Strict construction of exemption notifications: goods must be actually used in manufacture, not merely connected with it.

Exemption under Notification No. 123/81-C.E. was available only where the goods were actually used in the manufacture of articles meant for export, not merely in connection with manufacture. The notification had to be read as a whole: although the preamble used wider language, the operative condition controlled eligibility and required a direct manufacturing nexus. Exemption notifications must be strictly construed, and the assessee had to prove with evidence that the particular goods participated in the manufacturing process. On that footing, items such as tables, chairs and air-conditioners were not shown to have the required nexus with the manufacture of cotton or filament yarn, so the exemption was unavailable.

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Issues: Whether the assessee was entitled to exemption under Notification No. 123/81-C.E. for goods removed to its 100% export oriented unit under CT-3, where the goods were claimed to be used only in connection with manufacture and not shown to have been used in the manufacture of export goods.

Analysis: The notification had to be read as a whole. The preamble used the wider expression "in connection with the manufacture", but the operative conditions required that the goods be "used in the manufacture" of articles meant for export. The exemption was therefore conditional upon actual participation of the goods in the manufacturing process and not merely their remote or incidental use. Exemption notifications must be construed strictly as to eligibility, and the assessee had to prove by evidence that the particular goods had the requisite nexus with manufacture. Goods such as tables, chairs and air-conditioners were not shown to have been used in the manufacture of cotton or filament yarn.

Conclusion: The assessee was not entitled to the exemption; the demand was sustainable and the appeal succeeded for the Revenue.

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