Broad reading of 'in connection with manufacture' extends EOU exemption to integral plant items and spares

Notification No. 123/81-C.E. was construed broadly for a 100% export oriented undertaking, so exemption extended not only to capital goods and components physically incorporated in the final product but also to items brought in connection with manufacture. The expression "in connection with" was read to enlarge the scope of the notification and to cover equipment and spares that play an integral role in the manufacturing process. On that basis, M.S. grating and a bottom work platform were treated as eligible, and the Revenue's challenge was rejected.

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Issues: Whether exemption under Notification No. 123/81-C.E. dated 2-6-1981 was available for M.S. grating and bottom work platform procured by a 100% export oriented undertaking.

Analysis: The exemption covered capital goods, components and similar items brought in connection with the manufacture of articles by a 100% E.O.U. The expression "in connection with" was treated as enlarging the scope of the notification so that the benefit was not confined only to materials actually incorporated in the finished product. Applying the larger bench principle that equipment and spares playing an integral role in the manufacturing process fall within such exemption, the items in question could not be excluded merely because they were not directly used in the physical manufacture of the final goods.

Conclusion: The two items were held to have been used in connection with manufacture and the Revenue's appeal was rejected.

Ratio Decidendi: Exemption language covering goods brought "in connection with" manufacture is to be construed broadly and extends to items that are necessary to and integrally connected with the manufacturing process, even if they are not directly used in producing the final goods.

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