Defence supply exemption extends to vendors and intermediate manufacturers when goods are ultimately used for Ministry of Defence supplies.

Notification No. 63/95-CE granting exemption for goods supplied to the Ministry of Defence was interpreted to cover not only the specified recipient unit but also vendors and intermediate manufacturers whose supplies were ultimately used for Defence supplies. Earlier Tribunal rulings, including Vulcan Gears, were treated as the governing interpretation, and that view had been affirmed by the Supreme Court. On that basis, the exemption was held applicable to the appellant's brake linings and clutch facings, and the demand and penalty were not sustainable.

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Issues: Whether the exemption under Notification No. 63/95-CE dated 16.03.1995, issued for goods supplied to the Ministry of Defence, was available to the appellant as a vendor supplying brake linings and clutch facings to a specified unit for further supply to the Ministry of Defence.

Analysis: The notification had already been interpreted in earlier Tribunal decisions to extend its benefit not only to the specified unit but also to vendors and intermediate manufacturers supplying goods ultimately used for Ministry of Defence supplies. The decision relied upon by the Revenue did not consider those earlier precedents. The ruling in Vulcan Gears, which supported the assessee, had also stood affirmed by the Supreme Court, and therefore carried greater weight than the contrary Tribunal view.

Conclusion: The exemption was available to the appellant, and the demand and penalty could not be sustained.

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