Export manufacture nexus preserved where duty-free inputs used in exported goods despite job work and procedural objections.

Duty-free POY/PFY procured against CT-2 for manufacture of export goods was held not to attract duty where the record showed actual use in the export stream. Sending part of the material for job work did not sever the manufacturing nexus, because the processed fabrics were brought back and the final cutting and packing at the respondent's premises were treated as incidental and ancillary to completion of manufacture. Procedural objections under Notification No. 49/94-C.E. (N.T.) could not override the substantive position that the duty-free inputs were used in exported products, so the duty demand was set aside.

---

---

Issues: Whether duty demand was sustainable on duty-free POY/PFY procured against CT-2 for use in export goods, where part of the material was sent for job work and the finished fabrics were cut, packed and exported from the respondent's premises.

Analysis: The duty-free material was procured against CT-2 for manufacture of export products, and the record showed that the POY/PFY was in fact used in the export stream. The fact that some processing was undertaken through job workers did not break the nexus with manufacture, because the processed fabrics were brought back, and the final cutting and packing done at the respondent's premises was treated as incidental and ancillary to completion of manufacture. In these circumstances, the objection based on the procedure under Notification No. 49/94-C.E. (N.T.) could not defeat the substantive position that the duty-free inputs were used in exported goods.

Conclusion: The duty demand was not sustainable and the demand was rightly set aside.

Final Conclusion: The revenue's challenge failed because the export-linked use of the duty-free inputs was established and the respondent was treated as covered by the export manufacturing arrangement.

Ratio Decidendi: Where duty-free inputs obtained for export manufacture are actually used in the exported products, procedural objections regarding the route of processing do not justify a duty demand if the manufacturing nexus is maintained.

---