Exemption for test cells supplied to the Indian Navy cannot be denied when certificates cover the full invoiced quantity.

Exemption under Notification No. 64/95-C.E. could not be denied for additional test cells supplied with batteries to the Indian Navy where the entire quantity was invoiced to, and certified for, the notified recipient. The evidence showed that the Navy's certificate covered the full supply and the Quality Assurance Officer's certificate confirmed that the test cells were actually used by the Navy. On these facts, the test cells formed part of the exempted supply and could not be excluded merely because they were initially used for testing at the factory. The denial of exemption was therefore unsustainable.

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Issues: Whether the exemption under Notification No. 64/95-C.E. dated 16.3.1995 could be denied in respect of the additional test cells supplied along with batteries to the Indian Navy.

Analysis: The notification required supply to the Indian Navy against the prescribed certificate. The evidence showed that the entire quantity of cells, including the cells treated as test cells at the factory, was invoiced and supplied to the Indian Navy, and the Navy's certificate covered the total quantity. The Quality Assurance Officer's certificate also showed that the test cells were in fact used by the Indian Navy. On these facts, the test cells could not be excluded from the exempted supply. The earlier decision dealing with an identical question under a pari materia exemption notification supported the same view.

Conclusion: The exemption was admissible and denial of the benefit to the test cells was unsustainable.

Final Conclusion: The impugned orders were set aside and the appeals were allowed.

Ratio Decidendi: Where the entire supply is made to the notified recipient and the prescribed certificate covers the full quantity, auxiliary or test cells forming part of that supply cannot be denied exemption merely because they were initially used for testing at the factory.

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