"Page 1\nJUDGMENT\n1\nREPORTABLE\nIN THE SUPREME COURT OF INDIA\nCIVIL APPELLATE JURISDICTION\nCIVIL APPEAL NO. 4112 OF 2007\nM/S. MERIDIAN INDUSTRIES LTD.\n.....APPELLANT(S)\nVERSUS\nCOMMISSIONER OF CENTRAL EXCISE\n.....RESPONDENT(S)\nJ U D G M E N T\nA.K. SIKRI, J.\nThe appellant-assessee is engaged in the manufacture of cotton\nyarn which is 100% Export Oriented Undertaking (EOU) constituted as\nper Export and Import Policy 1997-2002. During the period August,\n2000 to March, 2001, it had cleared the aforesaid cotton yarn made to\nDomestic Tariff Area (DTA). While clearing these goods, the appellant\ndid not pay normal excise duty that is chargeable for the aforesaid\nproduct. Instead it took benefit of Notification No.8/97-C.E. dated\n01.03.1997 and paid duty at concessional rate in terms of the said\nnotification. This notification provides for concessional rate to those\nproducts which are cleared to DTA by an EOU. However, one of the\nconditions for availing the benefit of the said notification is that the\n\nPage 2\nJUDGMENT\n2\nproducts that are manufactured by such EOU should have been\nmanufactured using indigenous raw material only. \n2.\nThe appellant while manufacturing cotton yarn had used indigenous\ncotton and also imported wax. The Department sought to deny the\nbenefit of Notification No.8/97-C.E. on the ground that imported wax was\nalso used, which was treated as the “raw material”. Show cause notice\ndated 04.09.2001 was, accordingly, issued by the Superintendent of\nCentral Excise, Pollachi-II Range, in O.C. No.777/2001 to state that the\nappellant was wrong in claiming the benefit of Notification No.8/97-C.E.\ndated 01.03.1997 since cotton yarn was manufactured out of indigenous\ncotton and imported wax, as wax was contained in the final product\n(yarn). It was stated that the appellant is maintaining separate\nproduction account for manufacture of cotton yarn both for indigenously\nprocured and imported cotton as detailed in Annexures-I and II to the\nshow cause notice. The appellant filed objections/reply dated\n29.01.2001 wherein it stated that:\n(i) wax disc was used in the High Speed Autoconer for supply to hosiery\nindustries. Wax acts as a lubricant for reducing the friction and hairiness\narising due to cone winding of yarn at a speed of 1200-1500 meters per\nminute.\n(ii) The lubrication of the yarn also facilitated the use of the high speed\nknitting machines.\n\nPage 3\nJUDGMENT\n3\n(iii) The wax was only a temporary coat and did not form part of the cotton\nyarn and the wax removed permanently after the knitting and does not\nremain part and parcel of the yarn.\n(iv) The jurisdictional Superintendent of Central Excise had consistently\nissued Warehousing Certificate treating the same as 'consumable' and\nthe wax disc was treated as 'capital goods' consistently as entered in\nRG 23C for Cenvat purposes. \n3.\nThe Commissioner of Central Excise, Coimbatore after hearing the\nmatter, passed the Order-in-Original dated 21.06.2002 deciding the\nmatter in favour of the assessee and, thus, dropped proposed demand\nin the show cause notice by recording the finding to the effect that:\n(i) Wax disc acted as a lubricant and facilitated processing and use in the\nmanufacturing process and remained a temporary coat.\n(ii) By Circular No.631/22/2002-CX dated 28.03.2002, the Ministry of Finance\nheld that consumables used in capital goods cannot be termed as 'raw\nmaterial' for the manufacture of finished goods and in the case wax was\nonly a consumable for the capital goods.\n(iii) Revenue was inconsistent in having dealt with wax discs as consumable\nin the warehousing operation of the appellant but dealt as raw material\nfor denying the benefit of exemption.\n(iv) Benefit was available to cotton yarn manufactured wholly out of\nindigenous cotton as well as cotton yarn manufactured out of imported\n\nPage 4\nJUDGMENT\n4\ncotton yarn on which appropriate additional duty of customs was paid\nwhen removed into DTA. \n4.