Consumables used in integrated manufacturing operations may qualify for exemption when their nexus with manufacture is established.

High speed diesel oil used as fuel to generate electricity for operating dumpers transporting ore within an approved 100% export oriented undertaking qualified as a consumable exempt under Notification No. 123/81, as amended, because it was brought in connection with the manufacture of articles and formed part of the integrated operational chain. The notification was applied with a broad nexus approach, treating goods used in movement and processing of ore as covered where their connection with manufacture was established. On that basis, the exemption was upheld and the Revenue's challenge failed.

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Issues: Whether high speed diesel oil used as fuel for generating electricity, which in turn was used to operate dumpers transporting ore within a 100% export oriented undertaking, qualified for exemption under Notification No. 123/81 as amended.

Analysis: The exemption covered excisable capital goods, components, raw materials, consumables and spares brought in connection with the manufacture of articles into an approved 100% export oriented undertaking. The undisputed facts showed that the undertaking satisfied the notification conditions, and the diesel oil was a consumable used in the operational chain connected with manufacture. The expression used in the notification was read in the light of the wider nexus recognised in the cited precedent, where goods used in the movement and processing of mined ore were treated as goods intended for use in processing of ore.

Conclusion: The diesel oil fell within the exemption as a consumable brought in connection with the manufacture of articles into the approved undertaking.

Final Conclusion: The Revenue's appeal failed and the order allowing exemption to the respondent was maintained.

Ratio Decidendi: Where an exemption notification covers consumables brought in connection with manufacture, goods used as fuel in the integrated operational process of the undertaking can qualify if their nexus with manufacture is established.

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