M/S. MERIDIAN INDUSTRIES LTD.versusCOMMISSIONER OF CENTRAL EXCISE

                     [2015] 14 S.C.R. 35 ·


             M/S. MERIDIAN INDUSTRIES LTD.                      A
                              v.
          COMMISSIONER OF CENTRAL EXCISE
               (Civil Appeal No. 4112 of 2007)                  B
                     OCTOBER 27, 2015
           [A. K. SIKRI AND R. F. NARIMAN, JJ.]
       Central Excise Act, 1944: Export and Import Policy       c
 1997-2002 - Notification no.8197-CE dated 01.03.1997 -
 Benefit of the said Notification available to goods
 manufactured by EOU using indigenous raw material only -
 Assessee manufactured cotton yarn using indigenous cotton
 and imported wax - Entitlement to claim benefit of Notification D
 no.8197-CE-Held: In the manufacturing process undertaken
 by assessee-appellant, wax coating is done for luflrication of
 yarn - Wax coating is allowed to remain on the yarn in order
 to facilitate its winding on cones and its use in knitting
 hosiery - No doubt, cotton yarn can be produced without E
 wax as well - However, such cotton yarn without wax would
 be of inferior quality for the purpose of buyer in comparison
 with cotton yarn coated with wax as the use of cotton yarn
 with wax thereupon acting as lubricant is much more useful
 and becomes a value addition making it better quality cotton F
 yarn, insofar as requirement of the buyer in using such
 cotton yarn for manufacture of knitted fabircs is concerned~
 Therefore, wax is used as raw material and not as
 consumable, insofar as end product of the assessee is
 concerned - Benefit of notification not available to assessee. G

        Interpretation of statutes: Exemption notification -
. Interpretation of- Held: To be given strict interpretation and
  unless assessee able to make out a case in its favour, it is
  not entitled to claim benefit thereof.                         H
                              35
36        SUPREME COURT REPORTS              (2015] 14S.C.R.


A    Words and phrases: Word 'consumable' and raw material' -
     Connotation of.
          Dismissing the appeal, the Court
         HELD: 1. The exemption notifications are to be
8 given strict interpretation and, therefore, unless the
  assessee is able to make out a clear case in its favour,
  it is not entitled to claim the benefit thereof. Otherwise,
  if there is a doubt or two interpretations are possible,
  one which favours the Department is to be resorted to
C while construing an exemption notification. In the
  instant case, assessee is using imported wax in
  manufacturing process of its end product i.e. cotton yarn.
  However, the refutation of the appellant Is that wax is
0 not 'raw material' and it is only used as 'consumable'
  in the process of manufacturing cotton yarn. The Export
  and Import Policy 1997-2002, which is applicable in the
  instant case, defines both the expressions, namely,
  'consumables' and 'raw material'. If a particular item
E participates in or is required for a manufacturing
  process, but does not form part of the end product
  and instead it is specifically or totally consumed
  during a manufacturing process, the same would be
  treated as 'consumables'. On the other hand, 'raw
F material', inter alia, includes any materials or goods
  that is required for the manufacturing process for a
  manufacturer.[Paras 13, 14, 18][46-H; 47-A, B-D; 53-D-E]
       2. In the instant case, the article manufactured by
G the assessee is cotton yarn made of indigenous as well
  as imported wax. The wax coating is fou,nd to be
  essential for lubrication of the yarn and was allowed
  to remain on the yarn in order to facilitate its winding
  on cones and its use in knitting hosiery. Wax imparts a
H quality whereby the protruding fibres of the yarn are
 M/S. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF             37
                  CENTRAL EXCISE

