Indigenous raw material condition excludes exemption where imported ingredients remain in the finished yarn and function as raw materials.

Cotton yarn cleared by a 100% export oriented undertaking to the domestic tariff area was held ineligible for concessional treatment under Notification No. 8/97-C.E. because the notification was confined to goods manufactured wholly from raw materials produced or manufactured in India. Imported cotton could not satisfy that requirement. Imported wax was also treated as a raw material, not a consumable, because it remained coated on the yarn at clearance and contributed an essential quality to the finished product. The operative principle is that an ingredient retained in the end product is a raw material for exemption purposes, so goods made with imported inputs remaining in the product fall outside the indigenous raw material condition.

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Issues: Whether cotton yarn cleared by a 100% export oriented undertaking to the domestic tariff area was entitled to concessional treatment under Notification No. 8/97-C.E. when the yarn was manufactured using imported cotton and imported wax.

Analysis: The concessional notification applied only to products manufactured wholly from raw materials produced or manufactured in India. The imported cotton, by its very nature, could not satisfy that condition. As regards wax, the relevant question was whether it was a consumable or a raw material. Under the Exim Policy, consumables are items that participate in the manufacturing process but do not form part of the end product. The wax in the present case remained coated on the yarn at clearance and imparted an essential quality for subsequent use, so it formed part of the finished yarn. On that basis, it could not be treated as a consumable. The legal test was that an ingredient remaining in the end product is to be regarded as a raw material, and the exemption could not be extended to goods not manufactured wholly from indigenous raw materials.

Conclusion: The clearances were not eligible for the benefit of Notification No. 8/97-C.E.; both the imported cotton and the imported wax took the goods outside the exemption.

Final Conclusion: The Revenue's challenge succeeded, the exemption order was set aside, and the matter was sent back for fresh adjudication in accordance with the finding that the impugned goods did not qualify for the concessional notification.

Ratio Decidendi: For exemption under a notification limited to goods manufactured wholly from indigenous raw materials, any imported ingredient that remains part of the end product is a raw material and not a consumable, and the exemption cannot be granted.

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