1996 (8) TMI 293 - AT - Central Excise

Issues Involved:
1. Eligibility for concessional rate of duty on raw Naphtha under Notification 75/84-C.E.
2. Compliance with Chapter X procedure of the Central Excise Rules, 1944.
3. Utilization of raw Naphtha for the production of synthesis gas, Ammonia, and Nitric Acid.
4. Proof of intended use of raw Naphtha for manufacturing fertilizers.
5. Penalty for contravention of Rule 192 due to failure to obtain separate L-6 licence.

Detailed Analysis:

1. Eligibility for Concessional Rate of Duty on Raw Naphtha:
The appellants were granted an L-6 licence to obtain S.R. Naphtha at a concessional rate of duty under Notification 75/84-C.E. for use in manufacturing fertilizers. The Department contested that 28,197.136 KLs of S.R. Naphtha were not utilized for the intended purpose, thus not eligible for the concessional rate. The Tribunal found that the appellants had used the raw Naphtha for the production of synthesis gas, Ammonia, and Nitric Acid, which are intermediate products in fertilizer manufacturing. The Supreme Court's judgment clarified that the exemption required proof that the raw Naphtha was "intended for use" in manufacturing fertilizer, not necessarily that it was used directly in the final product.

2. Compliance with Chapter X Procedure:
The conditions under Notification 75/84 required compliance with Chapter X procedure, which mandates that excisable goods obtained under Rule 192 must be used for the intended purpose. The Tribunal noted that the appellants had followed the Chapter X procedure but had not obtained a separate L-6 licence for the synthesis gas and Ammonia, which was considered a technical violation. However, the substantive benefit of the Notification should not be denied due to this technicality.

3. Utilization of Raw Naphtha for Production of Synthesis Gas, Ammonia, and Nitric Acid:
The Tribunal found that the raw Naphtha was used in the production of synthesis gas, which is further used to manufacture Ammonia and Nitric Acid. The Supreme Court's decision emphasized that the raw Naphtha was used with the intention of manufacturing fertilizer, and the venting of gases due to operational issues did not negate this intention. Therefore, the benefit of Notification 75/84 was applicable.

4. Proof of Intended Use for Manufacturing Fertilizers:
The adjudicating authority had required the appellants to prove that Ammonium Nitrate, an intermediate product, was used as a fertilizer. The Tribunal held that this condition was not stipulated in the Notification. Since the raw Naphtha was used to manufacture Ammonium Nitrate, which is classified as a fertilizer, the benefit of the concessional rate of duty was applicable.

5. Penalty for Contravention of Rule 192:
The appellants' failure to obtain a separate L-6 licence for the synthesis gas and Ammonia was deemed a contravention of Rule 192, warranting a penalty. However, considering the Supreme Court's judgment and the overall facts, the penalty was reduced from Rs. 20 lakhs to Rs. 4 lakhs.

Conclusion:
(a) The appellants are entitled to the benefit of Notification 75/84 for concessional duty on raw Naphtha used in the manufacture of fertilizers.
(b) The benefit of concessional duty under Notification 27/89 is available for raw Naphtha used in the production of synthesis gas, Ammonia, and Nitric Acid.
(c) A reduced penalty of Rs. 4 lakhs is imposed for the technical violation of not obtaining a separate L-6 licence. The appeal is disposed of with consequential relief to the appellants.

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