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Issues: Whether cryolite, aluminium fluoride and fluorspar used in the manufacture of aluminium were "raw materials" or inputs so as to qualify for benefit under Notification No. 201/79 as amended by Notification No. 105/82.
Analysis: The use of the three chemicals in the manufacture of aluminium was not in dispute. The expression "raw material" was not defined in the notification, and therefore had to be understood in the context of the industry and normal trade usage. The materials were shown in the assessee's records and cost-audit material as raw materials, and the earlier tribunal decisions recognised that these chemicals were indispensable to the aluminium manufacturing process. The governing principle was that a material need not physically remain in the finished product to qualify as an input or raw material if it is consumed and utilised in the process in a manner that assists production. Since the materials were inescapable for manufacture and the notification contained no limiting words, the exemption could not be denied.
Conclusion: The three chemicals were raw materials or inputs within the meaning of the notification, and the assessee was entitled to the exemption benefit.
Ratio Decidendi: For exemption provisions granting credit or set-off on inputs, a material consumed in the manufacturing process qualifies as a raw material even if it does not form part of the finished product, provided it is commercially and functionally treated as part of the manufacturing input stream.
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