2008 (11) TMI 6 - SC - Central Excise

Whether ethylene and propylene manufactured by assessee and used in the further manufacture of the same goods would be entitled to exemption under notification no.217/86 - Tribunal's finding that the ethylene and propylene used as refrigerant has been used in or in relation to the manufacture of the same goods - inevitable and automatic emergence of ethane and methane can t be a ground for denying the exemption - no interference is called for in the well reasoned order of the Tribunal

Issues Involved:
1. Entitlement to exemption under Notification No. 217/86 for ethylene and propylene used as refrigerants.
2. Applicability of excise duty on ethylene and propylene used in the manufacture of methane and ethane.
3. Interpretation of exemption notification and its conditions.
4. The inevitability of by-products in the manufacturing process.

Issue-wise Detailed Analysis:

1. Entitlement to exemption under Notification No. 217/86 for ethylene and propylene used as refrigerants:
The core issue was whether ethylene and propylene, when used as refrigerants in the manufacturing process, qualify for exemption under Notification No. 217/86. The Tribunal found that ethylene and propylene were used as refrigerants to cool hydrocarbon gases resulting from the cracking of naphtha. The Tribunal concluded that the inevitable emergence of by-products like ethane and methane should not disqualify the respondent from availing the exemption since these by-products arise automatically during the manufacturing process.

2. Applicability of excise duty on ethylene and propylene used in the manufacture of methane and ethane:
The appellant contended that as per the exemption notification, ethylene and propylene used in the manufacture of goods falling under Chapter 27 (methane and ethane) are not exempt from excise duty. The Tribunal, however, found that ethylene and propylene were used in or in relation to the manufacture of the same goods (ethylene and propylene), and the emergence of ethane and methane was an inevitable by-product, thus not a ground for denying the exemption.

3. Interpretation of exemption notification and its conditions:
The appellant argued that exemption notifications must be strictly construed, citing precedents like Novopan India Ltd. v. Collector of Central Excise and Customs, Mahaan Diaries, and Rukmani Pakkwell Traders. The respondent countered that on a plain reading of the notification, they were entitled to the exemption. The Tribunal agreed with the respondent, emphasizing that the emergence of by-products (ethane and methane) should not affect the eligibility for exemption since they were unavoidable in the manufacturing process.

4. The inevitability of by-products in the manufacturing process:
The Tribunal acknowledged that the emergence of ethane and methane was an inevitable consequence of the manufacturing process of ethylene and propylene. The respondent demonstrated that there was no way to manufacture ethylene and propylene without producing these by-products. The Tribunal held that the inevitable emergence of by-products should not be a ground for denying the exemption.

Conclusion:
The Supreme Court upheld the Tribunal's decision, agreeing that the respondent was entitled to the exemption under Notification No. 217/86. The Court found no merit in the appellant's arguments and dismissed the appeal, directing each party to bear its own costs. The judgment emphasized that the inevitable emergence of by-products in the manufacturing process should not disqualify the respondent from availing the exemption.

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