1997 (3) TMI 103 - SC - Central Excise

Whether the appellant has not violated any term of the notification No. 27/89-C.E., dated 1-3-1989? Held that - Under this notification pyrolysis gasolene which falls under Chapter 27 is produced in the appellant s factory and it is utilised for the manufacture of goods. As such it would be exempt from the whole of the duty of excise leviable thereon assuming that any duty of excise is leviable on it. Therefore, we fail to see how any duty of excise can be levied on any part of pyrolysis gasolene manufactured in the factory of the appellant. Pyrolysis gasolene being an intermediate product which is produced in the factory of the appellant, and it being utilised for the manufacture of other goods, it would be totally exempt from payment of excise duty under the second exemption notification. The appeal is, therefore, allowed. The appellant is not liable to pay any duty of excise on pyrolysis gasolene. The impugned order of Tribunal is, therefore, set aside.

Issues Involved:

1. Eligibility for concessional rate of duty on raw naphtha.
2. Classification and duty on pyrolysis gasolene used in the manufacture of petroleum resins.
3. Interpretation of exemption notification and its applicability to incidental products.

Issue-wise Detailed Analysis:

1. Eligibility for Concessional Rate of Duty on Raw Naphtha:

The appellant, a Government of India Undertaking, obtained raw naphtha at a concessional rate under Notification No. 27/89-C.E., dated 1-3-1989. The notification exempts raw naphtha intended for use in the manufacture of specified products from excise duty beyond Rs. 60 per kilolitre. The appellant contended that it complied with the notification by using the entire quantity of raw naphtha for manufacturing products listed in the notification's table, including Ethylene, Propylene, Benzene, and Toluene. The Supreme Court affirmed that the appellant used the raw naphtha as intended under the exemption notification, thus qualifying for the concessional rate.

2. Classification and Duty on Pyrolysis Gasolene Used in the Manufacture of Petroleum Resins:

The Collector of Central Excise initially held that pyrolysis gasolene, presumed to be raw naphtha, used for manufacturing petroleum resins, was not entitled to the concessional rate, resulting in a duty of Rs. 24,41,99,988.77. The Tribunal reduced this duty to Rs. 4.36 crores, recognizing that pyrolysis gasolene used for Benzene and Toluene was entitled to the concessional rate but not the portion used for petroleum resins. The Supreme Court noted that pyrolysis gasolene is an incidental product of thermal cracking of raw naphtha and cannot be equated with raw naphtha. The Court held that the residual pyrolysis gasolene used for petroleum resins did not constitute a diversion of raw naphtha and was not subject to additional duty.

3. Interpretation of Exemption Notification and Its Applicability to Incidental Products:

The Supreme Court examined the terms of the exemption notification, emphasizing that the entire quantity of raw naphtha was used for manufacturing listed products. The Court referenced Explanation 2 of the notification, which allows for incidental products not listed in the table to be produced without losing the exemption. The Court cited precedents, including State of Haryana v. Dalmia Dadri Cement Ltd. and M/s. Steel Authority of India Ltd. v. Collector of Central Excise, to support the interpretation that incidental products do not violate the exemption terms.

Additionally, Notification No. 28/89-C.E., dated 1-3-1989, exempts goods produced in a factory and used for manufacturing other goods from excise duty. The Court concluded that pyrolysis gasolene, being an intermediate product used in the appellant's factory, was exempt from excise duty under this notification as well.

Conclusion:

The Supreme Court allowed the appeal, ruling that the appellant is not liable to pay any duty of excise on pyrolysis gasolene. The Tribunal's order was set aside, and no costs were ordered. The judgment clarified that the appellant's use of raw naphtha complied with the exemption notification, and the incidental production of petroleum resins did not affect the concessional rate eligibility.

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