made to settle uniformly on the surface of the yarn to        A
enable easy winding. This quality of the yarn is
essential for its application in the manufacture of knitted
fabrics by the buyers. No doubt that cotton yarn can
be produced without wax as well. However, such cotton
yarn without wax would be of inferior quality for the         B
purposes of buyer in comparison with cotton yarn
coated with wax as the use of cotton yarn with wax
thereupon acting as lubricant is much more useful and
becomes a value addition making it better quality cotton
yarn, insofar as requirement of the buyer in using            C
such cotton yarn for manufacture of knitted fabirc is
concerned. When matter is examined from this angle,
an irresistible conclusion is arrived at, namely, wax
was used as raw material and not as consumable, insofar       D
as end product of the assessee .is concerned. For the
assessee, end product is cotton yarn and not knitted
hosiery. Knitted hosiery is the end product of the buyer.
If buyer removes the wax after manufacture of knitted
fabrics, that may not be of any consequence insofar as        E
the assessee is concerned and would be totally
extraneous to determine the issue at the hands of the
assessee. [Paras 19, 21) [54-C-D, F-H; 55-B-E]
      Super Spinning Mills Ltd. v. Commissioner of
      Central Excise, Tiruchirapalli 2013 (296) ELT           F
      133; Vanasthali Textiles Industries Ltd. v. CCE,
      Jaipur(2007) 12sec115: 2001 (11) SCR 110;
      CCE v. Ballarpur Industries Ltd. (1989) 4 SCC
      566: 1989 (1) Suppl. SCR 341 - referred to.
                                                              G
                    Case Law Reference
  2013 (296) ELT 133              referred to   Para 1O
· 2007 (11) SCR 710               referred to   Para 16
  1989 (1) Suppl. SCR 341         referred to   Para 18       H
38         SUPREME COURT REPORTS                 (2015] 14 S.C.R.


A         CIVIL APPELLATE JURISDICTION: Civil Appeal No.
     4112 of 2007.

           From the Judgment and Order No. 876 of 2007 dated
     17.07.2007 of the Customs, Excise and Service Tax Appellate
8    Tribunal, (South Zonal Bench) in Appeal No. E/626/2003/MAS.

          S. K. Bagaria, Sr. Adv., K. K. Mani, Ms. T. Archana for
     the Appellant.

          K. Radhakrishnan, Sr. Adv., Ms._ Shirin Khajuria,
C    Ms. Sushma Manchanda, S. Acharya, Ms. Sunita Rao, B.
     Krishna Prasad for the Respondent.

          The Judgment of the Court was delivered by

         A. K. SIKRI, J. 1. The appellant-assessee is engaged
D in the manufacture of cotton yarn which is 100% Export
  Oriented Undertaking (EOU) constituted as per Export and
  Import Policy 1997-2002. During the period August, 2000 to
  March, 2001, it had cleared the aforesaid cotton yarn made to
  Domestic Tariff Area (DTA). While clearing these goods, the
E appellant did not pay normal excise duty that is chargeable for
  the aforesaid product. Instead it took benefit of Notification
  No.8/97-C.E. dated 01.03.1997 and paid duty at concessional
  rate in terms of the said notification. This notification provides
F for concessional rate to those products which are cleared to
  DTA by an EOU. However, one of the conditions for availing
  the benefit of the said notification is that the products that are ·
  manufactured by such EOU should have been manufactured·
  using indigenous raw material only.
G         2. The appellant while manufacturing cotton yarn had
     used indigenous cotton and also imported wax. The
     Department sought to deny the benefit of Notification No.8/
     97-C.E. on the ground that imported wax was also used, which
     was treated as the "raw material". Show cause notice dated
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MIS. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF                     39
          CENTRAL EXCISE [A. K. SIKRI, J.]

04.09.2001 was, accordingly, issued by the Superintendent A
of Central Excise, Pollachi-11 Range, in O.C. No.777/2001 to
state that the appellant was wrong in claiming the benefit of
Notification No.8/97-C.E. dated 01.03.1997 since cotton yarn
was manufactured out of indigenous cotton and imported wax,
as wax was contained in the final product (yarn). It was stated B
that the appellant is maintaining separate production account
for manufacture of cotton yarn both for indigenously procured
and imported cotton as detailed in Annexures-1 and II to the
show cause notice. The appellant filed objections/reply dated
29.01.2001 wherein it stated that:                              c
      (i) wax disc was used in the High Speed Autoconer for
      supply to hosiery industries. Wax acts as a lubricant for
      reducing the friction and hairiness arising due to cone
      winding of yarn at a speed of 1200-1500 meters per D
      minute.
      (ii) The lubrication of the yarn also facilitated the use of
      the high speed knitting machines.
      (iii) The wax was only a temporary coat and did not            E
      form part of the cotton yarn and the wax removed
      permanently alter the knitting and does not remain part
      and parcel of the yarn.
      (iv) The jurisdictional Superintendent of Central Excise       F
      had consistently issued Warehousing Certificate treating
      the same as 'consumable' and the wax disc was treated
      as 'capital goods' consistently as entered in RG 23C
      for Cenvat purposes.
                                                              G
      3. The Commissioner of Central Excise, Coimbatore
alter hearing the matter, passed the Order-in-Original dated
21.06.2002 deciding the matter in favour of the assessee and,
thus, dropped proposed demand in the show cause notice by
recording the finding to the effect that:                     H
40         SUPREME COURT REPORTS                 [2015] 14 S.C.R.


