EOU exemption for contract farming inputs upheld where covered insecticide was procured under CT-3 for export-linked production.

A 100% EOU was entitled to exemption on indigenous procurement of insecticide under Notification No. 22/2003-CE because the goods fell within the notified category and were used for pre- and post-harvest treatment through contract farmers linked to export production. Procurement was supported by CT-3 certificates issued by the jurisdictional Range Officer, and prior approval of the Development Commissioner was not required for such procurement. The duty demand could not be sustained merely because the insecticide was applied outside the unit by contract farmers before the produce was brought back for further processing and export.

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Issues: Whether the appellant, a 100% Export Oriented Unit, was entitled to exemption on indigenous procurement of insecticide under Notification No. 22/2003-CE and whether the duty demand could be sustained on the ground that the goods were supplied to contract farmers and not used in the manufacturing process within the unit.

Analysis: The item procured was an insecticide covered by Sl. No. 26 of Annexure-I to Notification No. 22/2003-CE. Under the notification, goods of that category could be taken out to the fields and farms of contract farmers for pre- and post-harvest treatment, subject to the prescribed conditions, and the produce could thereafter be brought back to the unit for export. The record showed procurement against CT-3 certificates issued by the jurisdictional Range Officer, and there was no requirement for prior approval of the Development Commissioner for such procurement. The insecticide was used for cultivation of gherkins through contract farmers, the produce was returned to the unit, and export followed after further processing.

Conclusion: The appellant was entitled to the exemption, and the duty demand could not be sustained.

Ratio Decidendi: Where a 100% EOU procures a covered input under the relevant exemption notification for use in contract farming linked to export production, and the procurement is supported by the prescribed CT-3 mechanism, denial of the exemption is not justified merely because the goods were used by farmers outside the unit before the export process was completed.

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