Imported consumables in granite polishing do not defeat exemption where they do not form part of the finished product.

Imported resin and hardner used as consumables in polishing granite slabs did not disqualify the assessee from exemption under Notification No. 23/03-C.E., because the notification turned on goods manufactured wholly from indigenous raw materials and the imported inputs were almost entirely consumed in the process rather than forming part of the finished product. Applying the distinction between raw materials and consumables, CESTAT held that inputs essential to manufacture do not lose their character as consumables merely because they are used in production. On that basis, the finished granite slabs were not treated as non-qualifying goods, and the duty demand was held unsustainable.

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Issues: Whether the use of imported resin and hardner as consumables in polishing granite slabs disentitled the assessee from the benefit of Notification No. 23/03-C.E. on the ground that the goods were not manufactured wholly from indigenous raw materials.

Analysis: The notification granted exemption to goods manufactured wholly from indigenous raw materials and cleared by an EOU to DTA. The imported resin and hardner used in polishing the granite slabs were found to be almost entirely consumed in the manufacturing process and to function as consumables rather than raw materials. Applying the distinction between raw materials and consumables, and following the view that consumables used in the process do not form part of the end product and do not cease to be consumables merely because they are essential to the process, the imported inputs did not alter the character of the finished goods for the purpose of the notification.

Conclusion: The imported consumables did not disentitle the assessee from the exemption, and the demand of duty was unsustainable.

Ratio Decidendi: For exemption conditioned on manufacture wholly from indigenous raw materials, imported consumables used in the manufacturing process do not amount to disqualifying raw materials if they do not form part of the end product.

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