A          (i) Wax disc acted as a lubricant and facilitated
           processing and use in the manufacturing process and
           remained a temporary coat.
           (ii) By Circular No.631/22/2002-CX dated 28.03.2002,
B          the Ministry of Finance held that consumables used in
           capital goods cannot be termed as 'raw material' for
           the manufacture of finished goods and in the case wax
           was only a consumable for the capital goods.
           (iii) Revenue was inconsistent in t)aving dealt with wax
c          discs as consumable in the warehousing operation of
           the appellant but dealt as raw material for denying the
           benefit of exemption.
           (iv) Benefit was available to cotton yarn manufactured
D          wholly out of indigenous cotton as well as cotton yarn
           manufactured out of imported cotton yarn on which
           appropriate additional duty of customs was paid when
           removed into DTA.
E       4. However, the Central Board of Excise & Customs,
  reviewed the order of the Commissioner of Central Excise in
  Order-in-Original No.32/2002-Commr. dated 21.06.2002 and
  directed the Commissioner to present an appeal before the
  Appellate Tribunal exercising power under Section 35B of the
F Act. The Commissioner of Central Excise preferred the appeal
  as directed by the Central Board of Excise & Customs against
  his own Order-in-Original No.32/2002-Commr. dated
  21.06.2002 before the Tribunal.
G         5. The Tribunal allowed the appeal preferred by the
     Commissioner of Central Excise vide its decision dated
     17.07.2007. Perusal of the decision indicates following thought
     process:
           (i) The imported wax was used through discs fitted in
H
 M/S. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF                    41
           CENTRAL EXCISE [A. K. SIKRI, J.]

       the cone winder (Auto Coner) running at a speed of A
       1200-1500 meters per minute.
        (ii) The wax coating was necessary to smoothen the
        surface and to lubricate yarn in winding and further
        process of knitting.                                 B
        (iii) The coating disappears in the further process to
        which the knitted fabric is subjected to, but at the time
        of clearance of the yarn from the EOU, wax was part of
        the yarn.
                                                                     c
        (iv) The use of the wax satisfied the definition of "raw
        material" and wax provided lubricity to the yarn.
      6. Present appeal is preferred by the appellant
challenging the correctness and validity of the aforesaid D
decision of tile Tribunal.
         7. Mr. Bagaria, learned senior counsel, appearing for
  the appellant, drew our attention to the language used in the
  exemption notification which provides for 100% exemption to        E
. EOU or a free trade zone from excise duty on the.finished
  products, rejects and waste or scrap specified in the Schedule
 to the Central Excise Tariff Act, 1985 when produced or
  manufactured 'only from the raw materials produced or
  manufactured in India.. .' On the basis of the aforesaid wording   F
 from the notification, his submission was that the word 'from'
  clearly suggests that the material used has to be 'raw material'
  and the wax, in the present case, was not used as the raw
  material. In this behalf, he explained the process of
  manufacturing of cotton yarn by explaining that since it was       G
  only a yarn, the same was manufactured and wound on cones.
  In this process, the yarn is passed over an imported wax disc
 fitted on the cone winder (Auto Coner) .at a speed of 1200 to
  1500 meters when the wax gets coated on the yarn. The
  purpose of wax coating was only to smoothen the yarn and           H
42        SUPREME COURT REPORTS                  [2015) 14 S.C.R.


A  provide lubrication to this product. It was not used as raw
   material for the production of cotton yarn, as yarn could be
   produced even without the said wax cotton. He also explained
   that the cotton yarn was sold by the appellant to the consumers
   for the purpose of manufacturing/fabricating the garments and
B ·after the fabrication, the said wax was removed. Therefore,
   on that basis, he submitted that the requirement of the
   notification was that the product which is cotton yarn in the
   instant case had to be manufactured from raw material and
   when the matter is considered in the aforesaid perspective
C since wax was not the raw material for the production of yarn,
   the.use thereof could not disqualify the appellant from taking
   benefit of Notification No.8/97-C.E.

