9911796707
TMI Blog2009 (7) TMI 1071X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty Rs. 2,46,36,000/- under Section 11AC Rs. 2,71,69,000/- under Section 114A Rs. 1,07,65,000/-under Section 112(a) Rs. 1,07,65,000/-under Section 114A Duty within the normal period of limitation (1-5-06 to 31-3-2007) Rs. 1,22,10,000/- Credit available within normal period Rs. 92,67,000/- 2. We heard both sides. 3. The appellants manufacture Fertilizers. In the course of the manufacture of fertilizers, many intermediate products emerge as technological necessity. Most of such products are captively consumed in the further manufacture of fertilizers. Few are sold either as such or after conversion to independent buyers as by products. The present appeal relates to the emergence and use of a portion of carbon dioxide within the factory. The appellants received raw naphtha from oil companies without payment of duty for use in the manufacture of fertilizers by following the prescribed procedure. The relevant notification is 6/2002-C.E., dated 1-3-2002 in terms of which the appellant procured naphtha free of duty by following the procedure set out in the Central Excise (Removal of Goods at Concessional Rate of Duty f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Chapter 31. The appellants are unable to utilise the entire quantity of Carbon dioxide produced at the stage of secondary reformation. Though the carbon dioxide is taken out through the separator, a portion of the same is, however, fed back into the manufacturing process for reaction with ammonia to form urea. Earlier, the appellants were selling the excess carbon dioxide on payment of appropriate duty. A part of the excess carbon dioxide so generated is also used by the appellants to manufacture a by product called Ammonium bicarbonate for which they use admittedly duty paid ammonia. The Ammonium bicarbonate manufactured as a by product is cleared on payment of duty. 3.2 Revenue proceeded against the appellants to demand Central Excise Duty and Customs Duty along with interest on the ground that the exemption availed in respect of naphtha procured by the appellants is available only to the extent of naphtha used in the manufacture of fertilizers and, therefore, the quantity of naphtha used to produce carbon dioxide, which was used in the manufacture of Ammonium Bicarbonate would not be entitled to the exemption Notification No. 6/2002-C.E., dated 1-3-2002 and 21/2002-Cus., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Napththa is used for the production of carbon dioxide. The worksheet enclosed to the Show Cause Notice has arrived at a theoretical quantum of naphtha by apportioning the, naphtha consumption between the quantum of ammonia manufactured vis-a-vis the quantum of ammonium bicarbonate manufactured. Based on the theoretical method, the quantum of naphtha allegedly used for other purposes has been arrived at and duty quantified. It was submitted that the very fact of adoption of a theoretical formula indicates that it is not possible to determine what quantity of naphtha that was allegedly used by the appellants in the manufacture of non-fertilizer products. If the allegation of use of naphtha for non-fertilizer purposes was really correct, then, the quantum of naphtha put to such use could have been easily ascertained from the appellant s records. The Notifications require an intention to use the duty free Naphtha in the manufacture of fertilizers . The condition No. 4 in Sl. No. 22 of the relevant notification is if such Naphtha is for the intended use of manufacture of fertilizer or Ammonia in the appellant s factory . Once the entire quantity of naphtha received duty free h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Officers. Moreover, the relied on documents in the Show Cause Notice indicate that the allegations are not based on any information, which was required to have been furnished by them in the usual course, and which the appellants failed to produce. A strong plea was made that the longer period is not invocable. 4.4 The Commissioner s reliance on the decision of the Tribunal in the case of FACT v. CC, Cochin - 1987 (29) E.L.T. 111 (T) is not correct because in that case, the Ammonia, which was obtained during the process of naphtha was sold directly by the assessee to a non-fertilizer plant. Therefore, the tribunal held that the quantity of naphtha, which was sold by the assessee, is not entitled for concessional rate of duty. The above decision is not applicable to the present case. 4.5 Even the decision of the Tribunal in the case of Neyveli Lignite Corporation Ltd. v. CCE, Pondicherry - 2007 (209) E.L.T. 310 is wrongly applied. In the said case, it was not the technological necessity for the assessee to captively consume the electricity produced by it nor was it necessary to use it for mining. 4.6 Commissioner s reliance on the case of CCE v. Solaris Chemtech Ltd. - 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n naphtha is not incidental but is intentional because it participates in the process of manufacturing urea. CO2 is as essential as ammonia produced using Hydrogen. CO2, after its removal from the continuous process to enable the ammonia synthesis to take place, is free to be used as an input in several ways or sold as such. Therefore, the argument that CO2 occurs in the process as an inevitability is not correct. Consequently, the argument that CO2 generation is not intended to commercially exploit the duty free naphtha is not true or correct. 