1990 (8) TMI 243 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for concessional rate of duty under Notification 187/61.
2. Use of Ammonia in inert gas plant, water treatment plant, and effluent treatment plant.
3. Time-barred demand under Section 11-A.
4. Applicability of Rule 196 of Central Excise Rules.

Detailed Analysis:

1. Eligibility for Concessional Rate of Duty under Notification 187/61:
The core issue in the appeals is whether Indian Farmers Fertilizer Co-operative Ltd. (IFFCO) is eligible for the concessional rate of duty on raw naptha under Notification 187/61, which stipulates that raw naptha must be used in the manufacture of fertilizers. The department contends that IFFCO utilized part of the Ammonia produced from raw naptha in the inert gas plant, water treatment plant, and effluent treatment plant, which are not directly related to fertilizer manufacturing. Consequently, the department demanded differential duty of Rs. 40,00,040.10 for the period from 1-4-1974 to 31-12-1982.

2. Use of Ammonia in Inert Gas Plant, Water Treatment Plant, and Effluent Treatment Plant:
IFFCO argued that the use of Ammonia in the inert gas plant and water treatment plant is an integral part of the fertilizer manufacturing process. They cited a clarification from the Central Board of Excise & Customs and the Supreme Court decision in M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. The Sales Tax Officer, which interpreted the phrase "used in the manufacture of" to encompass the entire process of converting raw materials into finished goods. However, the Tribunal found that the use of Ammonia in these plants is essential for maintenance and not directly related to the manufacturing process. The Tribunal referenced the Supreme Court decision in Collr. of C. Ex. v. Ballarpur Industries Ltd., which distinguished between materials used in the manufacturing process and those used for maintaining the manufacturing apparatus.

3. Time-Barred Demand under Section 11-A:
IFFCO contended that the demand for differential duty is time-barred under Section 11-A of the Central Excises and Salt Act, 1944. However, the Tribunal noted that the demand was made under Rule 196 of the Central Excise Rules, which does not prescribe a time limit for recovery of duty. The Tribunal cited its earlier decisions in the cases of Collector of Central Excise v. Amber Paints and M/s. Bajaj Auto Ltd. v. Collector of Central Excise, which held that Rule 196 does not stipulate a time limit for demand and that the limitation under Section 11-A does not apply.

4. Applicability of Rule 196 of Central Excise Rules:
IFFCO argued that Rule 196 was not invoked in the Show Cause Notice, and therefore, the demand cannot be sustained under this rule. The Tribunal reviewed the Show Cause Notice and found that it clearly stated the demand was due to the use of raw naptha for purposes other than fertilizer manufacturing, which is covered under the provisions of Chapter X. The Tribunal held that the fact Rule 196 was not specifically cited does not invalidate the demand, as the notification and the L-6 license under Rule 192 require proper accountal and utilization of the material.

Conclusion:
The Tribunal upheld the orders of the Assistant Collector and the Collector (Appeals), denying the exemption to the quantity of raw naptha used in the manufacture of Ammonia, which was utilized in the Off-site plant. The appeals of IFFCO were rejected, and the department's appeal was allowed to the extent that the use of Ammonia in the inert gas plant and water treatment plant is not part of the fertilizer manufacturing process. The demand for differential duty was found to be valid and not time-barred under Rule 196.