         8. Mr. Bagaria also referred to Circular No.389/22/98-
D CX issued by the Ministry of Finance on Notification No.8/97-
  C.E. dated 01.03.1997 applicable to 100% EOU, which
  clarified certain doubts and paragraph 3 thereof reads as
  under:            ·

E         "3. The matter has been examined by the Board and it
          is clarified that:

          (a) In respect of situation (i) above the benefit of
          Notification 8/97-C.E. dated 01.03.1997 cannot be
          extended to those units which manufacture goods out
F
          of both imported and indigenous raw material. The
          benefit is available to those units which manufacture
          goods only from indigenous raw materials.

          (b) In respect of situation (ii) a Unit is eligible for the
G         benefit of Notification 8/97-C.E., ibid, even if, imported
          consumables are used since the notification does not
          debar the use of imported consumables, provided other
          conditions of the said notification are satisfied."

H
M/S. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF                   43
          CENTRAL EXCISE [A. K. SIKRI, J.]

     9. On the basis of the aforesaid clarification particularly A
contained in para (b) thereof which clarifies that the use of
imported consumables would not debar such a manufacture
from availing the benefit from the notification. He also referred
to two circulars of the Ministry of Finance in support of his
aforesaid plea, the particulars and the material contained B
thereof are as under:
      (i) Circular No.614/5/2002-CX dated 31.01.2002, the
      Ministry of Finance stated as under:
        "I am directed to refer Board's Circular No.389/22/ C
        98-CX dated 05.05.1998 [1998 (100) ELT T19]
        relating to extension of benefit under Notification No.8/
        97-C.E. dated 01.03.1997 to EOUs even if they use
        imported consumables and to say that the matter has D
        been re-examined by the Board and it has been
        decided to withdraw the circular. Accordingly, it is
        clarified that the benefit of Notification No.8/97-C.E.
        dated 01.03.1997 shall not be available to those EOUs
        which use imported consumables."                          E
      (ii) By Circular No.631/22/2002-CX dated 28.03.2002,
      the Ministry of Finance vide paragraph 2 further clarified
      as follows:
        "I am directed to invite reference to Board's Circular F
        No.614/5/2002-CX dated 31.01.2002 [2202 (140)
        ELT T3] regarding denial of the benefit of Notification
        No.8/97-C.E. dated 01.03.1997 (as amended) to the
        export oriented units using imported consumables. It
        has been brought to the notice of the Board that the G
        field formations are denying the benefit of Notification
        No.8/97-C.E. to units using imported consumables
        with capital goods.

                                                                   H
44         SUPREME COURT REPORTS                   [2015] 14 S.C.R.


A           2. Board has taken serious view of this mis-
            interpretation. Notification No.8/97-C.E. dated
            01.03.1997 extends the benefit of concessional rate of
            duty to EOUs on finished products which are wholly
            manufactured from the indigenous raw materials. The
B           consumables used with the capital goods cannot be
            termed as raw materials for the manufacture of finished
            goods. Therefore, it is clarified that benefit of
          . concessional rate of duty under Notification No.8/97-
            C.E. dated 01.03.1997 (as amended) should not be
c           denied to export oriented units using imported
            consumables with capital goods provided all other
            conditions of notification are satisfied."
            10. Mr. Bagaria went on to argue that the issue was no
D    more res integra as this Court had already taken a view on
     this aspect, favourable to the assesses/manufacturers. In this
     direction, he pointed out that the Chennai Bench of the Tribunal
     in the case of Super Spinning Mills Ltd. v. Commissioner
     of Central Excise, Tiruchirapa/11' which was concerned with
E    identical type of case, took the view in the process of waxing
     of hosiery cotton yarn which was done at the winding stage,
     wax could not be considered as raw material but was only
     consumable and on that basis, held that the use of imported
     wax would not debar the assessee from claiming benefit of
F    the exemption Notification No.8/97-C.E. dated 01.03.1997.
      In order to show the parity of that case with the instant matter,
     learned senior counsel referred to the discussion contained in
     para 2 of the said decision of the Tribunal, which reads as
G    under:
            "2. We have heard both sides on the_ appeal against
            the order. The process of waxing of hosiery cotton yarn
            is done at the winding stage (whether auto-cone or
H ' 2013 (296) ELT 133
MIS. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF                   45
          CENTRAL EXCISE [A. K. SIKRI, J.]

