Consumables exemption in a 100% EOU extends to furnace oil used to generate steam in manufacturing process.

For exemption under Notification No. 1/95-C.E. in a 100% EOU, furnace oil used to generate steam in the manufacture of terry towels can qualify as a consumable even though it does not form part of the final product. The notification covered goods brought in connection with manufacture and packaging, including consumables in Annexure I, and the term was construed broadly to include fuel consumed in the manufacturing process through steam generation. A later amendment expressly referring to furnace oil did not show that it had earlier been excluded. The duty demand was therefore unsustainable and the assessee's exemption claim was upheld.

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Issues: Whether furnace oil used for generating steam in a 100% Export Oriented Undertaking manufacturing terry towels was covered as a "consumable" under Notification No. 1/95-C.E. and, consequently, eligible for exemption from duty.

Analysis: The notification exempted specified goods brought in connection with the manufacture and packaging of articles in a 100% EOU, and included "consumables" in Annexure I. The furnace oil was used to generate steam, and the steam was consumed in the manufacture of terry towels. On that basis, the word "consumable" was rightly construed broadly enough to cover the furnace oil. The later amendment specifically referring to furnace oil did not compel the conclusion that it was previously excluded. The issue was already settled by binding precedent in the assessee's own case and in another cited decision.

Conclusion: Furnace oil used for generating steam was covered by the exemption as a consumable, and the duty demand was not sustainable.

Final Conclusion: The Revenue's appeal failed, and the exemption claim of the assessee was upheld.

Ratio Decidendi: For exemption under a notification covering consumables used in connection with manufacture in a 100% EOU, fuel used to generate steam consumed in the manufacturing process can qualify as a consumable even if it does not become part of the final product.

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