2008 (8) TMI 267 - HC - Central Excise

Assessee had used Sulphuric acid captively in the manufacture of phosphoric acid which was later on cleared on payment of duty to M/s. IFFCO - Notification No. 81/75 provides exemption to Sulphuric Acid used in the manufacture of fertilizer - since the assessee is manufacturing sulphuric acid, which was later on converted into phosphoric acid, and same was cleared for manufacture of fertilizer, the entire quantity of sulphuric acid, is used in manufacture of fertilizer therefore, assessee is entitled to the exemption u/not. 81 of 1975 as clarified vide clarification dated 12-12-1986

Summary

Issues:
Interpretation of Notification No. 81/75 for exemption on sulphuric acid used in manufacturing phosphoric acid.

Detailed Analysis:

Issue 1: Interpretation of Notification No. 81/75
The appeal was filed by the Revenue against the Tribunal's decision accepting the assessee's appeal for exemption under Notification No. 81/75 for sulphuric acid used in manufacturing phosphoric acid. The substantial question of law framed was whether the assessee was entitled to the benefit of the notification for using sulphuric acid captively in the manufacture of phosphoric acid, which was later cleared on payment of duty to another party. The factual aspect established that the assessee manufactured sulphuric acid and used it in the production of phosphoric acid, which was then sold to a third party. The Revenue contended that central excise duty should be recovered from the assessee for the period starting from February 1979 due to non-payment on sulphuric acid used in manufacturing phosphoric acid.

Issue 2: Application of Notification No. 81/75
The assessee argued that they were entitled to duty exemption on sulphuric acid used in the manufacture of phosphoric acid under Notification No. 81/75, which exempts "Sulphuric Acid intended for use in the manufacture of fertilizers." They emphasized that the notification did not specify that the factory producing sulphuric acid must also produce fertilizers. The clarification dated 12-12-1986 highlighted that even if sulphuric acid was not directly used in fertilizer production, the exemption could still apply if it was ultimately used in fertilizer manufacturing. The appellate authority, however, interpreted that the exemption did not cover the scenario where phosphoric acid, not sulphuric acid, was sold to a third party for fertilizer production.

Issue 3: Tribunal's Decision
The Tribunal found that since the assessee manufactured sulphuric acid, which was subsequently converted into phosphoric acid and used in fertilizer manufacturing, they were eligible for exemption under Notification No. 81/75. The factual aspect of the sulphuric acid being intended for fertilizer production and ultimately used in fertilizer manufacturing was crucial. The Tribunal reiterated that the assessee met the requirements of the notification and the clarification, entitling them to the exemption.

Conclusion:
The High Court upheld the Tribunal's decision, emphasizing that the assessee met the conditions of Notification No. 81/75 by using sulphuric acid in the manufacture of phosphoric acid, which was then utilized in fertilizer production. The factual aspect of the sulphuric acid being intended for fertilizer manufacturing and ultimately used for the same purpose was pivotal in determining the eligibility for exemption. The appeal by the Revenue was dismissed, ruling in favor of the assessee.