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M/s Meridian Industries Ltd. v. Commissioner of Central Excise

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 4112 of 2007)Decided 27 Oct 2015
Civil Appeal No. 4112 of 2007
Justice A.K. Sikri · Justice Rohinton Fali Nariman

Background

The appellant was a 100% Export Oriented Unit making cotton yarn. For sales to the domestic market between 2000 and 2001, it paid concessional excise duty under Notification 8/97-C.E., which requires the product to be made only from indigenous raw material. The appellant used indigenous cotton but also imported wax, which was applied to the yarn during winding. The Department denied the concession on the ground that the imported wax was a raw material, and the Tribunal agreed with the Department.

Decision Breakdown

The Supreme Court dismissed the appeal with costs. It held that the wax was not a "consumable" but a "raw material" because it remained on the cotton yarn, which was the appellant's own end product, and was needed for its quality and use. The Court explained that the buyer's later removal of the wax, when making knitted fabric, was irrelevant to the appellant's own product. It also held that the earlier decisions in Super Spinning Mills and the Ministry of Finance circulars relied on by the appellant did not apply, because the wax in this case was used as a raw material. The Court added that exemption notifications are construed strictly, so the assessee must clearly fall within their terms.

Lesson Learnt

Whether an imported input counts as "raw material" or "consumable" depends on whether it stays in the product the manufacturer sells, and not on how the buyer later uses that product. A business that claims a tax exemption must show it clearly meets every condition of the notification.

Official source (sci.gov.in)View Judgment (PDF)

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