2016 (11) TMI 1341 - AT - Central Excise

Whether during the period September, 1999 to August 2004, the demand raised by Revenue on the appellant is sustainable or otherwise on the ground that furnace oil which was procured by assessee was not used as a feedstock and hence not eligible for the benefit of exemption under Notifications No.5/1999, 6/2000, 3/2001 and 6/2002? - period of limitation - Held that - there is no dispute as to the fact the assessee is engaged in the manufacture of fertilizers and procured furnace oil during the period February 1999 to August 2004 at nil rate of duty under various notifications as enumerated in paragraph 3 herein above, claiming exemption on the ground that furnace oil was used as feed stock in the manufacture of fertilizers. We find that the judgment of the Apex Court in the case of GUJARAT NARMADA VALLEY FERTILIZERS CO. Versus COLLR. OF C. EX., VADODARA 2001 (1) TMI 88 - SUPREME COURT OF INDIA which has settled the law, holding that furnace oil (LSHS) which are used as feed stock in the manufacture of fertilizers cannot be considered as feed stock, hence we find that on merits assessee has no case. Period of limitation - Held that - It is undisputed that the furnace oil procured by the assessee during the period in question at nil rate of duty, were supplied by the supplier based upon the CT-3 certificate issued by the jurisdictional Range office of respondent asseessee. The Range Office is required to issue the CT-3 certificate after verifying the claim as to a requirement of the material for manufacturing purpose. Based upon such CT-3 certificate the supplier issues material without payment of duty by availing exemption. The entire procurement of the furnace oil as feed stock was in the knowledge of the department hence we find that the demand for the period beyond one year from the date of issuance of show-cause notice is blatantly hit by limitation. In our view the demands raised beyond the period of one year from the date of issuance of show-cause notice needs to be set aside and we do so on the ground of limitation. The demands for the period within one year from the date of issuance of show-cause notice needs to be upheld and we do so and remit the matter back to adjudicating authority to re-quantify the amount of demand on furnace oil but within the period of limitation from the date of issuance of show-cause notice - Since the entire issue is of interpretation of Notification and had to be settled by the Apex Court as also the demand for the extended period has been set aside on limitation, there is no reason for visiting the appellant with any penalties. In view of the above, the penalty imposed is set aside - appeal disposed off.

Summary

Issues:
1. Whether the demand raised by Revenue on the appellant for the period September 1999 to August 2004 is sustainable due to the use of furnace oil as fuel instead of feedstock for manufacturing fertilizers.
2. Whether the demands raised by Revenue are within the period of limitation.

Analysis:

Issue 1:
The main issue in this case revolved around the eligibility of the appellant for exemption under various notifications for using furnace oil as feedstock in the manufacture of fertilizers. The Revenue contended that the furnace oil was used as fuel for generating steam, which was then used for manufacturing fertilizers, thus making the appellant ineligible for the benefit of the notifications. The Apex Court's judgment in the case of Gujarat Narmada Valley Fertilizers Co. established that furnace oil used as fuel cannot be considered as feedstock. The first appellate authority set aside the demands, but the Tribunal found that post-2001, the Apex Court's decision was against the appellant. Consequently, the Tribunal allowed the appeal of Revenue, ruling that furnace oil used as feedstock cannot be considered as such, and the appellant was not eligible for the notification benefits.

Issue 2:
Regarding the demands raised by Revenue within and beyond the period of one year from the date of issuance of the show-cause notice, the Tribunal made a distinct analysis. For demands raised beyond the one-year period, the Tribunal found that the procurement of furnace oil as feedstock was known to the department, and the demands were hit by limitation. Therefore, the demands beyond the one-year period were set aside on the grounds of limitation. However, demands within the one-year period were upheld, and the matter was remitted back to the adjudicating authority to reevaluate the demand within the limitation period. Additionally, since the issue was a matter of interpretation of notifications and the demands for the extended period were set aside on limitation, the Tribunal decided not to impose any penalties on the appellant.

In conclusion, the Tribunal allowed the appeal of Revenue, disallowed the appellant's claim for exemption under the notifications, set aside penalties, and remitted the matter back to the adjudicating authority for quantifying the demand within the limitation period.