1997 (2) TMI 105 - SC - Central Excise

Whether ammonia which was utilised by way of captive consumption by the appellant for manufacture of molten urea was subjected to a continuous process of manufacturing which had resulted in the end product melamine which was admittedly not a fertiliser? HeLd that - On the express language of the notifications, in question, it is not possible to agree with the contention of Shri Bhat, learned Additional Solicitor General that the term fertiliser employed by the said notification must be understood by adopting the common parlance test to be referred to soil fertiliser only. As a result of the aforesaid discussion, it must be held that the Collector of Central Excise (Appeals) as well as the CEGAT had patently erred in law in taking the view that Notification No. 40 of 1985 did not cover captively consumed ammonia utilised by the appellant as input for manufacturing molten urea. It must also be held that Notification No. 75 of 1984 applied to raw naphtha utilised by the appellant for manufacturing ammonia and molten urea. The condition for earning concessional rate of duty under Notification No. 75 of 1984 on raw naphtha and total exemption from duty as per Notification No. 40 of 1985 on ammonia must be held to have been fully satisfied by the appellant. Hence show cause notices were clearly incompetent and were liable to be quashed and were rightly vacated by the Assistant Collector. Appeal allowed.

Issues Involved:
1. Applicability of Notification No. 75 of 1984 for concessional rate of excise duty on raw naphtha.
2. Applicability of Notification No. 40 of 1985 for total exemption from excise duty on ammonia.
3. Classification of molten urea as a fertiliser under Chapter 31 of the Central Excise Tariff Act.
4. Continuous process of manufacturing melamine and its impact on exemption eligibility.
5. Interpretation of the term "fertiliser" in exemption notifications.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 75 of 1984 for Concessional Rate of Excise Duty on Raw Naphtha:

The appellant, M/s. Gujarat State Fertilisers Company, contended that it was entitled to a concessional rate of excise duty on raw naphtha used to manufacture ammonia, which was then used to produce molten urea. The claim was based on Notification No. 75 of 1984, which allowed a concessional rate of duty for raw naphtha intended for use in manufacturing fertilisers and ammonia. The Supreme Court concluded that the condition laid down in the notification was fully satisfied as raw naphtha was utilised for manufacturing ammonia, thereby entitling the appellant to the concessional rate of duty.

2. Applicability of Notification No. 40 of 1985 for Total Exemption from Excise Duty on Ammonia:

The appellant also claimed total exemption from excise duty on ammonia used to produce molten urea, based on Notification No. 40 of 1985. The notification exempted ammonia used in the manufacture of fertilisers. The Supreme Court held that molten urea, classified under Chapter 31 as a chemical fertiliser, met the condition for exemption. The Court emphasized that the express language of the notification should be given effect, and the appellant was entitled to the exemption.

3. Classification of Molten Urea as a Fertiliser under Chapter 31:

The Supreme Court examined whether molten urea was a fertiliser. The Court noted that molten urea was classified under Chapter 31, Heading 31.02, which covered nitrogenous mineral and chemical fertilisers. The Court rejected the view of the CEGAT that molten urea was not a fertiliser, holding that it was indeed a chemical fertiliser as per the classification under Chapter 31.

4. Continuous Process of Manufacturing Melamine and Its Impact on Exemption Eligibility:

The excise authorities argued that because molten urea was used to produce melamine, which was not a fertiliser, the exemptions should not apply. The Supreme Court disagreed, stating that the express language of the notifications did not require the final product to be a soil fertiliser. The Court held that the intermediate product, molten urea, was a fertiliser, and the continuous process of manufacturing melamine did not negate the eligibility for exemptions.

5. Interpretation of the Term "Fertiliser" in Exemption Notifications:

The Supreme Court addressed the interpretation of the term "fertiliser" in the exemption notifications. The Court held that the term should be understood in its wide sense, encompassing various types of fertilisers, including chemical fertilisers like molten urea. The Court rejected the argument that the term should be limited to soil fertilisers, emphasizing that the express language of the notifications did not support such a restrictive interpretation.

Conclusion:

The Supreme Court allowed the appeals, quashed the common judgment and order of the CEGAT, and confirmed the orders of the Assistant Collector, Central Excise, Vadodara. The Court held that the appellant was entitled to the benefits of the concessional rate of duty on raw naphtha and total exemption on ammonia as per the respective notifications. The Court also noted that any refund claims submitted by the appellant should be decided in accordance with the law.

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