2018 (2) TMI 1455 - HC - Central Excise

Benefit of exemption - actual user condition - Whether benefit of N/N. 6/2002-CE as amended or N/N. 6/2006-CE read with N/N. 21/2002-Cus dated 1st March 2002 which was available to naphtha used in the manufacture of fertilizer is available to the respondent for that quantity of naphtha which was manufactured and cleared by it to M/s. Rashtriya Chemicals and Fertilizers Ltd availing the benefits under the said notifications but admittedly not used by RCF in the manufacture of fertilizers ? Whether the CESTAT was correct in holding that Central Excise Duty can be demanded from a person other than manufacturer of the excisable goods in a situation where the goods are locally procured under N/N. 6/2002-CE or 6/2006-CE the liability to pay the duty would be that of the user manufacturer who in the present case is RCF? Held that - It is common ground that the naptha was supplied by the respondent-assessee by resort to the international competitive bidding process. The naptha brought for this supply was claimed to be exempted by the assessee. The tribunal noted that naphtha is exempt from payment of excise duty if supplied against international competitive bidding and used in the manufacture of fertilizers - The tribunal came to the conclusion that the notifications read together would reveal that in the present case the naphtha supplied against competitive bidding was not entirely consumed for the manufacture of fertilizers by the RCF. In the present case for such failure the manufacturer where the goods were intended to be used is required to pay differential duty. If the user and manufacturer are one and the same there is no difficulty. The tribunal gave an illustration as can be found completely consistent with the case at hand. If the importer of the goods is A but the goods are to be used in the factory of B then in such situation also though the goods may be imported by A but the liability to pay the differential duty in the event of failure to use the goods is on B . The question is not of local procurement and the tribunal found therefore that M/s. HPCL at the time of clearance has satisfied both the pre-conditions namely the goods were supplied against international competitive bidding and for the manufacture of fertilizers. The actual use of the goods is post clearance condition and which is required to be fulfilled by the buyer/user which is the RCF. Hence the assessee cannot be expected to ensure the precise use of the goods by M/s. RCF. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Interpretation of Notification No. 6/2002-CE and Notification No. 6/2006-CE regarding exemption for naphtha used in the manufacture of fertilizers.
2. Liability to pay Central Excise Duty when goods are locally procured under the mentioned notifications.

Issue 1: Interpretation of Notifications:
The case involved a dispute regarding the interpretation of Notification No. 6/2002-CE and Notification No. 6/2006-CE concerning the exemption for naphtha used in the manufacture of fertilizers. The Revenue challenged the order passed by the Central Excise and Service Tax Appellate Tribunal, claiming that the naphtha supplied by the appellant was not utilized for manufacturing fertilizers by the buyer, M/s. Rashtriya Chemicals and Fertilizers Ltd (RCF). The Revenue issued show cause notices demanding central excise duty from the appellant. The Tribunal considered the exemption conditions and concluded that the actual use of the goods by the buyer/user, RCF, was post-clearance and not the responsibility of the appellant, HPCL. The Tribunal found that the liability to pay differential duty in case of failure to use the goods rested with the manufacturer where the goods were intended to be used. The Tribunal's decision was based on a thorough analysis of the notifications and the factual circumstances.

Issue 2: Liability for Central Excise Duty:
The second issue revolved around the liability to pay Central Excise Duty when goods are locally procured under the mentioned notifications. The Revenue argued that the appellant should ensure that the naphtha supplied is used for manufacturing fertilizers by RCF. However, the Tribunal held that the responsibility for ensuring the precise use of the goods by the buyer/user, RCF, lay with RCF and not the appellant. The Tribunal's decision was supported by the language of the notification, which did not impose a direct obligation on the appellant to ensure the fulfillment of the condition. The Tribunal's view was deemed reasonable and not vitiated by any error of law. The High Court agreed with the Tribunal's interpretation, stating that the conclusion reached was possible and consistent with the factual allegations and circumstances presented. Therefore, the appeal was dismissed, and no costs were awarded.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, the Tribunal's reasoning, and the High Court's final decision, providing a comprehensive overview of the legal dispute and its resolution.