\nHowever, the Central Board of Excise & Customs, reviewed the order of\nthe Commissioner of Central Excise in Order-in-Original\nNo.32/2002-Commr. dated 21.06.2002 and directed the Commissioner\nto present an appeal before the Appellate Tribunal exercising power\nunder Section 35B of the Act. The Commissioner of Central Excise\npreferred the appeal as directed by the Central Board of Excise &\nCustoms against his own Order-in-Original No.32/2002-Commr. dated\n21.06.2002 before the Tribunal.\n5.\nThe Tribunal allowed the appeal preferred by the Commissioner of\nCentral Excise vide its decision dated 17.07.2007. Perusal of the\ndecision indicates following thought process:\n(i) The imported wax was used through discs fitted in the cone winder (Auto\nConer) running at a speed of 1200-1500 meters per minute. \n(ii) The wax coating was necessary to smoothen the surface and to lubricate\nyarn in winding and further process of knitting.\n(iii) The coating disappears in the further process to which the knitted fabric is\nsubjected to, but at the time of clearance of the yarn from the EOU, wax\nwas part of the yarn.\n(iv) The use of the wax satisfied the definition of “raw material” and wax\n\nPage 5\nJUDGMENT\n5\nprovided lubricity to the yarn.\n6.\nPresent appeal is preferred by the appellant challenging the correctness\nand validity of the aforesaid decision of the Tribunal. \n7.\nMr. Bagaria, learned senior counsel, appearing for the appellant, drew\nour attention to the language used in the exemption notification which\nprovides for 100% exemption to EOU or a free trade zone from excise\nduty on the finished products, rejects and waste or scrap specified in the\nSchedule to the Central Excise Tariff Act, 1985 when produced or\nmanufactured 'only from the raw materials produced or manufactured in\nIndia...' On the basis of the aforesaid wording from the notification, his\nsubmission was that the word 'from' clearly suggests that the material\nused has to be 'raw material' and the wax, in the present case, was not\nused as the raw material. In this behalf, he explained the process of\nmanufacturing of cotton yarn by explaining that since it was only a yarn,\nthe same was manufactured and wound on cones. In this process, the\nyarn is passed over an imported wax disc fitted on the cone winder\n(Auto Coner) at a speed of 1200 to 1500 meters when the wax gets\ncoated on the yarn. The purpose of wax coating was only to smoothen\nthe yarn and provide lubrication to this product. It was not used as raw\nmaterial for the production of cotton yarn, as yarn could be produced\neven without the said wax cotton. He also explained that the cotton yarn\n\nPage 6\nJUDGMENT\n6\nwas sold by the appellant to the consumers for the purpose of\nmanufacturing/fabricating the garments and after the fabrication, the\nsaid wax was removed. Therefore, on that basis, he submitted that the\nrequirement of the notification was that the product which is cotton yarn\nin the instant case had to be manufactured from raw material and when\nthe matter is considered in the aforesaid perspective since wax was not\nthe raw material for the production of yarn, the use thereof could not\ndisqualify the appellant from taking benefit of Notification No.8/97-C.E. \n8.\nMr. Bagaria also referred to Circular No.389/22/98-CX issued by the\nMinistry of Finance on Notification No.8/97-C.E. dated 01.03.1997\napplicable to 100% EOU, which clarified certain doubts and paragraph 3\nthereof reads as under:\n“3. The matter has been examined by the Board and it\nis clarified that:\n(a) In respect of situation (i) above the benefit of\nNotification 8/97-C.E. dated 01.03.1997 cannot be\nextended to those units which manufacture goods out of\nboth imported and indigenous raw material. The benefit\nis available to those units which manufacture goods\nonly from indigenous raw materials.\n(b) In respect of situation (ii) a Unit is eligible for the\nbenefit of Notification 8/97-C.E., ibid, even if, imported\nconsumables are used since the notification does not\ndebar the use of imported consumables, provided other\nconditions of the said notification are satisfied.”\n9.