100% EOUs - Scope of the term 'manufacture' in notification No. 1/95-CE - Reg. - Central Excise - 314/20/97-CX.

Circular No. 314/20/97-CX. dated 6/5/97 F. No. 332/40/97-TRU Government of India Ministry of Finance Department of Revenue, New Delhi Subject: 100% EOUs - Scope of the term 'manufacture' in notification No. 1/95-CE - Reg. I am directed to state that representations have been received from assessees, on the scope of the term 'manufacture' used in the notification No. 1/95-CE dated 4.1.95. It has been represented that the benefit of the exemption nude notification No. 1/95- CE dated 4/1/95 is being denied to the 100% EOUs approved for the manufacture of welded galvanised steel pipes and tubes by galvanising of black MS pipes on the grounds that 'galvanising' of black MS pipes does not amount to 'manufacture' in terms of section 2(f) of the Central Excise Act, 1944. 2. The 100% EOU Scheme envisages import of all types of goods, including capital goods, required by it for the manufacture, production or processing provided they are not prohibited items in the Negative list of imports, free of duty (paragraph 9.2 of Export and Import Policy 1997-2002). The EOU scheme covers even those activities which may not be strictly considered as 'manufacture' under section 2(f) of Central Excise Act (paragraph 9.1 of the EXIM Policy). 3. The exemption under notification No. 1/95-CE does not require manufacture of only 'excisable goods'. The exemption is applicable on the excisable goods used in a 100% EOU for the manufacture and packaging of 'articles'. The word 'articles' has a wider connotation than 'excisable goods'. The exemption under notification No. 1/95-CE is also applicable to "development of software" which being as intellectual activity, may not amount to 'manufacture' under the said section 2(f) of the Central Excise Act, 1944. 4. As per the proviso to rule 9(1) any clearance of 'excisable goods' from the place of their production (including a 100% EOU), without payment of duty for export shall be under rule 13 and as per Explanation 1 to rule 13, 'manufacture' includes the process of blending of any goods or making alteration or any other operation thereon. since the clearances for export under bond by the 100% EOU is under rule 13, the said Explanation will be applicable to the present case. Thus the term 'manufacture' for the purposes of export is wider in meaning than that used in section 2(f) of the Central Excise Act, 1944 and 'galvanising will amount to 'manufacture' in terms of the Explanation above. 5. Hence, it is clarified that a broader view is called for in respect of the interpretation of the provisions of notification No. 1/95-CE and the exemption may not be restricted only to cases where 'manufacture' under section 2(f) of Central Excise Act is involved. It is clarified that the exemption under notification No. 1/95-CE will also be applicable to a 100% EOU engaged in 'galvanising' of black MS pipes. This issues with the approval of the Board. Sd/- (P.B. Chandrasekharan) Director (TRU)