5.3 The adoption of a theoretical formula to arrive at the apportionment of naphtha used for non-fertilizer applications is an accepted way of estimating quantities of inputs and output in respect of chemical processes, which are continuous and which take place in controlled conditions. Further, the quantification is based on the calculations produced by the appellant. 5.4 The argument that exemption notifications do not contemplate actual use of naphtha in the manufacture of fertilizers has no merits as condition No. 4 read with column 3 of the table in Notification 6/2002 clearly points out to the fact that naphtha and natural gasoline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeded against the appellants on the ground that in the course of the manufacturing process, Carbon dioxide is generated and the entire carbon dioxide is not used for the manufacture of fertilizer and a part of the carbon dioxide is diverted to the manufacturer of a non-fertilizer product ammonium carbonate. Hence, according to the department, the quantity of naphtha attributable to the Carbon dioxide so diverted would not be entitled for the benefit of the exemption notification. Consequently Show Cause Notices have been issued and the Adjudicating Authority had passed a detailed order and confirmed the demands. We have to examine carefully the contentions of both sides. The process of manufacture had already been narrated. We do not want to repeat it. Naphtha is a Hydrocarbon consisting of hydrogen and carbon. Without getting involved in chemical equations and formulae, we have to state that for every one part of hydrogen by weight, there are 5.3 parts of carbon by weight. In other words, the proportion of carbon is predominant in the naphtha molecule. The naphtha is subjected to pre-treatment wherein the Sulphur content is reduced. Then, it is subjected to what is known as a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of cracking of such raw naphtha, a number of by-products/co-products arise, depending upon the process and the intended industrial activities. Doubts have been expressed whether the production of such by/co-products could be ignored and the benefit of concessional rate of duty on raw naphtha extended in such case. 2. The Ministry have had the benefit of technical/legal opinion of the Ministry of Petroleum, Chief Chemist, CRCL the Ministry of Law. It has been stated that the term by-product in so far as cracking of naphtha is concerned, is to be understood within the framework as to how a stream is actually used with reference to the Plant design etc. vis-a-vis what it can potentially be used for. The production of gases and liquids other than what is actually used for subsequent transformation in a cracker complex is an inevitable consequence of cracking of naphtha, and the quantum thereof (which varies from the unit to another) may not be of much relevance as such, production is incidental or involuntary. 3. Keeping in view of the above, it is clarified, that when raw naphtha is intended for use in the manufacture of any one or more of the products specified in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation on raw naphtha should not be denied when raw naphtha is intended for use in the manufacture of any one or more of the products specified in the schedule appended to that notification notwithstanding the production of other goods which are incidental/inevitable/involuntary in such production and that, in such cases, the whole of the raw naphtha would be deemed to have been used in the manufacture of product(s) for the manufacture of which raw naphtha was obtained. This clarification was issued by the Ministry after consulting the Chief Chemist, CRCL, the Ministry of Petroleum and the Ministry of Law. 2. It has now been represented that although notification No. 190/75-C.E., dated 30-8-1975 has been incorporated at Sr. No. 3 of notification No. 75/84-C.E., dated 1-3-1984, as amended, certain Central Excise Collectorates are taking a stand that Ministry s F. No. 83/15/72-CX.3, dated 26-3-1976 may not be applicable to Sr. No. 3 of notification No. 75/84-C.E., dated 1-3-1984, as amended, and demands are sought to be raised. 3. The matter has been examined. It is found that notification No. 190/75-C.E., dated 30-8-1975 has been incorporated with all the conditions at Sr. No. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, therefore, that the Tribunal failed to interpret the words of the exemption notification No. 201/79 properly and fully. The said notification exempted all excisable goods on which the duty of excise was leviable and in the manufacture of which any goods falling under Tariff Item 68 (i.e. inputs) had been used from so much of the duty of excise leviable thereon as was equivalent to the duty of excise already paid on the inputs. It is clear, however, that ethylene glycol was used in the manufacture of polyester fibre. It appears that methanol arises as a part and parcel of the chemical reaction during the process of manufacture when ethylene glycol interacts with DMT to produce polyester fibre. It is not possible to use a lesser quantum of the ethylene glycol to prevent methanol from arising for producing a certain quantity of polyester fibre. Thus, the quantity of ethylene glycol required to produce a certain quantum of polyester fibre is determined by the chemical reaction. It may be mentioned herein that it is not as if the appellants have used excess ethylene glycol wantedly to produce the methanol. It is clear that the appellants are not engaged in the production of methanol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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