\n On the basis of the aforesaid clarification particularly contained in para\n(b) thereof which clarifies that the use of imported consumables would\n\nPage 7\nJUDGMENT\n7\nnot debar such a manufacture from availing the benefit from the\nnotification. He also referred to two circulars of the Ministry of Finance\nin support of his aforesaid plea, the particulars and the material\ncontained thereof are as under:\n(i) Circular No.614/5/2002-CX dated 31.01.2002, the Ministry\nof Finance stated as under:\n“I am directed to refer Board's Circular No.389/22/98-CX\ndated 05.05.1998 [1998 (100) ELT T19] relating to\nextension of benefit under Notification No.8/97-C.E.\ndated 01.03.1997 to EOUs even if they use imported\nconsumables and to say that the matter has been\nre-examined by the Board and it has been decided to\nwithdraw the circular. Accordingly, it is clarified that the\nbenefit of Notification No.8/97-C.E. dated 01.03.1997\nshall not be available to those EOUs which use imported\nconsumables.”\n(ii) By Circular No.631/22/2002-CX dated 28.03.2002, the\nMinistry of Finance vide paragraph 2 further clarified as\nfollows:\n“I am directed to invite reference to Board's Circular\nNo.614/5/2002-CX dated 31.01.2002 [2202 (140) ELT\nT3] regarding denial of the benefit of Notification\nNo.8/97-C.E. dated 01.03.1997 (as amended) to the\nexport oriented units using imported consumables. It\nhas been brought to the notice of the Board that the field\nformations are denying the benefit of Notification\nNo.8/97-C.E. to units using imported consumables with\ncapital goods. \n2.\nBoard has taken serious view of this\nmis-interpretation. Notification No.8/97-C.E. dated\n01.03.1997 extends the benefit of concessional rate of\nduty to EOUs on finished products which are wholly\nmanufactured from the indigenous raw materials. The\nconsumables used with the capital goods cannot be\ntermed as raw materials for the manufacture of finished\ngoods. Therefore, it is clarified that benefit of\nconcessional rate of duty under Notification\n\nPage 8\nJUDGMENT\n8\nNo.8/97-C.E. dated 01.03.1997 (as amended) should\nnot be denied to export oriented units using imported\nconsumables with capital goods provided all other\nconditions of notification are satisfied.”\n10.\nMr. Bagaria went on to argue that the issue was no more res integra as\nthis Court had already taken a view on this aspect, favourable to the\nassesses/manufacturers. In this direction, he pointed out that the\nChennai Bench of the Tribunal in the case of Super Spinning Mills Ltd.\nv. Commissioner of Central Excise, Tiruchirapalli1 which was\nconcerned with identical type of case, took the view in the process of\nwaxing of hosiery cotton yarn which was done at the winding stage, wax\ncould not be considered as raw material but was only consumable and\non that basis, held that the use of imported wax would not debar the\nassessee from claiming benefit of the exemption Notification\nNo.8/97-C.E. dated 01.03.1997. In order to show the parity of that case\nwith the instant matter, learned senior counsel referred to the discussion\ncontained in para 2 of the said decision of the Tribunal, which reads as\nunder:\n“2. We have heard both sides on the appeal against\nthe order. The process of waxing of hosiery cotton yarn\nis done at the winding stage (whether auto-cone or\nmanual cone). In the auto-coner machine, the imported\nwax disc is kept in the yarn path and the yarn is allowed\nto pass through the wax disc while the wax disc is\nrotated to ensure uniform waxing. The waxed yarn is\nsubsequently conditioned by “Yarn Conditioning\nProcess” in which yarn is conditioned by steam\n1\n2013 (296) ELT 133\n\nPage 9\nJUDGMENT\n9\ninjection in a vacuum auto-clave at low temperature.\nWax is present in the final product. Waxing is done to\nmaintain co-efficient of friction between yarn and metal\nin order to avoid excessive yarn breaks as well as\nneedle breaks. The purpose of waxing is the same as\nthat of M/s. Forbes Gokak Ltd. who also cleared cotton\nyarn to DTA claiming the benefit of the same notification\nand the benefit stands extended by the Hon'ble\nKarnataka High Court as seen from 2010 (250) E.L.T.