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Issues: Whether the additional test cells retained during manufacture of batteries supplied to the Indian Navy were eligible for exemption under Notification No. 64/95-C.E. dated 16.3.1995.
Analysis: The batteries were invoiced and certified for supply to the Indian Navy as a total set, and the record showed that the so-called test cells were also supplied to and used by the Navy. The exemption certificate covered the full quantity, and the test cells formed an integral part of the batteries supplied for naval use. The notification was treated as applicable on the same principle as the earlier decision relied upon, where test cells supplied as ship stores were held to qualify for exemption.
Conclusion: The test cells were entitled to the benefit of the exemption notification and duty could not be demanded on that basis.
Final Conclusion: The appellate orders were set aside and the appeals succeeded.
Ratio Decidendi: Where goods are certified and supplied as part of the complete supply to the notified recipient, ancillary or test components that are also supplied and used by that recipient cannot be denied exemption merely because they were initially treated as test items in the factory.
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