      manual cone). In the auto-caner machine, the imported        A
     wax disc is kept in the yarn path and the yarn is allowed
      to pass through the wax disc while the wax disc is rotated
      to ensure uniform waxing. The waxed yarn is
      subsequently conditioned by "Yarn Conditioning
      Process" in which yarn is conditioned by steam injection     B
      in a vacuum auto-clave at low temperature. Wax is
      present in the final product. Waxing is done to maintain
      co-efficient of friction between yarn and metal in order
      to avoid excessive yarn breaks as well as needle breaks.
      The purpose of waxing is the same as that of M/s. Forbes     C
      Gokak Ltd. who also cleared cotton yarn to OTA
    . claiming the benefit of the same notification and the
      benefit stands extended by the Hon'ble Karnataka High
      Court as seen from 2010 (250) E.L.T. 186 (Kar.) holding
                                                                   0
     that wax cannot be considered as raw material but as
      c;onsumable and upholding the Tribunal's order reported
      in 2005 (192) E.L.T. 1000 to this effect. The Karnataka
      High Court's decision cited supra is applicable on all
     fours to the facts of the present case. Although, Id. JCDR    E
      seeks to rely upon the remand and order of the Apex
     Court in Vanasthali Textiles Industries Ltd. v. CCE,
     Jaipur[2007 (218) E.L.T. 3 (S.C.)] to examine whether
     sizing material was a raw material for the manufacture
     of terry towels and draws the attention of the Bench to       F
     the remand orders of the Tribunal in CCE, Coimbatore
     v. Meridian Industries Ltd.[2007 (217) E.L.T. 576] and
     in direct decision of the Hon'ble Karnataka High Court
     on the same item, namely wax, we follow the ratio
     thereof to hold that the benefit of the exemption under       G
     the relevant notification cannot be disallowed on the
     ground of use of imported wax as wax has already been
     held by the Hon'ble High Court to be a consumable and
     not a raw material, set aside the impugned order and.
     allow the appeal. CO disposed of accordingly."                H
46         SUPREME COURT REPORTS                    [2015] 14 S.C.R.


A         11 . He also brought to the notice of this Court that against
     the aforesaid judgment of the Tribunal, the Revenue/
     Department had preferred an appeal in this Court, being Civil
     Appeal No.5294-5299/201 O which was dismissed by this
     Court on 08.07.2010 with the following order:
B
              "The appeal is dismissed on the ground of delay as
              well as on merits."
               He, thus, made passionate plea that this appeal be
            also allowed on the basis of parity.
c
        12. Ms. Shirin Khajuria, advocate with the guidance of
  Mr. K. Radhakrishnan, senior advocate argued the matter on
  behalf of the Revenue/respondent and stoutly refuted the
  aforesaid submissio.ns of the appellant's counsel. Main thrust
D of her argument was that the decision of Super Spinning Mills
  Ltd. was not applicable to the facts of the present cas~ and in
  this behalf, she endeavoured to draw subtle distinction between
  the facts of the two cases. She further submitted that the
  Tribunal had appreciated the same in the impugned decision
E appropriately discerning the facts of the present case and,
  therefore, the impugned order did not warrant any interference.
  We shall take note of the arguments of Ms. Khajuria in some
  detail at the later stage. At this point of time, we would like to
F deal with the contentions raised by the learned senior counsel
  for the appellant.
          13. The appellant is seeking the benefit of exemption
    Notification No.8/97-C.E. Since it is an exemption notification,
  . onus lies upon the appellant to show that its case falls within
G the four corners of this notification and is unambiguously
    covered by the provisions thereof. It is also to be borne in
    mind that such exemption notifications are to be given strict
    interpretation and, therefore, unless the assessee is able to
    make out a clear case in its favour, it is not entitled to claim the
H
M/S. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF                   47
          CENTRAL EXCISE [A. K. SIKRI, J.]

benefit thereof. Otherwise, if there is a doubt or two A
interpretations are possible, one which favours the Department
is to be resorted to while construing an exemption notification.
        14. The gravamen of the charge against the appellant is
that wax disc which is admittedly imported and used for the 8
production of cotton yarn constitutes 'raw material' and sine~
imported material is used for the production of the aforesaid
commodity, benefit of Notification No.8/97-C.E. cannot be
extended to the appellant. It is not in dispute that wax is used
in the process which is an imported material. However, the c
refutation of the appellant is that wax is not 'raw material' and
it is only used as 'consumable' in the process of manufacturing
cotton yarn. The Export and Import Policy 1997-2002, which
is applicable in the instant case, defines both the expressions,
namely, 'consumables' and 'raw material' and, therefore, it D
would be apposite to take note of these definitions:
      "Consumables" means any item which participates in
      or is required for a manufacturing process, but does
      not form part of the end product. Items which are E
      substantially or totally consumed during a manufacturing
      process will be deemed to be consumables.
      "Raw material' means:
      (i) basic materials which are needed for the manufacture     F
      of goods, but which are still in a raw, natural, unrefined
      or unmanufactured state; and
      (ii) for a manufacturer, any materials or goods which
      are required for the manufacturing process, whether they G
      have actually been previously manufactured or are
      processed or are still in a raw or natural state."
      15. As is evident from the aforesaid definitions, a
particular item, though required fora manufacturing process
                                                                   H
48            SUPREME COURT REPORTS                 (2015] 14 S.C.R.