\n186 (Kar.) holding that wax cannot be considered as\nraw material but as consumable and upholding the\nTribunal's order reported in 2005 (192) E.L.T. 1000 to\nthis effect. The Karnataka High Court's decision cited\nsupra is applicable on all fours to the facts of the\npresent case. Although, ld. JCDR seeks to rely upon\nthe remand and order of the Apex Court in Vanasthali\nTextiles Industries Ltd. v. CCE, Jaipur [2007 (218)\nE.L.T. 3 (S.C.)] to examine whether sizing material was\na raw material for the manufacture of terry towels and\ndraws the attention of the Bench to the remand orders\nof the Tribunal in CCE, Coimbatore v. Meridian\nIndustries Ltd.[2007 (217) E.L.T. 576] and in direct\ndecision of the Hon'ble Karnataka High Court on the\nsame item, namely wax, we follow the ratio thereof to\nhold that the benefit of the exemption under the\nrelevant notification cannot be disallowed on the ground\nof use of imported wax as wax has already been held\nby the Hon'ble High Court to be a consumable and not\na raw material, set aside the impugned order and allow\nthe appeal. CO disposed of accordingly.”\n11.\nHe also brought to the notice of this Court that against the aforesaid\njudgment of the Tribunal, the Revenue/Department had preferred an\nappeal in this Court, being Civil Appeal No.5294-5299/2010 which was\ndismissed by this Court on 08.07.2010 with the following order: \n“The appeal is dismissed on the ground of delay as\nwell as on merits.”\nHe, thus, made passionate plea that this appeal be also allowed on the\nbasis of parity.\n\nPage 10\nJUDGMENT\n10\n12.\nMs. Shirin Khajuria, advocate with the guidance of Mr. K.\nRadhakrishnan, senior advocate argued the matter on behalf of the\nRevenue/respondent and stoutly refuted the aforesaid submissions of\nthe appellant's counsel. Main thrust of her argument was that the\ndecision of Super Spinning Mills Ltd. was not applicable to the facts of\nthe present case and in this behalf, she endeavoured to draw subtle\ndistinction between the facts of the two cases. She further submitted\nthat the Tribunal had appreciated the same in the impugned decision\nappropriately discerning the facts of the present case and, therefore, the\nimpugned order did not warrant any interference. We shall take note of\nthe arguments of Ms. Khajuria in some detail at the later stage. At this\npoint of time, we would like to deal with the contentions raised by the\nlearned senior counsel for the appellant. \n13.\nThe appellant is seeking the benefit of exemption Notification\nNo.8/97-C.E. Since it is an exemption notification, onus lies upon the\nappellant to show that its case falls within the four corners of this\nnotification and is unambiguously covered by the provisions thereof. It is\nalso to be borne in mind that such exemption notifications are to be\ngiven strict interpretation and, therefore, unless the assessee is able to\nmake out a clear case in its favour, it is not entitled to claim the benefit\nthereof. Otherwise, if there is a doubt or two interpretations are\n\nPage 11\nJUDGMENT\n11\npossible, one which favours the Department is to be resorted to while\nconstruing an exemption notification. \n14.\nThe gravamen of the charge against the appellant is that wax disc which\nis admittedly imported and used for the production of cotton yarn\nconstitutes 'raw material' and since imported material is used for the\nproduction of the aforesaid commodity, benefit of Notification\nNo.8/97-C.E. cannot be extended to the appellant. It is not in dispute\nthat wax is used in the process which is an imported material. However,\nthe refutation of the appellant is that wax is not 'raw material' and it is\nonly used as 'consumable' in the process of manufacturing cotton yarn.\nThe Export and Import Policy 1997-2002, which is applicable in the\ninstant case, defines both the expressions, namely, 'consumables' and\n'raw material' and, therefore, it would be apposite to take note of these\ndefinitions:\n“Consumables” means any item which participates in or\nis required for a manufacturing process, but does not\nform part of the end product. Items which are\nsubstantially or totally consumed during a\nmanufacturing process will be deemed to be\nconsumables.