Imported sizing material treated as raw material, defeating exemption where indigenous inputs were required for manufacture.

An imported sizing material used in weaving was treated as raw material, not a mere consumable, because it was essential to the manufacturing process even though it did not remain in the finished goods. The applicable notification granted exemption only where the final product was manufactured wholly from raw materials produced or manufactured in India. Applying the essentiality test, the exemption was held unavailable because the undertaking used an imported ingredient in manufacture. The note also reflects the principle that physical presence in the end product is not decisive where the ingredient is indispensable to production.

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Issues: Whether a 100% Export-Oriented Undertaking was entitled to the benefit of Notification No. 8/97-C.E. when it used imported sizing material in the manufacture of goods cleared in the Domestic Tariff Area, and whether such sizing material could be treated as a consumable rather than raw material.

Analysis: The exemption under Notification No. 8/97-C.E. was available only when the finished product was manufactured wholly from raw materials produced or manufactured in India. The imported sizing material was used in the manufacturing process and was essential for weaving, even though it did not remain in the final product. The governing test was the essentiality of the ingredient for manufacture, not its physical presence in the end-product. The earlier Tribunal decision, affirmed by the Supreme Court, treated similarly imported materials used in the process as raw materials and not as consumables for the purpose of the notification.

Conclusion: The imported sizing material was held to be raw material, not a mere consumable, and the exemption under Notification No. 8/97-C.E. was not available.

Ratio Decidendi: For the purpose of a notification requiring manufacture wholly from indigenous raw materials, an imported ingredient that is essential to the manufacturing process is to be treated as raw material even if it does not form part of the final product.

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