REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICITON

CIVIL APPEAL NOS.5842-5843 OF 2004

M/s. Asian Peroxides Ltd. … Appellant

Versus

Commnr. of Central Excise, Guntur …Respondent

With

CIVIL APPEAL NOS. 3644-3645 OF 2005

JUDGMENT

Dr. ARIJIT PASAYAT, J.

1. In these appeals challenge is to the order by the Customs

Excise  and  Service  Tax  Appellate  Tribunal,  South  Zonal

Bench, Bangalore (in short the ‘CESTAT’).  Before the CESTAT

the  issue  related  to  the  eligibility  of  the  appellant  for  the

benefit  of  exemption   under  Notification  No.8/97-CE  dated

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1.3.1997 for Hydrogen Peroxide manufactured and cleared by

the appellant to the Domestic Tariff Area ( in short the ‘DTA’).

The  Notification  in  question  exempts  finished  products

manufactured in  a 100% Export Oriented Unit (in short the

‘EOU’)  wholly  from  the  raw  materials  produced  or

manufactured in India and allowed to be sold in India from so

much of the duty of excise leviable  thereon under Section 3 of

the Central Excise Act, 1944 (in short the ‘Act’) as is in excess

of amount equal to the duty of excise leviable under Section 3

of the Act on like goods produced or manufactured in India

other than in a 100% EOU.

2. The  original  authority  did  not  accept  the  stand of  the

appellant that the finished goods namely Hydrogen Peroxide

removed  by  them  from  their  EOU  to  the  DTA  was

manufactured  wholly  from  the  raw  materials  produced  in

India.   

3. Aggrieved  by  the  adjudication,  assessee  appellant  filed

an appeal  before the Commissioner  of (Appeals)  Excise  who

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accepted  the  contention  of  the  appellant  that  the  above

mentioned items are not raw materials but only consumable

and,  therefore,  assessee  cannot  be  denied  the  benefit  of

exemption under Notification no.8/97 in respect of several raw

materials  (11  in  number).   The  revenue  preferred  appeals

before  the  CESTAT.   By  the  impugned  order  in  each  case

CESTAT accepted the stand of the revenue.  It was held that

the respondent was not entitled to the benefit of Notification

No. 8/97.

4. It  held  that  in  Commissioner  of  Central  Excise  &

Customs, Indore v. Century Denim (2001) 129 ELT 657 (T) the

Tribunal applied the tests enunciated by this Court namely,

whether it is an ingredient which goes into the making of the

end product in the sense that without its presence the end

product,  as  such is  rendered  impossible  and took the  view

that indigo pure dye, lycra and other important fixing agents

utilized in the manufacture of denim fabrics are raw materials

and not consumables.

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5. According to the learned  counsel  for  the appellant  the

materials in question are not raw materials but consumable

as per definition in para 3.13 of the EXIM Policy.  According to

the  definition  of  ‘consumable’  it  means  any  item  which

participates in or is required for manufacturing process but

does  not  form  part  of  the  end-product.   Items  which  are

substantially  or  totally  consumed  during  manufacturing

process will be deemed to be consumable.  According to para

3.41 of the policy, raw material means basic materials which

are needed for the manufacture of goods but which are still in

a raw nature, unrefined or un-manufactured stage.  Reliance

was placed on the Board’s Circular No. 389/22/98-CX, dated

5.5.1998 wherein it has been clarified that the benefit of the

Notification  would  also  be  available  even  if  imported

consumables are used in the manufacture by 100% EOU.

6. Learned counsel for the revenue supported the judgment

of the CESTAT.

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7. The expression “raw material” is not a defined term. The

meaning  has  to  be  given  in  the  ordinary  well  accepted

connotation in the common parlance of those who deal with

the matter. In CCE v. Ballarpur Industries Ltd. (1989) 4 SCC

566 it was, inter alia, observed as follows:

“14.  The  ingredients  used  in  the  chemical technology of manufacture of any end product might  comprise,  amongst  others,  of  those which  may  retain  their  dominant  individual identity and character throughout the process and also in the end product; those which, as a result  of  interaction  with  other  chemicals  or ingredients  might  themselves  undergo chemical  or  qualitative  changes  and in such altered  form  find  themselves  in  the  end product;  those  which,  like  catalytic  agents, while  influencing  and  accelerating  the chemical  reactions, however,  may themselves remain  uninfluenced  and  unaltered  and remain  independent  of  and  outside  the  end products and those, as here, which might be burnt  up  or  consumed  in  the  chemical reactions.  The question in the present case is whether the ingredients of the last mentioned class qualify themselves as and are eligible to be called “raw material”  for the end product. One of the valid tests, in our opinion, could be that the ingredient should be so essential from the  chemical  processes  culminating  in  the emergence  of  the  desired  end  product,  that having  regard  to  its  importance  in  and indispensability  for  the  process,  it  could  be said that its very consumption on burning up

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is  its  quality  and  value  as  raw  material.  In such  a  case,  the  relevant  test  is  not  its absence  in  the  end  product,  but  the dependence of the end product for its essential presence  at  the  delivery  end  of  the  process. The ingredient goes into the making of the end product in the sense that without its absence the presence of the end product,  as such, is rendered  impossible.  This  quality  should coalesce  with  the  requirement  that  its utilization is in the manufacturing process as distinct from the manufacturing apparatus.”   

20. Dealing  with  a  case  under  a  Sales  Tax statues,  i.e.  Andhra  Pradesh  General  Sales Tax Act, 1957, this Court held that the word “consumable” takes colour from and must be read  in  the  light  of  the  words  that  are  its neighbours “raw material”,  “component part”, “sub-assembly  part”  and  “intermediate  part”. So  read,  it  is  clear  that  the  word “consumables” therein refers only to material which  is  utilized  as  an  input  in  the manufacturing process but is not identifiable in the final product by reason of the fact that it has got consumed therein. It is for this reason, a departure was made from the concept that “consumable” fall within the broader scope of the words “raw materials”.  Reference in this connection can be made to the view expressed in  Deputy  Commissioner  of  Sales  Tax  (Law), Board of Revenue (Taxes), Ernakulam v.  M/s Thomas Stephen & Co. Ltd., Quilon (1988 (2) SCC  264)  and  Coastal  Chemicals  Ltd. V. Commercial  Tax Officer,  A.P.  and Ors. (1999 (8)  SCC  465).   In  the  cases  at  hand

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“consumable” are treated differently from “raw materials”.           

8. Since the CESTAT has not considered the materials on

record in the above perspective, the impugned judgments are

set aside.  The matter is remitted to the CESTAT in each case

for dealing with the matter afresh in accordance with law.  The

CESTAT while doing so shall keep in view the decision of this  

Court  in  Vanasthali  Textiles  Industries  Ltd. v.  Commr.  of

C.Ex., Jaipur, Rajasthan [2007(218) ELT 3(SC)].

9. The appeals are disposed of accordingly.  No order as to

costs.

……………………………J. (DR. ARIJIT PASAYAT)

……………………………J. (P. SATHASIVAM)

……………………………J. (AFTAB ALAM)

New Delhi: July 7, 2008

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