Indigenous raw material exemption cannot be denied on assumption; revenue must prove breach before demanding duty and penalties.

An exemption under Notification No. 23/2003-CE could not be denied merely because raw materials were supplied by another unit; the notification required evidence that the finished goods were not manufactured wholly from raw materials produced or manufactured in India. The record did not show that the supplier was an export oriented unit in the way assumed, nor that the raw materials were imported or otherwise non-indigenous. A precedent concerning clearances by an EOU to the DTA was held inapplicable to this supply-of-raw-materials situation. On that basis, the duty demand and consequential penalties were unsustainable.

---

---

Issues: Whether duty demand and penalties could be sustained by denying the exemption under Notification No. 23/2003-CE on the premise that the raw materials used for manufacture were treated as imported or as non-indigenous merely because they were supplied by another unit.

Analysis: The exemption in Serial No. 3 of the notification applied where the finished goods were cleared into the Domestic Tariff Area and were manufactured wholly from raw materials produced or manufactured in India. The dispute turned on whether the supplied raw materials were shown to be imported or otherwise not indigenous. The record did not establish that the supplier was an export oriented unit in the manner assumed by the adjudicating authority, nor was there evidence that the raw materials had been imported or had attracted the legal fiction relied upon in the impugned order. The tribunal held that the reasoning in the cited precedent on clearances by an EOU to DTA did not govern the present factual situation, which concerned supply of raw materials to the appellant. The denial of exemption was therefore unsupported by evidence and by the terms of the notification.

Conclusion: The duty demand and consequential penalties were not sustainable and the appeals were allowed.

Ratio Decidendi: An exemption conditioned on indigenous raw materials cannot be denied on conjecture or by importing a legal fiction from a different statutory setting; the revenue must establish, on evidence, that the condition was breached.

---