2009 (5) TMI 264 - AT - Central Excise

The appellant-100% EOU cleared the finished goods- Terry Towels partly in Domestic Tariff Area (DTA) on payment of concessional rate of duty in pursuance of the Notification No. 8/97-C.E., dated 1-3-97 - The condition of notification is that the goods have been manufactured wholly from the raw materials produced or manufactured in India. - The use of certain materials as inputs , raw materials , consumables etc. are depending upon the use in the process in a particular context. Imported sizing material used for giving strength to yarn but not present in Terry Towels In our view, it is fit and proper that the present matter should be remanded to the Original Authority to decide afresh on the basis of the evidences and process of manufacturing as to whether sizing materials are consumables or raw materials and to decide Whether benefit of notification ibid was available - we set aside the impugned order and remand the matter to the Adjudicating Authority to decide afresh in the light of the decision of the Hon ble Supreme Court in the case of Vanasthali Textile Industries Ltd.

Summary

Issues:
1. Interpretation of Notification No. 8/97-C.E. regarding exemption benefit for sizing materials imported by a 100% Export Oriented Unit.
2. Determination of whether sizing materials are consumables or raw materials for the manufacturing process of towels.
3. Application of the dominant ingredient test and consideration of cost variation in determining the nature of the materials used.

Analysis:
1. The case involved a dispute regarding the eligibility of a 100% Export Oriented Unit (EOU) to claim exemption under Notification No. 8/97-C.E. for sizing materials imported for manufacturing "Terry Towels." The Tribunal rejected the appeal, leading to an appeal before the Hon'ble Supreme Court, which remitted the matter back to the Tribunal for reconsideration based on specific observations.

2. The core issue revolved around whether the sizing materials used by the appellant were consumables or raw materials. The appellant argued that the sizing material was consumed during the manufacturing process and did not form part of the end product. Reference was made to a previous case where imported polyvinyl alcohol used in sizing was considered a consumable. The appellant also highlighted the importance of the dominant ingredient test and provided a cost analysis to support their claim.

3. The Revenue, represented by the DR, relied on precedents to argue that certain imported materials, like wax disc and softening agents, were considered raw materials rather than consumables. Citing relevant judgments, the Revenue emphasized the importance and indispensability of inputs in the manufacturing process to determine their classification as raw materials.

4. Upon review, the Tribunal analyzed the definitions of consumables and raw materials under the Exim Policy and considered previous judgments related to similar cases. The Tribunal differentiated the present case from a precedent involving blue denim, where the material was present in the finished goods. Given the specific context of the manufacturing process, the Tribunal decided to remand the matter to the Adjudicating Authority for a fresh decision based on a detailed examination of the use of sizing materials.

5. Ultimately, the Tribunal set aside the impugned order and remanded the matter for fresh adjudication, directing the Adjudicating Authority to consider the nature of sizing materials as either consumables or raw materials in light of relevant legal principles and the observations of the Hon'ble Supreme Court. The appellant was granted the opportunity to present all relevant points during the fresh adjudication process.

This detailed analysis of the judgment highlights the complexities involved in interpreting legal provisions related to excise duty exemptions and the classification of materials used in manufacturing processes.