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TMI Blog2012 (3) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... Exemption Notification No. 4/97, dated 1-3-1997; 5/98, dated 2-6-1998; 5/99, dated 28-2-1999 and 6/2000, dated 1-3-2000 as amended for the manufacture of Fertiliser and Ammonia by following Chapter X procedure of the Central Excise Rules. The naphtha so procured was being burnt in the steam generation plant to generate steam. The steam so generated was then consumed by various plants (like Urea Plant, Ammonia Plant, Turbo Generators, Chemical Group Plant and Heavy Water Plant). It was observed by the officers that steam generated and consumed in Turbo Generators for generating electricity and steam used in Heavy Water Plant is used in a manner other than used in manufacture of fertilizers. During the course of investigation, statement of Shri V.G. Londhe, Finance Manager of the appellants was recorded in which he stated that the basic feed for their unit is natural gas and naphtha is also used to supplement the deficiency of natural gas since 28-11-1996 onwards and naphtha is burnt as fuel in boilers in steam generation plant to generate steam which is supplied to (a) Urea Plant for manufacturing urea, (b) Ammonia Plant for manufacturing ammonia, (c) Turbine Generators for gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 read with Sec. 11A of the Central Excise Act and proposing penalty under Rule 173Q and Rule 25 of the Central Excise Rules and also proposing charging of interest under Sec. 11AB of the Act. These show cause notices were confirmed by the Commissioner of the Central Excise, LTU, Mumbai vide the impugned orders and the appellants are in appeals before us against these orders. 3. The ld. Sr. Advocate appearing for the appellants submitted that the chart which was submitted by them before the authorities is available at page 120 of the appeal paper book and it clearly states that during the period covered by the show cause notice, steam required to be produced for fertilizer as well as electricity required for fertilizer is 14864232 M.T. and steam generated out of the impugned naphtha which is procured under exemption notification is 8952671 M.T. Therefore, balance steam required in the manufacture of fertilizer is 5911561 M.T which is generated from natural gas. Therefore, when naphtha itself is in short supply, the question of its diversion for manufacture of other products other than fertilizer does not aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pearing for the Revenue submitted that the Finance Manager Shri Londhe has categorically stated in his statement that the basic input for the manufacture is natural gas, and naphtha is also being used to supplement deficiency of natural gas since 28-11-2006 and this statement of Shri Londhe was also affirmed by Shri Kulkarni in his statement recorded on 12-6-2001. Therefore, the argument of the appellants that naphtha is their main fuel and natural gas is the supplementary fuel is not acceptable and it is only an afterthought. He contended that they are using a type of boiler where natural gas and naphtha can be used simultaneously. When C.T-2 certificates were issued by Range Officers for supply of naphtha from M/s. Hindustan Petroleum Corporation Ltd., the appellants were very well aware that naphtha will also be used for generation of steam, proportion of which will go for non-fertilizer purposes. Therefore, they have obtained C.T.-2 certificates by way of suppression and misstatement on their part and therefore penal provision has rightly been invoked by the Commissioner. He further submitted that when the case was remanded by the Tribunal with direction to disclose the method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notification No. S. No. of Notfn. Chapter Description of goods Condition 1 2 3 4 4/1997 10 27 Naphtha and natural gasoline liquid for use in the manufacture of fertilizer or ammonia 3 & 4 5/1998 11 " " " 5/1999 12 " " 4 & 5 6/2000 14 " " 4 & 5 6/2002 27 " " 4 & 5 All these exemptions are subject to the following conditions (Condition 3 & 4 or 4 & 5 of table) :- "(a) The exemption shall be subject to proving to the satisfaction of an officer not below the rank of the Assistant Commissioner of Central Excise/Deputy Commissioner of Central Excise that such goods are cleared for the intended use specified in col. 3 of the said table and (b) Where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of the C. Ex. Rules, 1944 is followed." 6. We find that naphtha and natural gas both are used together to produce steam in steam generation plant (SGP). In the chart submitted by the appellants, the appellants have given the quantities of naphtha and natural gas used, total steam produced and used for different purposes and also the electricity produced. In the bottom of the chart, they have shown the quantity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rant exemption in respect of the goods mentioned under heading "description of goods". In all the Notifications, the goods which are exempted are described as "naphtha and natural gasoline liquid for use in the manufacture of fertilizer or ammonia" and this exemption is subject to the conditions 3, 4 or 4, 5 of the Notifications. The words "naphtha and natural gasoline liquid for use in the manufacture of fertilizer or ammonia" find place under the heading "description of goods" whereas the words "for intended use" find