A or participates in the said process would be treated as
  'consumable', if it does not form part of end product and instead
  it gets substantially or totally consumed during the
  manufacturing process. In contrast, as per sub-para (ii) of the
  definition of raw material, if any materials or goods are required
B forI the manufacturing process, such materials or goods would
  be treated as the 'raw material', whether they have actually
  been previously manufactured or are processed or are still in
  a raw or natural state.
c       16. These expressions have come up for interpretation
  before this Court on earlier occasions in few cases. Some of
  these judgments were taken note of in the case of Vanasthali
  Textiles Industries Ltd. v. CCE, Jaipuf!. We may clarify at
  the outset that the Court in that case was concerned with the
D provisions at the relevant time that did not contain the definition
  of 'raw material' and, therefore, it banked upon the meaning
  that has to be given in ordinary connotation in the common
  parlance of those who deal with the matter. At the same time,
  some observations made in the said case, particularly,
E 'dominant ingredient test', which was applied were pressed
  into service by the appellant and, therefore, the discussion in
  the said judgment becomes relevant. As far as term 'raw
  material' is concerned, following discussion followed in the said
  judgment:
F
              "13. 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 Ba/larpur case (1989) 4
G             SCC 566 it was inter alia observed as follows: (SCC
              p. 572, para 14)
                "14. The ingredients used in the chemical technology
                of manufacture of any end product might comprise,
H    2
         (2007) 12 sec 115
M/S. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF                   49
          CENTRAL EXCISE [A. K. SIKRI, J.]

      amongst others, of those which may retain their              A
      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            B
      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,          C
      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             D
       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    E
       process, it could be said that its very consumption on
       burning up 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       F
       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 utilisation is in the manufacturing    G
       process as distinct from the manufacturing apparatus."
     t4. CEGAT had held in that case thatthe use of indigo
     dye is as a raw material in the manufacture of denim
     fibre. According to the High Court also the question was H
50   SUPREME COURT REPORTS                    [2015] 14 S.C.R.


 A   whether the use of small quantity of imported dye in
     bringing the end product into existence, even in that case
     it can be treated that the finished product has come into
     existence wholly from cotton. It was held that for the.
     manufacture of denim the basic raw material and the
 B   finished product cannot be treated as wholly produced
     or manufactured from cotton. Therefore, placing reliance
     on Ballarpur case, it was held that the finished product
     is not wholly from basic raw material i.e. cotton but it
     has to be treated that the dye is also a raw material
 c   which is imported.
     15. It is to be noted that cost of dye varied between 2
     and 2.5% of the total production cost. The denim is
     manufactured from cotton and not from indigo. The
 D   condition for getting the benefit of the notification is that
     the end products should be wholly manufactured from
     the raw material produced and sold in India.
     16. It is to be noted that dominant ingredient test has
 E   not been applied in the instant case; so also the effect
     of value addition. In Ballarpur case it was held in para
     19 as follows: (SCC p. 573)
       "19. We are afraid, in the infinite variety of ways in
       which these problems present themselves it is neither
 F     necessary nor wise to enunciate principles of any
       general validity intended to cover all cases. The matter
       must rest upon the facts of each case. Though in many
       cases it might be difficult to draw a line of demarcation,
       it is easy to discern on which side of the borderline a
 G
       particular case falls."
     17. It is true that the notification does not make distinction
     on account of value. Stress is on the word "wholly''. In
     the Circular dated 5-5-1998 it is stated as follows:
,H
M/S. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF                   51
          CENTRAL EXCISE [A. K. SIKRI, J.]

