2023 (6) TMI 658 - AT - Customs

Exemption from duty - Eligibility of polyethylene (PET) granules used in testing of moulds manufactured - N/N. 52/2003-Cus dated 31st March 2003 - alleged wrong availment of exemption accorded to inputs required for manufacture of goods intended for export even though the impugned polyethylene (PET) granules were actually utilised for testing their machines - HELD THAT - The definition of consumables in paragraph 9.15 of the Foreign Trade Policy (FTP) is broad enough to cover goods that do not go into the final product but, nonetheless, is essential to the final product. An untested product, especially custom-made, as held in re Flex Engineering Ltd, is not a product that will be accepted by the customer and, therefore, undeniably rendering the raw materials used for test production as consumables eligible for exemption. The output of test of manufactured capital goods is distinguishable from test run of installed machinery which precedes actual commercial production and it would appear that the jurisdictional authorities were unable to appreciate the distinction which shifts an input from raw material to consumables for the purposes of the impugned notification. The clubbing of all of these as inputs for the purpose of accountal of eligible quantities of each does not exclude any type of goods used in production and the jurisdictional authorities have not been able to show that the standard input output norms (SION) have not been conformed to - That the polyethylene (PET) granules deployed in production of goods in trial run of moulds manufactured by the appellant have been considered as inputs for manufacture between March 2010 and March 2013 for the purposes of CENVAT Credit Rules, 2004. These are, thereby, procured for manufacture of output and it is not open for Revenue to adopt a contrary stand merely for denial of exemption on procurement under a scheme of the Foreign Trade Policy (FTP). Considering that polyethylene (PET) granules are used during the manufacture of moulds that are the acknowledged export product of the appellant and which, even if not deployed in manufacture of mould, renders the acceptability of the goods for the customer in the absence of which export obligation would remain unfulfilled, it is nothing but consumables which are covered by the omnibus enumeration of eligible requirements other than capital goods, the impugned order has erred in denying the benefit of exemption. The impugned order is set aside - appeals allowed.

Summary

Issues involved:
The issues involved in this case are the confirmation of demand under section 28 of Customs Act, 1962, imposition of penalties, and eligibility of 'polyethylene (PET) granules' as inputs for an export-oriented unit.

Confirmation of Demand and Penalties:
The Appellate Tribunal disposed of two appeals filed by M/s ASB International against the confirmation of demand and imposition of penalties under section 28 of Customs Act, 1962. The demands were for amounts of Rs. 68,75,451 and Rs. 3,88,600 for the period from April 2005 to June 2009 and August 2009 to February 2010. The appellant was alleged to have wrongly availed exemption on 'inputs' for goods intended for export, although the 'polyethylene (PET) granules' in question were used for testing machines and not for export products.

Eligibility of 'Polyethylene (PET) Granules' as Inputs:
The appellant, an export-oriented unit, claimed exemption on procurement of 'inputs' for manufacturing goods under the Foreign Trade Policy. The appellant argued that the 'polyethylene (PET) granules' were essential for quality assurance of the moulds produced for export. The Tribunal considered various legal precedents, including decisions of the Supreme Court and High Court, to support the argument that testing is intrinsic to the marketability of custom-made equipment. The appellant contended that the 'granules' should be considered 'consumables' eligible for exemption, as they are necessary for the final product's acceptance by customers.

Decision and Ruling:
The Tribunal found that the 'polyethylene (PET) granules' used in testing the moulds were indeed 'inputs' necessary for the export product. The Tribunal emphasized that the Foreign Trade Policy did not distinguish between different categories of goods and considered all types of goods as inputs for manufacturing. It was noted that the 'granules' were used in the trial production of export goods and were essential for fulfilling export obligations. Therefore, the impugned order denying the exemption was set aside, and the appeals were allowed.

Separate Judgment by Judges:
The judgment was delivered by Hon'ble Mr. C J Mathew.