\n“Raw material” means:\n(i) basic materials which are needed for the\nmanufacture of goods, but which are still in a raw,\nnatural, unrefined or unmanufactured state; and\n(ii) for a manufacturer, any materials or goods which\nare required for the manufacturing process, whether\nthey have actually been previously manufactured or are\n\nPage 12\nJUDGMENT\n12\nprocessed or are still in a raw or natural state.”\n15.\nAs is evident from the aforesaid definitions, a particular item, though\nrequired for a manufacturing process or participates in the said process\nwould be treated as 'consumable', if it does not form part of end product\nand instead it gets substantially or totally consumed during the\nmanufacturing process. In contrast, as per sub-para (ii) of the definition\nof raw material, if any materials or goods are required for the\nmanufacturing process, such materials or goods would be treated as the\n'raw material', whether they have actually been previously manufactured\nor are processed or are still in a raw or natural state.\n16.\nThese expressions have come up for interpretation before this Court on\nearlier occasions in few cases. Some of these judgments were taken\nnote of in the case of Vanasthali Textiles Industries Ltd. v. CCE,\nJaipur2. We may clarify at the outset that the Court in that case was\nconcerned with the provisions at the relevant time that did not contain\nthe definition of 'raw material' and, therefore, it banked upon the\nmeaning that has to be given in ordinary connotation in the common\nparlance of those who deal with the matter. At the same time, some\nobservations made in the said case, particularly, 'dominant ingredient\ntest', which was applied were pressed into service by the appellant and,\ntherefore, the discussion in the said judgment becomes relevant. As far\n2\n(2007) 12 SCC 115\n\nPage 13\nJUDGMENT\n13\nas term 'raw material' is concerned, following discussion followed in the\nsaid judgment:\n“13. The expression “raw material” is not a defined term.\nThe meaning has to be given in the ordinary\nwell-accepted connotation in the common parlance of\nthose who deal with the matter. In Ballarpur case (1989)\n4 SCC 566 it was inter alia observed as follows: (SCC\np. 572, para 14)\n“14. The ingredients used in the chemical\ntechnology of manufacture of any end product\nmight comprise, amongst others, of those which\nmay retain their dominant individual identity and\ncharacter throughout the process and also in the\nend product; those which, as a result of\ninteraction with other chemicals or ingredients,\nmight themselves undergo chemical or qualitative\nchanges and in such altered form find themselves\nin the end product; those which, like catalytic\nagents, while influencing and accelerating the\nchemical reactions, however, may themselves\nremain uninfluenced and unaltered and remain\nindependent of and outside the end products and\nthose, as here, which might be burnt up or\nconsumed in the chemical reactions. The\nquestion in the present case is whether the\ningredients of the last-mentioned class qualify\nthemselves as and are eligible to be called ‘raw\nmaterial’ for the end product. One of the valid\ntests, in our opinion, could be that the ingredient\nshould be so essential from the chemical\nprocesses culminating in the emergence of the\ndesired end product, that having regard to its\nimportance in and indispensability for the\nprocess, it could be said that its very consumption\non burning up is its quality and value as raw\nmaterial. In such a case, the relevant test is not\nits absence in the end product, but the\ndependence of the end product for its essential\npresence at the delivery end of the process. The\ningredient goes into the making of the end\nproduct in the sense that without its absence the\npresence of the end product, as such, is rendered\nimpossible. This quality should coalesce with the\nrequirement that its utilisation is in the\n\nPage 14\nJUDGMENT\n14\nmanufacturing process as distinct from the\nmanufacturing apparatus.”