Exemption for ship stores upheld where an IC engine was first sent for testing before final supply to the Indian Navy.

Notification No. 64/95-CE benefit was held admissible for IC engines supplied as ship stores to the Indian Navy, even though one engine was first cleared to another factory for testing before final delivery. The Tribunal treated the intermediate movement to the Kolkata unit as a technical infraction, not a ground to deny exemption, because the goods ultimately reached the Navy in the character of ship stores. Revenue's reliance on a prior decision was distinguished on the basis that that case involved supplies to ship builders, not direct supply to the Indian Navy.

---

---

Issues: Whether the benefit of Notification No. 64/95-CE could be denied to IC engines supplied to the Indian Navy as ship stores merely because one engine was first cleared to another factory for testing before final supply.

Analysis: The Tribunal noted that the assessee had two factories and that one engine was admittedly supplied directly to the Indian Navy with the notification benefit. The dispute related only to the second engine, which was first moved to the Kolkata unit for testing as required by the Navy and thereafter supplied to the Indian Navy as ship stores. The record showed no dispute that the goods ultimately reached the Navy in the character of ship stores. The decision relied upon by Revenue was distinguished because, in that case, the goods were supplied to ship builders and not to the Indian Navy as ship stores. The intermediate clearance for testing was treated as a technical infraction and not a ground to deny the exemption.

Conclusion: The notification benefit was held to be admissible, and denial of exemption was not sustainable.

---