Manufacture by scrap segregation allows EOU Domestic Tariff Area clearances to claim concessional excise exemption.

Segregation of imported scrap by a 100% EOU was treated as manufacture for the unit concerned, in line with the earlier view in its own case and the applicable trade policy framework for units established before 1.4.2002. On that basis, clearances into the Domestic Tariff Area were required to be assessed under the concessional exemption notification, and the higher duty demand could not be sustained. The assessee was therefore entitled to the benefit of the concessional notification, and the demand for differential duty was held unsustainable.

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Issues: Whether segregation of imported scrap by a 100% EOU amounted to manufacture, and whether the unit was entitled to clear the goods in the Domestic Tariff Area on payment of duty at the concessional rate under the exemption notification.

Analysis: The activity of segregation was treated as manufacture for the unit in question, consistent with the earlier view taken in its own case and the applicable trade policy framework for units established prior to 1.4.2002. Once the process was held to be manufacture, the clearances to DTA were required to be assessed under the concessional exemption notification, and the contrary demand based on a higher duty rate could not be sustained.

Conclusion: The assessee was entitled to the benefit of the concessional notification, and the demand of differential duty was not sustainable.

Ratio Decidendi: Where segregation activity is treated as manufacture for an EOU, DTA clearances from that unit are eligible for the applicable concessional excise notification and cannot be denied on the footing that the activity is outside manufacture.

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