place in Condition Nos. 3, 4 or 4, 5 of the Notifications. The first condition of the exemption Notification is that the exemption shall be allowed if it has been proved to the satisfaction of the Asstt. Commissioner or Dy. Commissioner having jurisdiction over the factory that such goods are cleared for intended use. In the second condition, Chapter X procedure or the procedure laid down under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 is followed. We find that the words "intended use" as mentioned in the first condition are preceded by the words "such goods are cleared for" that means that intended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rate of duty Intended use 10.04 10 Furnace oil Nil Intended for use as feed stock in the manufacture of fertilisers The Condition Nos. (a), (b) stated above in para 5 were also applicable in this case as also in respect of raw naphtha in the present case. We find that under DCM Shriram's case, the exemption notification itself granted the exemption to furnace oil intended for use as fuel or feed stock in the manufacture of fertilizers whereas in the present case naphtha is exempted under these Notifications for use in the manufacture of fertilizers as mentioned under the heading of 'description of goods' and the words "intended for use" are not there in the Table of the exemption notification as was the case for furnace oil in Notification No. 75/84 in DCM Shriram's case. Therefore, DCM Shriram's case is clearly distinguishable from the present case. Moreover, in the DCM Shriram's case, the appellant had dedicated 35 MW Power Plant in addition to coal fired plants available with them to the fertilizer plant and boilers of other plants did not use oil and 35 MW power plant was the power plant that used furnace oil and was dedicated to fertilizer plant. It is not the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt on the basis of certificates given by the Electricity Board that cement will be used for generation and distribution of electricity. As far as the supplier is concerned, he was required to satisfy that the Board required the cement for use in the generation and distribution of energy. In the absence of any material to show that the certificate was not genuine, Supreme Court held that the exemption cannot be denied to the supplier. In the present case before us, it is not the supplier of the naphtha who is proposed to deny the benefit of the notification. In this case, the demand is against the user of the goods and the question before us is whether the user is eligible for exemption or not. Therefore, the issue in Dalmia Dadri Cement Ltd.'s case was entirely different and not the same as before us in the present case. 12. We find that the goods have been received by the appellants either under Chapter X procedure or under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 and the appellant in their application has undertaken that such goods shall be used for manufacture of fertilizer and also undertaken to pay duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods if the goods are not used in the manufacture of fertilizers. In view of the above, we hold that the duty had been rightly demanded on the quantity of naphtha not used in the manufacture of fertilizer or ammonia and accordingly we uphold this finding of the Commissioner in both the orders. 14. We find that in the Order No. 31/Commr(KAP)/LTU/2009, dated 27-1-2010 the Commissioner has imposed a penalty of ₹ 4,67,01,876/- under Rule 173Q of the Central Excise Rules read with Sec. 11AC and Rule 25 of the Central Excise Rules, 2002 and in the Order 32-56/Commr(KAP)/LTU/2009 he has imposed a penalty of ₹ 4,79,72,980/- under Rule 25 of Central Excise Rules, 2002 and a penalty of ₹ 19,63,199/- under Rule 173Q of the Central Excise Rules in respect of show cause notice dated 7-5-2002. 15. The provisions of Rule 173Q, Rule 25 of the Central Excise Rules and Sec. 11AC of the Act are reproduced below :- "173Q. Confiscation and penalty. - (1) Subject to the provisions contained in Section 11AC of the Act and Rule 57AH, if any manufacturer, producer, registered person of a warehouse or a registered dealer - (a) removes any excisable goods in contravention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso be liable to pay a penalty equal to the duty so determined." 16. We find that the appellants in this case are not manufacturer of raw naphtha which was received by them under Chapter X procedure and under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. Therefore, we are of the view that they will not be covered under the definition of manufacturer, producer, registered person of a warehouse or a registered dealer as mentioned in Rule 173Q or Rule 25 of the Central Excise Rules. Therefore, they are not liable to penalty under the provisions of these Rules. However, we find that on going through Section 11AC, the person who is liable to pay duty as determined under sub-section (2) of Section 11A shall be liable to pay a penalty equal to the duty so determined. We also find that Section 11A has been made applicable to the recipient of the goods under Chapter X procedure and under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 as Section 11A is separately mentioned in Rule 196 of the Central Excise Rules and in Rule 6 of Central Excise (Removal of Good ..... X X X X Extracts X X X X X X X X Extracts X X X X
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