1985 (3) TMI 270 - AT - Central Excise

Summary

Issues:
1. Interpretation of Notification No. 145/71-C.E. regarding exemption of oxygen used in the manufacture of fertilizer.
2. Classification of oxygen produced by the Talcher factory.
3. Requirement of actual use of oxygen in the production of fertilizer for availing exemption.

Analysis:

Issue 1: Interpretation of Notification No. 145/71-C.E.
The Collector observed that the oxygen consumed by the Talcher factory in their gasification plant did not qualify for exemption under Notification No. 145/71 as no fertilizer production had commenced despite oxygen usage. The Central Board of Excise and Customs upheld this decision, emphasizing the distinction between Notification No. 145/71 and Notification No. 187/61. The latter allowed for concession based on intention to use raw material, while the former required actual use in the manufacture of fertilizers.

Issue 2: Classification of Oxygen
The Fertilizer Corporation argued that the oxygen produced was not excisable under the Central Excises Act as it was not a commercial commodity and had not been bottled or compressed for sale. They cited previous judgments to support their claim that the oxygen, at 96% purity, was not marketable as oxygen. However, the department contended that different grades of oxygen exist, and industrial-grade oxygen, even with lower purity levels, is marketable if used in industrial applications.

Issue 3: Requirement of Actual Use in Fertilizer Production
The department argued that mere intention to use oxygen in fertilizer production was insufficient under the 1971 exemption, which demanded concrete use in the manufacturing process. They emphasized that the emergence of fertilizer was the only proof of actual utilization. However, the Tribunal disagreed, noting that the oxygen had been used up to the gasification stage, indicating its intended purpose for fertilizer production. Despite the absence of the final product, the Tribunal concluded that the oxygen had been utilized in the manufacture of fertilizer, warranting exemption under Notification No. 145/71-C.E.

In conclusion, the Tribunal overturned the Collector's decision and directed that the exemption under Notification No. 145/71-C.E. be granted to the disputed quantity of oxygen produced by the Talcher factory. The Tribunal rejected arguments challenging the classification of oxygen and emphasized the importance of actual use in the manufacturing process for availing duty concessions.