Polycril Sector 130, 140 in granite processing classified as consumables not raw materials under Notification 23/2003-CE

CESTAT Chennai held that Polycril Sector 130, 140 used in granite processing should be classified as consumables rather than raw materials. Following SC precedent in GTN Textiles case, the tribunal found these items do not remain until final product reaches end user - Polycril settles dust particles while Sector 130, 140 polishes granite blocks and disappears. Since goods are used for processing but don't become part of final product and aren't essential for manufacturing, they cannot qualify as raw materials under Notification No. 23/2003-CE. Department's classification as raw materials was unjustified. Appeal allowed, impugned order set aside.

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Issues Involved:
1. Classification of Polycril and Sector 130, 140 as consumables or raw materials.
2. Applicability of Notification No. 23/2003-CE dated 31.03.2003.
3. Justification of the extended period of limitation under erstwhile S. 11 A (1) & S. 11 A (4) of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Classification of Polycril and Sector 130, 140 as Consumables or Raw Materials:
The core issue is whether Polycril and Sector 130, 140 used in the manufacture of granite blocks should be classified as consumables or raw materials. The assessee argued that Polycril is mixed with water to sediment granite dust particles, which are periodically removed and discarded, and Sector 130, 140 is an abrasive used in polishing granite blocks, which gets consumed entirely during the process. Both items do not form part of the end product, i.e., polished granite slabs/tiles.

The department contended that these items should be considered raw materials, citing the definition in FTP 2009-14 and the decision in Collector of Central Excise, New Delhi Vs. Ballarpur Industries Ltd., where ingredients essential for the manufacturing process were deemed raw materials, even if consumed during the process.

The Tribunal found that these items are used in processing but do not become part of the final product. They are consumed during the process and do not remain until the final product reaches the end user. Thus, they should be classified as consumables, not raw materials.

2. Applicability of Notification No. 23/2003-CE dated 31.03.2003:
The assessee utilized Notification No. 23/2003-CE to clear goods at a concessional rate, claiming that the final products were manufactured wholly from indigenous raw materials. The department argued that the use of imported consumables disqualified them from this benefit.

The Tribunal referenced the Supreme Court's decision in Commissioner of Customs, Cochin Vs. GTN Textiles, which distinguished between consumables and raw materials. It concluded that the items in question do not meet the criteria to be considered raw materials under the notification, as they do not form part of the final product.

3. Justification of the Extended Period of Limitation:
The Show Cause Notice invoked the extended period of limitation under erstwhile S. 11 A (1) & S. 11 A (4) of the Central Excise Act, 1944, alleging that the assessee contravened the provisions of Notification No. 23/2003-CE and Rule 6 of the Central Excise Rules, 2002.

The Tribunal did not find sufficient grounds for invoking the extended period of limitation, aligning with the Supreme Court's stance in similar cases where the extended period was deemed unjustified.

Conclusion:
The Tribunal held that Polycril and Sector 130, 140 are consumables, not raw materials, and thus the assessee's claim under Notification No. 23/2003-CE was valid. The extended period of limitation was not justified. Consequently, the impugned order was set aside, and the appeal was allowed with consequential benefits as per law.

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