1990 (3) TMI 177 - AT - Central Excise

Issues Involved:
1. Classification of Ammonium Nitrate.
2. Applicability of exemption notifications.
3. Requirement of manufacturing license and compliance with Central Excise procedures.
4. Imposition of penalty and extended period of limitation.

Issue-wise Detailed Analysis:

1. Classification of Ammonium Nitrate:
The appellant contended that Ammonium Nitrate should be classified under T.I. No. 14HH (CET) as a fertilizer, exempt from C.E. duty per Notification No. 40/83, and thus not subject to licensing control per Notification No. 111/78. However, the Department argued that the product was used for manufacturing explosives, not as a fertilizer. The Tribunal noted that Ammonium Nitrate has several grades, with only the fertilizer grade being non-explosive. Evidence showed that the appellant's product was used for explosives, not agriculture. Thus, the product was correctly classified under T.I. 68 before 01.03.1986 and under Chapter Heading 31.02 thereafter, but not entitled to exemption as it was not used as a fertilizer.

2. Applicability of Exemption Notifications:
The appellant claimed exemption under Notification No. 181/86, which required the product to be used as a fertilizer. The Tribunal found sufficient evidence that the product was not used as a fertilizer and hence not eligible for exemption. The appellant also sought benefits under Notification No. 175/86, which provides exemptions for small-scale units. The Tribunal agreed that the appellant could claim these benefits if they met the conditions, despite not having filed declarations or followed formalities.

3. Requirement of Manufacturing License and Compliance with Central Excise Procedures:
The appellant argued that they believed their product was exempt from duty and thus did not require a manufacturing license. The Department countered that the appellant knew the product was used for explosives and should have complied with licensing and procedural requirements. The Tribunal concluded that ignorance of the law is no excuse, and the appellant was liable for not obtaining the necessary license and following procedures.

4. Imposition of Penalty and Extended Period of Limitation:
The Collector imposed a penalty of Rs. 1 lakh, stating the appellant intended to evade duty by not obtaining a license. The appellant argued they acted in good faith, believing the product was exempt. The Tribunal noted that the appellant knew the product's use for explosives and thus was not acting in good faith. However, considering the appellant's eligibility for exemption benefits, the penalty was reduced to Rs. 25,000. The extended period of limitation was deemed applicable due to the appellant's deliberate non-compliance.

Final Order:
1. The appellant is liable to pay C.E. Duty but can claim exemption benefits under Notification No. 175/86 and other relevant notifications.
2. The penalty is reduced to Rs. 25,000.
3. The matter is remanded to the adjudicating authority to calculate duty in light of the Tribunal's order, with an opportunity for the appellant to be heard.

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