Imported consumable used in manufacture does not defeat concessional duty benefit for DTA clearances by an EOU

A concessional duty notification for EOU clearances to the Domestic Tariff Area remained available where the disputed imported material was used only as a coolant in manufacture and did not form part of the finished goods. The Tribunal treated the coolant as a consumable consumed in the production process, not as a disqualifying raw material, and read the later Board clarification as consistent with that approach. On that basis, the condition requiring manufacture wholly out of indigenous raw materials was not defeated, and the demand arising from denial of the notification benefit was unsustainable.

---

---

Issues: Whether an export-oriented unit that used an imported coolant in the manufacture of goods cleared to the Domestic Tariff Area was entitled to the benefit of the concessional duty notifications for clearances made wholly out of indigenous raw materials.

Analysis: The dispute turned on the character of Somentor-43, which was used only as a coolant during manufacture and was not part of the finished product. The relevant notifications permitted DTA clearances at the concessional rate where the goods were manufactured wholly out of indigenous raw materials. The Tribunal noted the conflicting CBEC circulars on the subject and relied on the principle that consumables are inputs used in the manufacturing process but are not identifiable in the final product because they are consumed therein. On that basis, the imported coolant was treated as a consumable and not as a disqualifying raw material. The subsequent clarification of the Board was read as supporting availability of the benefit despite use of imported consumables.

Conclusion: The use of the imported coolant did not disentitle the assessee from the notification benefit, and the demand based on denial of that benefit was unsustainable.

Final Conclusion: The concessional duty regime for DTA clearances by the EOU remained available because imported consumables used in the manufacturing process did not destroy the condition of manufacture from indigenous raw materials.

Ratio Decidendi: For exemption or concessional duty notifications conditioned on manufacture from indigenous raw materials, the use of an imported consumable that is consumed in the manufacturing process and does not form part of the final product does not by itself bar the benefit.

---