2003 (1) TMI 224 - AT - Central Excise

Summary

Issues:
- Interpretation of Notification No. 8/97-C.E. regarding duty exemption for 100% Export-Oriented Undertakings (E.O.U.)
- Classification of imported sizing material as raw material or consumable
- Application of the test laid down by the Supreme Court in Ballarpur Industries case
- Consideration of Circular dated 5-5-98 regarding the use of imported consumables by E.O.Us

Interpretation of Notification No. 8/97-C.E.:
The case involved appeals by a company against Orders-in-Appeal denying duty exemption under Notification No. 8/97 for goods sold in the Domestic Tariff Area (DTA). The company, a 100% E.O.U., imported sizing material for manufacturing terry towels. The Board clarified that E.O.Us can benefit from the notification even if using imported consumables. The Tribunal analyzed the requirement that products be manufactured wholly from raw materials produced in India. It cited the Supreme Court's test of essentiality of material for end-product manufacture. Referring to a similar case, the Tribunal held that imported materials giving quality and utility to the finished product are considered raw materials. The Tribunal affirmed that the benefit of the notification was unavailable due to the use of imported raw materials in manufacturing goods for DTA.

Classification of imported sizing material:
The company argued that the sizing material was not raw material but a consumable based on definitions from the EXIM Policy. They contended that the sizing material, washed away after weaving, did not form part of the end-product. The company highlighted the distinction between raw materials and consumables, supported by a Board's Circular. However, the Tribunal, following the Supreme Court's test, deemed the imported sizing material as raw material crucial for the manufacturing process, leading to the denial of duty exemption.

Application of the Supreme Court's test:
The Supreme Court's test, emphasizing the essential presence and dependence of the material for the end-product, was crucial in determining whether the imported goods qualified as raw materials. The Tribunal, in line with this test, considered the necessity of the imported materials for the manufacturing process, leading to the conclusion that they were raw materials rather than consumables.

Consideration of Circular dated 5-5-98:
The Circular clarified that E.O.Us could avail the duty exemption even when using imported consumables. However, the Tribunal's decision, based on the test of essentiality for end-product manufacture, led to the denial of the benefit of the notification to the company due to the use of imported raw materials in the manufacturing process. The Tribunal's decision was further supported by the affirmation of a similar case by the Supreme Court, reinforcing the classification of imported materials as raw materials rather than consumables.