Export exemption for intermediate goods applies when supplied inputs are used in manufacture of exported products.

Duty was not demandable on PV blended yarn cleared by a supporting manufacturer where polyester staple fibre was supplied under Rule 191BB for manufacture of export goods under Notification No. 33/90-C.E. The exemption applied because the advance licence holder supplied the intermediate goods against the required release order, the quantity stayed within DEEC entitlement, and the goods were ultimately used in manufacture of exported fabrics. The intermediate processing by the supporting manufacturer did not, by itself, defeat the export-linked exemption scheme. On those facts, the demand under Section 11A of the Central Excise Act, 1944 was unsustainable.

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Issues: Whether duty was demandable on PV blended yarn cleared by the supporting manufacturer where polyester staple fibre had been supplied under Rule 191BB for manufacture of export goods under Notification No. 33/90-C.E. dated 5-9-1990.

Analysis: The relevant notification and Rule 191BB permit removal of specified intermediate goods without payment of duty for use in the manufacture of resultant export goods, subject to the conditions that the advance licence holder supplies the goods against an advance release order, the quantity remains within the DEEC entitlement, and the intermediate goods are ultimately used for manufacture of the exported articles. The admitted facts showed that the advance licence holder supplied polyester staple fibre to the supporting manufacturer for conversion into blended yarn, and the yarn was thereafter used in the manufacture of fabrics that were exported. The process was held to be in conformity with the notification and the rule, and no legal infirmity was found in the order dropping the demand.

Conclusion: The duty demand was not sustainable, and the rejection of the demand was upheld in favour of the assessee.

Final Conclusion: The appeal failed because the clearance and use of the intermediate goods were found to be within the export-linked exemption scheme, leaving no basis to confirm duty under Section 11A of the Central Excise Act, 1944.

Ratio Decidendi: Where specified intermediate goods are moved and utilised in accordance with the conditions of the export exemption notification and the governing rule, duty cannot be demanded merely because the supporting manufacturer performs an intermediate manufacturing process before the export product is completed.

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