Removal of inputs for outside processing upheld where same assessee's unit performs necessary manufacturing operations

Grey nylon tyre cord fabric could be sent from one factory to another unit of the same assessee for dipping and coating where the receiving unit lacked the required facility, provided the statutory procedure for removal of inputs outside the factory was followed. The commentary treats the rule as broad enough to cover processing within the same legal entity even when the inputs did not first reach the final manufacturing factory, so the demand and penalties on that basis were unsustainable. It also notes that a separate dispute on differential quantity lacked proper factual findings and required fresh adjudication after observing natural justice, so that issue was remanded for de novo consideration.

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Issues: (i) Whether grey nylon tyre cord fabric purchased for one factory could be processed at another factory of the same assessee and cleared in terms of the rule governing removal of inputs for further operation outside the factory; (ii) whether the separate demand relating to the differential quantity of dipped tyre cord fabric required remand for a proper finding.

Issue (i): Whether grey nylon tyre cord fabric purchased for one factory could be processed at another factory of the same assessee and cleared in terms of the rule governing removal of inputs for further operation outside the factory.

Analysis: The purchase orders showed that the raw material was earmarked for the assessee's Nashik unit and was routed through the Bhandup unit, where dipping and coating were carried out because Nashik had no such facility. The rule permitting removal of inputs to a place outside the factory for carrying out necessary operations was construed broadly, and the existence of two factories of the same legal entity did not make the arrangement impermissible. The assessee's case was also supported by the principle that the inputs need not first come to the factory where the final product is manufactured, so long as the statutory procedure and the manufacturing chain are maintained.

Conclusion: The demand and penalties based on the alleged illegality of sending the inputs to Bhandup for processing were unsustainable and were set aside in favour of the assessee.

Issue (ii): Whether the separate demand relating to the differential quantity of dipped tyre cord fabric required remand for a proper finding.

Analysis: The order did not contain a proper discussion or finding on the allegation concerning the difference in quantity between the Bhandup transfer advice and the Nashik register. As the issue had not been adequately adjudicated on facts, a fresh examination was necessary after observing the principles of natural justice.

Conclusion: This part of the matter was remanded to the jurisdictional adjudicating authority for a fresh finding in favour of neither side at this stage.

Final Conclusion: The principal demand and connected penalties were set aside, but the controversy relating to the differential quantity was sent back for de novo consideration.

Ratio Decidendi: Inputs may be removed to another place outside the factory for necessary processing within the statutory procedure, and a lack of proper factual findings on a discrete demand warrants remand for fresh adjudication.

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