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TMI Blog1996 (8) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty of Rs. 20 lakhs. 2. The brief facts of the case are that the appellants herein had been granted an L-6 licence to obtain S.R. Naphtha at a concessional rate of duty of Rs. 5/- per KL under Notification 75/84-C.E., dated 1-3-1984 as amended by Notification 93/89-C.E., dated 1-3-1989 for intended use of the same in the manufacture of fertilizer, Calcium Ammonium Nitrate (CAN in short). The conditions prescribed under this Notification are that, while the exemption is subject to intended use, it is to be proved to the satisfaction of the Assistant Collector that such S.R. Naphtha is cleared for the intended use and that the provisions of Rule 192 to 195 of the Central Excise Rules, 1944 as set out in Chapter X are followed. It is the case of the Department that the appellants issued a total quantity of 85,850.294 KLs of S.R. Naphtha for manufacture of CAN during the period April, 1991 to October, 1991, but out of the above quantity, 28,197.136 KLs were found not to have been used for the purpose for which the above mentioned quantity of Naphtha was obtained under Chapter X procedure, and on this basis a show cause notice was issued to them on 1-9-1992 proposing recovery of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 KLs of S.R. Naphtha is as under : 1. Quantity of raw Naphtha consumed for the production of synthesis gas and use for the manufacture of Ammonia and Nitric Acid 10,789.371 2. Ammonia Nitrate 9,618.742 3. For the production of gases vented/flared out 4. Consumed due to low load operations of Naphtha Reforming Plants 7,452.032 Kls. 28,197.129 5. Findings on Sl. Nos. 3 and 4. We shall first record our findings in respect of Sl. Nos. 3 and 4. Naphtha is an essential raw material required for the production of fertilizers. CAN fertilizer is produced through ammonium nitrate after manufacturing ammonia and nitric acid. Ammonia is manufactured by synthesising the synthesis gases produced through reformation of raw Naphtha and/or Coke Oven Gas. In the course of CAN, ammonia is produced by synthesising synthesis gas manufactured by using raw Naphtha and the said Ammonia is further used in the manufacture of nitric acid and both the ammonia and nitric acid are used in the manufacture of ammonium nitrate which it turn is further used in the manufacture of CAN. Apart from utilising the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and catalysts in particular. Under the circumstances, of severe power shortages/restriction there was no production of Ammonia on many days. However, considering the safety of the equipments and life of refractory furnaces and catalysts of the plant, Naphtha had to be consumed on those days, when there was no production of Ammonia. Naphtha consumed for the gases vented out during those days when there was no production of Ammonia, was essential for keeping the Naphtha reforming plant in operational fitness and safe condition so that the plant could be lined up for production of Ammonia and fertilizer at any time in the subsequent period depending on power availability." 5.1 The findings of the Supreme Court are contained in Paragraphs 6 and 7 which are reproduced below : 6. It is important to note that the exemption Notification required proof that the raw Naphtha was intended for use" in the manufacture of fertilizer and not that the raw Naphtha was used in the manufacture of fertilizer. Due emphasis has to be given to the clear language of the first condition of the exemption Notification and its effect cannot be nullified by an interpretation placed on the second conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufactured and cleared by them was actually used as a fertilizer by their customers is a condition not contained in the Notification and by prescribing such a condition, the adjudicating authority has gone beyond the requirement of the Notification. Since the raw Naphtha was used in the manufacture of Ammonium Nitrate which is a fertilizer, there is no reason to deny the benefit of concessional rate of duty of Rs. 5/- per KL in terms of Notification 75/84 and accordingly, we hold that the quantity of raw Naphtha covered by Sl. No. 2 above is eligible for such benefit. 5.3 Findings on Sl. No. 1. This quantity of raw Naphtha was received by the appellants at the concessional rate of Rs. 5/- Per KL in terms of Sl. No. 2 of the table annexed to Notification 75/84 for which purpose L-6 licence was obtained and Chapter X procedure followed. However, it was used in the production of synthesis gas and used in the manufacture of Ammonia and Nitric Acid which is different from the intended use for fertilizers. The appellants explanation is that they had applied to the Assistant Collector of Central Excise, Rourkela to confirm that the benefit of Notification 27/89 was available to them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein duty has been confirmed @ Rs. 55/- per KL on raw Naphtha consumed in the manufacture of Ammonia and Nitric Acid sold to outside parties. In view of the above, while we hold that separate applications for L-6 licence are required for independent Notifications, as per Rule 192, we agree with the appellants that the benefit of Notification 27/89 as amended by Notification 102/90 is available, considering that, in the facts and circumstances of this case, the conditions of Notifications have been substantially complied with. 6. In the result, we hold as under : (a) The appellants are eligible to the benefit of Notification 75/84 which provides for concessional rate of duty Rs. 5/- per KL on raw Naphtha in respect of Sl. No. 2, 3 and 4 of the table set out in Para 4 at page 4 of the order. (b) The benefit of concessional rate of duty of Rs. 55/- per KL on raw Naphtha is available in respect of Sl. No. 1 of the same table. (c) The appellants failure to obtain separate L-6 licence in terms of Notification 27/89 as amended has resulted in contravention of Rule 192 for which penalty is warranted; however, having regard to the overall facts and circumstances of the case as se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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