2008 (7) TMI 400 - SC - Central Excise

Whether the ingredients of the last mentioned class qualify themselves as and are eligible to be called raw material for the end product? Held that - One of the valid tests, in our opinion, could be that the ingredient should be so essential from the chemical processes culminating in the emergence of the desired end product, that having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning up is its quality and value as raw material. In such a case, the relevant test is not its absence in the end product, but the dependence of the end product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end product in the sense that without its absence the presence of the end product, as such, is rendered impossible. This quality should coalesce with the requirement that its utilization is in the manufacturing process as distinct from the manufacturing apparatus. Since the CESTAT has not considered the materials on record in the above perspective, the impugned judgments are set aside. The matter is remitted to the CESTAT in each case for dealing with the matter afresh in accordance with law.

Summary

Issues:
Challenge to order by Customs Excise and Service Tax Appellate Tribunal related to eligibility for exemption under Notification No. 8/97-C.E. for Hydrogen Peroxide manufactured and cleared to Domestic Tariff Area (DTA).

Analysis:
The issue in these appeals revolved around the eligibility of the appellant for the benefit of exemption under Notification No. 8/97-C.E. for Hydrogen Peroxide manufactured and cleared to the Domestic Tariff Area (DTA). The Notification exempts finished products manufactured in a 100% Export Oriented Unit (EOU) wholly from the raw materials produced or manufactured in India and allowed to be sold in India from the duty of excise leviable under Section 3 of the Central Excise Act, 1944. The original authority did not accept the appellant's claim that the finished goods were manufactured wholly from raw materials produced in India. The Commissioner of (Appeals) Excise accepted the appellant's contention that certain items were not raw materials but consumables, granting the benefit of exemption. However, the Customs Excise and Service Tax Appellate Tribunal (CESTAT) overturned this decision, holding that the appellant was not entitled to the benefit of the Notification.

In the appeal, the appellant argued that the materials in question were consumables as per the definition in the EXIM Policy, emphasizing that consumables participate in the manufacturing process but do not form part of the end product. The appellant relied on a Board's Circular clarifying that the benefit of the Notification would be available even if imported consumables were used in the manufacturing process by a 100% EOU. On the other hand, the revenue contended that the judgment of the CESTAT should be upheld.

The Supreme Court noted that the term "raw material" was not defined and should be understood in its ordinary accepted connotation. Referring to previous judgments, the Court highlighted the distinction between consumables and raw materials, emphasizing that consumables are utilized as inputs in the manufacturing process but are not identifiable in the final product as they get consumed. The Court set aside the CESTAT's judgments as it had not considered the materials on record from this perspective and remitted the matter back to the CESTAT for fresh consideration in accordance with law, citing a previous decision for guidance.

Ultimately, the appeals were disposed of with no order as to costs, emphasizing the need for the CESTAT to reevaluate the issue keeping in mind the distinction between raw materials and consumables in the manufacturing process.