      "3(b) In respect of Situation (ii) a unit is eligible for the A
      benefit of Notification No. 8/97-CE ibid., even if
      imported consumables are used since the notification
      does not debar the use of imported consumables,
      provided other conditions of the said notification are
      satisfied."                                                   B
     18. In Chemical Technology of Fibrous Materials by F.
     Sadov, M. Korchagin and A. Matelsky it has been stated
     as follows:
        "In industry, textile fanning. (fibrous) items used for C
        manufacturing (main activity) a textile product are
        referred to as raw material e.g. cotton, viscose, wool,
        silk, nylon, polyester, etc. or their blends in different
        compositions. Whereas, (non-fibrous) items used for D
    , . chemical processing of textile product (ancillary
        activity) are referred to as consumables e.g. starches,
        variety of chemicals, several colouring matters such
        as dyes and pigments, etc. Power and water are other
        consumable items in addition to fuel oil, lubricating E
        agents and packing materials. It is a common practice
        in textile industry and,trade to identify and categorise
        raw material and consumables on such basis."
     19. Since the reliance on dominant ingredient test in F
     regard to cost variation has not been considered by
     CEGAT though the same has relevance, the matter is
     remitted to CEGAT to consider those aspects. It shall
     also consider whether the items can be considered as
     "consumable" on the facts of the case.
                                                             G
     20. Dealing with a case under a sales tax statute i.e.
     the 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
                                                             H
52        SUPREME COURT REPORTS                  [2015] 14S.C.R.


A         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 utilised as an input in the manufacturing
          process but is not identifiable in the final product by
B         reason of the fact that it has got consumed therein. It is
          for this reason, a departure was made from the concept
          that "consumables" fall within the broader scope of the
          words "raw materials". Reference in this connection can
          be made to the view expressed in Dy. CSTv. Thomas
c         Stephen & Co. Ltd (1988) 2 SCC 264 and Coastal
          Chemicals Ltd. v. CTO (1999) 8 SCC 465. In the cases
          at hand "consumables" are treated differently from "raw
          materials".

D        17. In that case, the Court was concerned with the same
  notification wherein the appellant-company, which was 100%
  EOU, claiming partial exemption from duty in terms of
  Notification No.8/97 in respect of goods sold in DTA. One of
  the conditions for availing the benefit of the said notification
E was that the goods could have been manufactured wholly from
  the raw material produced or manufactured in India. For
  manufacturing the goods in question, the said assessee had
  procured the raw material from domestic manufacturer in India
  and had also imported (1) carboxymethyl cellulose which is
F used for sizing of single yarn to give strength to the yarn during
  weaving after which the woven towels are washed to remove
  completely the sizing materials and (2) ultrafresh N.M. which
  is used for anti-bacteria and anti-fungus treatment of terry
G towels. The question that fell for consideration was as to
  whether the aforesaid imported material used while
  manufacturing the goods could be termed as 'raw material' or ,
  was only 'consumable'. The Tribunal had accepted the stand
  of the Department holding that the assessee was using
H carboxymethyl cellulose which is sizing material in the
MIS. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF                  53
          CENTRAL EXCISE [A. K. SIKRI, J.)

manufacture of finished product and since it was imported A
material, the assessee was not entitled to the benefit of the
notification. In support of its conclusion that the sizing material
is an essential ingredient of weaving terry towel, reliance was
placed on the decision of this Court in CCE v. Ballarpur
Industries Ltd. 3 wherein this Court has held that the valid tests B
to determine whether the ingredient qualifies to be called raw
material could be that ingredient should be so essential for
the chemical processes culminating in the emergence of the
desired end product.
                                                                  c
      18. As already pointed out above, Export and Import
Policy 1997-2002 provided the definition of 'consumables' and
'raw material'. The definition of 'consumables' suggest that if
a particular item participates in or is required for a
manufacturing process, but does not form part of the end D
product and instead it is specifically or totally consumed during
a manufacturing process, the same would be treated as
'consumables'. On the other hand, 'raw material', inter alia,
includes any materials or goods that is required for the
manufacturing process for a manufacturer. Though, these terms E
were not specifically defined at the relevant time when
 Vanasthali Textiles Industries Limited and Ballarpur Industries
Limited cases were decided, going by the dictionary meaning,
almost similar test was applied to determine whether a
particular input would be treated as 'consumable' or 'raw F
material'.

      19. A cursory glance of these judgments may give an
impression that the present case is also covered by those
decisions as in the instant case the waxing is ultimately G
removed from the cotton yarn by the buyer, after using this
cotton yarn as raw material for fabricating the cloth. It is this
aspect on which great stress and emphasis is laid by Mr.
Bagaria, learned senior counsel for the appellant/assessee.
 , (1989) 4 sec 566                                               H
54         SUPREME COURT REPORTS                  [2015] 14 S.C.R.


