Defence supply exemption extends to intermediary clearances when goods are ultimately meant for Ministry of Defence use.

Exemption under Notification No. 63/95-CE was available for goods supplied to BEML when they were ultimately meant for use by the Ministry of Defence. The Court read the notification with the Board's circulars, including the later clarification that intermediary or ancillary supplies remain covered if the end use is Defence supply, and relied on the competent authority's certificate supporting that position. On that basis, the exemption was upheld, the duty demand could not be sustained, and refund of the duty paid followed.

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Issues: Whether the assessee was entitled to exemption under Notification No. 63/95-CE dated 16.03.1995 in respect of goods supplied to BEML for ultimate use by the Ministry of Defence, and consequently entitled to refund of the duty amount paid.

Analysis: The exemption was examined in the light of the notification language, the Board's earlier circular clarifying the scope of exemption for ancillary and sub-contracted supplies, and the later circular dated 23.06.2006 stating that the benefit would apply where goods were ultimately meant for supply to the Ministry of Defence. The certificate issued by the competent authority also supported the assessee's claim that the supplies were covered by the exemption scheme. On that basis, the Court held that the notification and the circular applied to the assessee's clearances.

Conclusion: The assessee was entitled to the exemption and the demand could not be sustained; the duty amount was refundable.

Ratio Decidendi: Where exemption goods are ultimately supplied for Ministry of Defence use and the applicable circular clarifies that such intermediary supplies are covered, the exemption cannot be denied merely because the goods were first supplied to another unit in the procurement chain.

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