\n14. CEGAT had held in that case that the use of indigo\ndye is as a raw material in the manufacture of denim\nfibre. According to the High Court also the question was\nwhether the use of small quantity of imported dye in\nbringing the end product into existence, even in that\ncase it can be treated that the finished product has\ncome into existence wholly from cotton. It was held that\nfor the manufacture of denim the basic raw material and\nthe finished product cannot be treated as wholly\nproduced or manufactured from cotton. Therefore,\nplacing reliance on Ballarpur case, it was held that the\nfinished product is not wholly from basic raw material\ni.e. cotton but it has to be treated that the dye is also a\nraw material which is imported.\n15. It is to be noted that cost of dye varied between 2\nand 2.5% of the total production cost. The denim is\nmanufactured from cotton and not from indigo. The\ncondition for getting the benefit of the notification is that\nthe end products should be wholly manufactured from\nthe raw material produced and sold in India.\n16. It is to be noted that dominant ingredient test has\nnot been applied in the instant case; so also the effect\nof value addition. In Ballarpur case it was held in para\n19 as follows: (SCC p. 573)\n“19. We are afraid, in the infinite variety of ways in\nwhich these problems present themselves it is\nneither necessary nor wise to enunciate principles\nof any general validity intended to cover all cases.\nThe matter must rest upon the facts of each case.\nThough in many cases it might be difficult to draw\na line of demarcation, it is easy to discern on\nwhich side of the borderline a particular case falls.”\n17. It is true that the notification does not make\ndistinction on account of value. Stress is on the word\n“wholly”. In the Circular dated 5-5-1998 it is stated as\nfollows:\n“3(b) In respect of Situation (ii) a unit is eligible for\nthe benefit of Notification No. 8/97-CE ibid., even\n\nPage 15\nJUDGMENT\n15\nif imported consumables are used since the\nnotification does not debar the use of imported\nconsumables, provided other conditions of the\nsaid notification are satisfied.”\n18. In Chemical Technology of Fibrous Materials by F.\nSadov, M. Korchagin and A. Matelsky it has been stated\nas follows:\n“In industry, textile fonning (fibrous) items used for\nmanufacturing (main activity) a textile product are\nreferred to as raw material e.g. cotton, viscose,\nwool, silk, nylon, polyester, etc. or their blends in\ndifferent compositions. Whereas, (non-fibrous)\nitems used for chemical processing of textile\nproduct (ancillary activity) are referred to as\nconsumables e.g. starches, variety of chemicals,\nseveral colouring matters such as dyes and\npigments, etc. Power and water are other\nconsumable items in addition to fuel oil, lubricating\nagents and packing materials. It is a common\npractice in textile industry and trade to identify and\ncategorise raw material and consumables on such\nbasis.”\n19. Since the reliance on dominant ingredient test in\nregard to cost variation has not been considered by\nCEGAT though the same has relevance, the matter is\nremitted to CEGAT to consider those aspects. It shall\nalso consider whether the items can be considered as\n“consumable” on the facts of the case.\n20. Dealing with a case under a sales tax statute i.e. the\nAndhra Pradesh General Sales Tax Act, 1957, this\nCourt held that the word “consumable” takes colour\nfrom and must be read in the light of the words that are\nits neighbours “raw material”, “component part”,\n“sub-assembly part” and “intermediate part”. So read, it\nis clear that the word “consumables” therein refers only\nto material which is utilised as an input in the\nmanufacturing process but is not identifiable in the final\nproduct by reason of the fact that it has got consumed\ntherein. It is for this reason, a departure was made from\nthe concept that “consumables” fall within the broader\nscope of the words “raw materials”. Reference in this\nconnection can be made to the view expressed in Dy.