notification No. 23/2003-CE regarding the use of imported goods in manufacturing processes.
2. Determination of whether consumables can be considered as raw materials for the purpose of notification No. 8/97-CE.
3. Classification of specific materials (Methyl Iso Butyl Ketone, Hexane, Methanol, Isopropl Alchocol IP) as raw materials or consumables in the manufacturing process.

Analysis:
1. The case involved a 100% EOU engaged in manufacturing drugs and drug intermediates, availing exemption under Notification No. 23/2003-CE. The issue was whether using imported materials rendered them ineligible for the exemption. The Revenue contended that the imported materials did not qualify as domestically produced raw materials, thus challenging the benefit of the notification. The Commissioner (Appeals) initially ruled in favor of the assessee, emphasizing that the final products were manufactured wholly from raw materials produced in India.

2. The Department appealed, arguing that even if imported goods were procured through a dealer, they did not transform into indigenous goods, thus not meeting the notification's conditions. The case referenced conflicting Board circulars, highlighting the evolution of interpretations regarding the use of imported consumables. The Tribunal examined precedents and Supreme Court judgments, notably Vanasthali Textiles Industries Ltd, to establish that the benefit of the notification could extend to products manufactured using imported consumables alongside domestically produced raw materials.

3. The core issue revolved around whether specific materials like Methyl Iso Butyl Ketone, Hexane, Methanol, and Isopropl Alchocol IP should be classified as raw materials or consumables. The Department argued these were raw materials, while the assessee contended they were consumables crucial for the manufacturing process but not part of the final product. The Tribunal emphasized the burden of proof on the assessee to establish the classification, ultimately ruling that without concrete evidence supporting their claim, the materials could not be deemed consumables. Consequently, the Commissioner (Appeals) decision was overturned, and the appeal was allowed, setting aside the previous order.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT HYDERABAD showcases the intricate legal considerations and interpretations surrounding the use of imported materials in manufacturing processes and the classification of specific substances as raw materials or consumables within the realm of exemption notifications.