A    However, a fine and subtle distinction is pointed out by Ms.
     Khajuria that becomes determinative of the outcome and
     changes the entire complexion, weighing the scales in favour
     of the respondent. Consumable is an item which does not
     form part of the end product. The assessee while arguing so
B    is taking into consideration the end product at the hands of
     buyer which is not only extraneous and irrelevant but clearly
     impermissible. We are concerned with the article
     manufactured by the assessee, viz. cotton yarn, and not with
     the new and altogether different product, viz. knitting hosiery,
C    manufactured by the buyer, who buys the cotton yarn as raw
     material/input. The article manufactured by the assessee is
     cotton yarn. Insofar as the assessee is concerned, its 'end
     product' is cotton yarn. This cotton yarn becomes input for the
     manufacture of hosiery by the buyer who buys the cotton yarn
0
     from the assessee. This is to be kept in mind while determining
     whether wax as an item used in manufacturing cotton yarn
     becomes part of this cotton yarn or not.

          20. Concentrating on this pertineni aspect, let us revisit
E the manufacturing process of cotton yarn by the assessee,
  which is the 'end product' as far as the assessee is concerned.

           21. Evidence has emerged on record, on which there is
  no dispute, that the final product which was cleared by the
F assessee, namely, cotton yarn was made of indigenous as
  well as imported cotton coated with imported wax. The wax
  coating is found to be essential for lubrication of the yarn and
  was allowed to remain on the yarn in order to facilitate its
  winding on cones and its use in knitting hosiery. Wax imparts
G a quality whereby the protruding fibres of the yarn are.made to
  settle uniformly on the surface of the yarn to enable easy winding.
  This quality of the yarn is essential for its application in the
  manufacture of knitted fabrics by the buyers. It follows from the
  above that insofar as assessee is concerned, it manufactured
H
M/S. MERIDIAN INDUSTRIES LTD. v. COMMISSIONER OF              55
          CENTRAL EXCISE [A. K. SIKRI, J.]

cotton yarn by applying wax coating thereon. This wax coating, A
or significant portion thereof, remains on the cotton yarn. The
buyer wants wax coating to remain as that is needed for
lubrication of the yarn to facilitate its winding on cones when
the buyer uses the said cotton yarn for manufacture of hosiery.
No doubt that cotton yarn can be produced without wax as B
well. However, such cotton yarn without wax would be of inferior
quality for the purposes of buyer in comparison with cotton
yarn c.oated with wax as the use of cotton yarn with wax
thereupon acting as lubricant is much more useful and
becomes a value addition making it better quality cotton yarn, C
insofar as requirement of the buyer in using such cotton yarn
for manufacture of knitted fabircs is concerned .. When matter
is examined from this angle, an irresistible conclusion is
arrived at, namely, wax was used as raw material and not as D
consumable, insofar as end product of the assessee is
concerned. For the assessee, end product is cotton yarn and
not knitted hosiery. Knitted hosiery is the end product of the
buyer. If buyer removes the wax after manufacture of knitted
fabrics, that may not be of any consequence insofar as the E
assessee is concerned and would be totally extraneous to
determine the issue at the hands of the assessee.

       22. Once we examine the matter from the aforesaid
angle, other arguments of the learned senior counsel
appearing for the assessee also pale into insignificance. It F
clearly follow·s that the judgment in the case of Super Spinning
Mills Ltd. or the judgments of this Court as noted above would
not apply in the present case. Likewise, Circular No.389/22/
98-CX issued by the Ministry of Finance giving certain
clarifications, would not help the assessee. On the contrary, G
clarifications given therein go against the assessee. Para 3
(a) thereof which has already been reproduced in the earlier
part of the judgment categorically states that those units which
manufacture goods out of both imported and indigenous raw H
56          SUPREME COURT REPORTS                  [2015] 14 S.C.R.


A material would not be entitled to the benefit of Notification No.Bl
  97. No doubt, as per para 3 (b), if imported consumables are
  used, benefit of the notification would still be available.
  However, in the present case, we find, as a fact, that wax is not
  used as consumable but as raw material. For same reasons,
B other circulars also will not advance the case of the assessee.
         . As a result, this appeal fails and is hereby dismissed with
     costs.

     Devika Gujral                                    Appeal dismissed.