\nCST v. Thomas Stephen & Co. Ltd (1988) 2 SCC 264\n\nPage 16\nJUDGMENT\n16\nand Coastal Chemicals Ltd. v. CTO (1999) 8 SCC 465.\nIn the cases at hand “consumables” are treated\ndifferently from “raw materials”.\n17.\nIn that case, the Court was concerned with the same notification wherein\nthe appellant-company, which was 100% EOU, claiming partial\nexemption from duty in terms of Notification No.8/97 in respect of goods\nsold in DTA. One of the conditions for availing the benefit of the said\nnotification was that the goods could have been manufactured wholly\nfrom the raw material produced or manufactured in India. For\nmanufacturing the goods in question, the said assessee had procured\nthe raw material from domestic manufacturer in India and had also\nimported (1) carboxymethyl cellulose which is used for sizing of single\nyarn to give strength to the yarn during weaving after which the woven\ntowels are washed to remove completely the sizing materials and (2)\nultrafresh N.M. which is used for anti-bacteria and anti-fungus treatment\nof terry towels. The question that fell for consideration was as to\nwhether the aforesaid imported material used while manufacturing the\ngoods could be termed as 'raw material' or was only 'consumable'. The\nTribunal had accepted the stand of the Department holding that the\nassessee was using carboxymethyl cellulose which is sizing material in\nthe manufacture of finished product and since it was imported material,\nthe assessee was not entitled to the benefit of the notification. In\nsupport of its conclusion that the sizing material is an essential\n\nPage 17\nJUDGMENT\n17\ningredient of weaving terry towel, reliance was placed on the decision of\nthis Court in CCE v. Ballarpur Industries Ltd.3 wherein this Court has\nheld that the valid tests to determine whether the ingredient qualifies to\nbe called raw material could be that ingredient should be so essential for\nthe chemical processes culminating in the emergence of the desired end\nproduct. \n18.\nAs already pointed out above, Export and Import Policy 1997-2002\nprovided the definition of 'consumables' and 'raw material'. The definition\nof 'consumables' suggest that if a particular item participates in or is\nrequired for a manufacturing process, but does not form part of the end\nproduct and instead it is specifically or totally consumed during a\nmanufacturing process, the same would be treated as 'consumables'.\nOn the other hand, 'raw material', inter alia, includes any materials or\ngoods that is required for the manufacturing process for a manufacturer.\nThough, these terms were not specifically defined at the relevant time\nwhen Vanasthali Textiles Industries Limited and Ballarpur Industries\nLimited cases were decided, going by the dictionary meaning, almost\nsimilar test was applied to determine whether a particular input would be\ntreated as 'consumable' or 'raw material'.\n19.\nA cursory glance of these judgments may give an impression that the\npresent case is also covered by those decisions as in the instant case\n3\n(1989) 4 SCC 566\n\nPage 18\nJUDGMENT\n18\nthe waxing is ultimately removed from the cotton yarn by the buyer, after\nusing this cotton yarn as raw material for fabricating the cloth. It is this\naspect on which great stress and emphasis is laid by Mr. Bagaria,\nlearned senior counsel for the appellant/assessee. However, a fine and\nsubtle distinction is pointed out by Ms. Khajuria that becomes\ndeterminative of the outcome and changes the entire complexion,\nweighing the scales in favour of the respondent. Consumable is an item\nwhich does not form part of the end product. The assessee while\narguing so is taking into consideration the end product at the hands of\nbuyer which is not only extraneous and irrelevant but clearly\nimpermissible. We are concerned with the article manufactured by the\nassessee, viz. cotton yarn, and not with the new and altogether different\nproduct, viz. knitting hosiery, manufactured by the buyer, who buys the\ncotton yarn as raw material/input. The article manufactured by the\nassessee is cotton yarn. Insofar as the assessee is concerned, its 'end\nproduct' is cotton yarn. This cotton yarn becomes input for the\nmanufacture of hosiery by the buyer who buys the cotton yarn from the\nassessee. This is to be kept in mind while determining whether wax as\nan item used in manufacturing cotton yarn becomes part of this cotton\nyarn or not. \n20.