Duty-free procurement for export units extends to approved clean-room construction items used in direct manufacturing facilities.

CESTAT New Delhi examined whether clean room panels, wall panels, glass panels and related items procured by a 100% Export Oriented Undertaking for controlled clean-room construction qualified for duty-free import or procurement under the exemption notification and approved export-oriented scheme. It noted that the goods were approved by the competent Development Commissioner and were used to establish facilities directly connected with manufacture of pharmaceutical products. Applying precedent that items used in connection with manufacture or production may fall within the exemption, the Tribunal held that revenue could not deny relief by treating the goods as mere construction materials where the foreign trade authority had permitted duty-free procurement. The exemption denial was unsustainable and the matter was decided in favour of the assessee.

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Issues: Whether clean room panels, wall panels, glass panels and related items procured by a 100% Export Oriented Undertaking for construction of controlled clean rooms were eligible for duty-free import/procurement under the exemption notification and approved export-oriented scheme.

Analysis: The goods were procured for installation in a controlled clean-room environment required for manufacture of pharmaceutical products. The exemption was claimed on the basis that the items were used in connection with manufacture and packaging of articles for export in an Export Oriented Undertaking. The competent Development Commissioner had approved the duty-free procurement of the items, and the reasoning was supported by precedent holding that goods used for construction or equipping a manufacturing unit may qualify where the exemption covers use in connection with production or manufacture. The Tribunal also noted that the revenue could not go beyond the permission granted by the competent authority administering the foreign trade regime.

Conclusion: The denial of exemption was unsustainable and the disputed goods were eligible for duty-free procurement. The issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed, with consequential disposal of the cross-objection.

Ratio Decidendi: Where goods are approved by the competent authority for duty-free procurement in an export-oriented undertaking and are used for establishing facilities directly connected with manufacture, the revenue cannot deny the exemption by treating them as ineligible construction items if the exemption notification covers goods used in connection with manufacture or production.

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