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TMI Blog1990 (7) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... as obtained L-6 licence which is renewed from time to time, has obtained CT-2 certificates, maintained prescribed RG-16 registers and has followed all the procedures. There is no dispute that the appellant has meticulously followed the prescribed procedure under Chapter X, as required under the above referred notifications. On 2-2-1987 Preventive Officers of the Central Excise Collectorate Baroda visited the factory and made certain enquiry. As a consequence thereof Show Cause Notice dated 23-11-1987 was issued wherein it was alleged that the appellant was indulging in large scale evasion of duty by utilising Raw Naphtha for the purpose other than for use as feed stock in the manufacture of Fertilizer/Ammonia and so the appellant was asked to show cause: (1) why duty of excise amounting to Rs. 1,16,47,534.78 should not be recovered from them on quantity of raw naphtha procured by the appellant during financial years 1982 to 1987. (2) why concession granted under Rule 192 should not be withdrawn. (3) why security amount deposited by the appellant if any under Rule 192 should not be forfeited and (4) why penalty under Rule 209 (1) and 210 of Central Excise Rules 1944 should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into. Notification No. 187/61 (copy at pages 52 53) granted exemption to Raw Naphtha from the payment of so such of the duty of excise leviable thereon as is in excess of rupees 4.36 per kilo litre provided that (i) it is proved to the satisfaction of an officer not below the rank of an Asstt. Collector of Central Excise that such Raw Naphtha is intended for use in the manufacture of fertilisers and (ii) the procedure set out in Chapter X of the Central Excise Rules, 1944, is followed. 6A. Notification No. 75/84-CE dated 1-3-1984 (at page 56) granted some concession in excise duty on specified petroleum products wherein the relevant entry reads as under :- Ref No. Item No. Description of goods Rate of duty Intended use/condition 6.02 6 Raw Naphtha Rs. 4.40 per kl at 15 C Intended for use in the manufacture of fertilisers and ammonia. Provided that where the intended use is in the manufacture of ammonia such ammonia is used elsewhere in the manufacture of fertilisers and the procedure set out in Chapter X of the Central Excise Rules, 1944 is followed. In the same notification there are other entrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufactured using fuel oil as feedstock along with oxygen and steam by employing partial oxidation process. The gases so produced are contaminated with soot. Naphtha along with fuel oil are used to recover this soot and is recycled. To compensate the efficiency of phase separation and fuel oil-Naphtha distillation process make up Naphtha is used. The soot free gases are passed through shift converters to convert carbon monoxide into carbondioxide using steam so as to produce additional Hydrogen. It is followed by scrubbing the gas with chilled Methanol in Recti sol wash unit to remove Carbondioxide and Hydrogen Sulphide. The gases are further scrubbed with liquid Nitrogen to remove remaining impurities and adjusting H2, N2 ratio in synthesis gas. After compressing the synthesis gas at 230 Kg/CM liquid Ammonia is produced in TOPSOE s AMMONIA synthesis loop. The liquid Ammonia and by product carbondioxide are used for manufacture of Urea Fertiliser using SHAM PROGETTI S Ammonia stripping process." 7A. The appellant has produced affidavit of Shri Amarnath Agarwal, Chemical Engineer in the Indian Institute of Chemical Engineering and Executive Director (Operations) in the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 1.5% The officers also learnt that G.N.F.C. called the above mixture of gases as raw gas or crude gas. After removing CO, CO2 at shift conversion unit, the remaining gases such as H2 with traces of CO and CO2 were sent to other unit where Nitrogen from air was added and after washing out completely the traces of CO and CO2 the remaining Hydrogen and Nitrogen was converted into ammonia. The officers further found that in the gasifier unit the hydrocarbon oil viz. furnace oil and LSHS was charged and the stream of resultant product of gases namely crude gas or raw gas as stated above was taken out leaving about 2% unconverted carbon in gasifier which was again extracted out with the help of raw naphtha. The officers also found that in the extraction process, firstly with the help of water, the unconverted carbon was taken out from the gasifier which was called as soot water . This was a continuous process. That the soot water containing unconverted carbon was mixed with the raw naphtha and in the process the unconverted carbon got mixed with Naphtha separating water and after separation from water it was called as soot naphtha. That some quantity of naphtha remaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for the process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression in the manufacture of goods . For instance in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven, put on rolls, dyed calendered and pressed. All these processes would be regarded as integrated processes and included in the manufacture of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read the expression in the manufacture of cloth in that restricted sense would raise many anomalies. Raw Cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under Rule 13 but not spinning machinery, without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P) Ltd 1972 (29) STC 101 (S.C.) wherein it is held as under : Held The expression used in the manufacture of goods" should normally encompass the entire process carried out by the dealer of converting raw material into finished goods. Where any particular process is to be integrally connected with the ultimate production of goods and but for that process manufacture or processing of goods cannot be commercially expedient, goods required in that process would in our judgment, fall within the expression in the manufacture of goods . 9. Apart from this, no evidence has been produced by the Department and no arguments have been advanced that there is any process of manufacture of fertiliser/ammonia wherein Naphtha is used as feed stock. If that be so then if as held by the Collector in the impugned order, benefit of notification in question would be available only if Naphtha is to be used as feed stock, both these notifications would be rendered infruc-tuous in as far as no manufacturer would be able to avail of benefit under these notifications. This can never be the intention of the Government. 10. In the impugned order the Collector has invoked Rule 196 for raising the de ..... 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