\nConcentrating on this pertinent aspect, let us revisit the manufacturing\nprocess of cotton yarn by the assessee, which is the 'end product' as far\n\nPage 19\nJUDGMENT\n19\nas the assessee is concerned.\n21.\nEvidence has emerged on record, on which there is no dispute, that the\nfinal product which was cleared by the assessee, namely, cotton yarn\nwas made of indigenous as well as imported cotton coated with imported\nwax. The wax coating is found to be essential for lubrication of the yarn\nand was allowed to remain on the yarn in order to facilitate its winding\non cones and its use in knitting hosiery. Wax imparts a quality whereby\nthe protruding fibres of the yarn are made to settle uniformly on the\nsurface of the yarn to enable easy winding. This quality of the yarn is\nessential for its application in the manufacture of knitted fabrics by the\nbuyers. It follows from the above that insofar as assessee is concerned,\nit manufactured cotton yarn by applying wax coating thereon. This wax\ncoating, or significant portion thereof, remains on the cotton yarn. The\nbuyer wants wax coating to remain as that is needed for lubrication of\nthe yarn to facilitate its winding on cones when the buyer uses the said\ncotton yarn for manufacture of hosiery. No doubt that cotton yarn can be\nproduced without wax as well. However, such cotton yarn without wax\nwould be of inferior quality for the purposes of buyer in comparison with\ncotton yarn coated with wax as the use of cotton yarn with wax\nthereupon acting as lubricant is much more useful and becomes a value\naddition making it better quality cotton yarn, insofar as requirement of\nthe buyer in using such cotton yarn for manufacture of knitted fabircs is\n\nPage 20\nJUDGMENT\n20\nconcerned. When matter is examined from this angle, an irresistible\nconclusion is arrived at, namely, wax was used as raw material and not\nas consumable, insofar as end product of the assessee is concerned.\nFor the assessee, end product is cotton yarn and not knitted hosiery.\nKnitted hosiery is the end product of the buyer. If buyer removes the\nwax after manufacture of knitted fabrics, that may not be of any\nconsequence insofar as the assessee is concerned and would be totally\nextraneous to determine the issue at the hands of the assessee.\n \n22.\nOnce we examine the matter from the aforesaid angle, other arguments\nof the learned senior counsel appearing for the assessee also pale into\ninsignificance. It clearly follows that the judgment in the case of Super\nSpinning Mills Ltd. or the judgments of this Court as noted above would\nnot apply in the present case. Likewise, Circular No.389/22/98-CX\nissued by the Ministry of Finance giving certain clarifications, would not\nhelp the assessee. On the contrary, clarifications given therein go\nagainst the assessee. Para 3 (a) thereof which has already been\nreproduced in the earlier part of the judgment categorically states that\nthose units which manufacture goods out of both imported and\nindigenous raw material would not be entitled to the benefit of\nNotification No.8/97. No doubt, as per para 3 (b), if imported\nconsumables are used, benefit of the notification would still be available.\n\nPage 21\nJUDGMENT\n21\nHowever, in the present case, we find, as a fact, that wax is not used as\nconsumable but as raw material. For same reasons, other circulars also\nwill not advance the case of the assessee. \n23.\nAs a result, this appeal fails and is hereby dismissed with costs.\n.............................................J.\n(A.K. SIKRI)\n.............................................J.\n(ROHINTON FALI NARIMAN)\nNEW DELHI\nOCTOBER 27, 2015.\n"