Input utilisation for export manufacture upheld where inferior imported squid was shown used and standard norms could not be mechanically applied.

Imported squid was accepted as having been used in the export manufacture because the material was found to be inferior, discoloured and smaller in size, and the assessee's request to re-export the balance supported that conclusion. In the absence of any evidence that the disputed quantity was diverted for another use, the utilisation claim was sustained. Standard production norms for rings could not be mechanically applied to strips, tips and tentacles, as the processed products were different. The demand was therefore unsustainable and the assessee's claim was upheld.

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Issues: Whether the imported squids were duly utilized in manufacture of the exported goods and whether the production norms could be applied automatically to the finished products.

Analysis: The imported raw material was found to be of inferior quality, discoloured and of smaller size, and the assessee had sought re-export of the balance quantity, supporting the conclusion that the material was used for the export product. The Revenue did not adduce evidence to show diversion of the quantity in dispute for any other purpose. The production norms for rings could not be mechanically applied to strips, tips and tentacles, and the finding on utilization of the imported goods was therefore justified.

Conclusion: The issue was answered in favour of the assessee; the demand was not sustainable.

Final Conclusion: The appeal failed and the order allowing the assessee's claim was sustained.

Ratio Decidendi: In the absence of evidence of diversion, and where the imported input is shown to be of inferior quality, standard input-output norms cannot be automatically applied to disallow export-related utilization claims for different processed products.

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