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TMI Blog2009 (1) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the benefit of Exemption Notification No. 8/96-CE dated 23-7-1996 as not available to the assessee as the Ammonia produced from Naphtha was not used for the manufacture of fertilizer; 2. Whether on the facts and circumstances of the case, penalty under Rule 173Q(1) of the Central Excise Rules, 1944 was exigible on the assessee?" 2. In order to put the controversy in its proper prospective few facts may first be noticed. The appellant is engaged in the manufacture of fertilizer using Naphtha as input. The raw material 'Naphtha' is subject to central excise duty. However, there is a notification bearing No. 8/96-CE, dated 23-7-1996 as amended by subsequent notification No. 4/97 dated 1-3-1997 stating that Naphtha is exempt from duty if its buyer uses it in the manufacture of 'Ammonia' or 'Fertilizer' subject to fulfillment of certain conditions. During the period July, 1996 to March, 1997 the appellant procured Naphtha and in terms of the provisions of the notification dated 23-7-1996 he availed the benefit of not paying any duty. It also followed the prescribed procedure for procuring duty free Naphtha. According to the claim made by the appellant for manufacturing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a prayer for rectification of the mistake apparent on record of the order dated 29-9-2003 but the application was dismissed by stating that there was no mistake apparent on the face of the record. 6. Mr. Jagmohan Bansal, learned counsel for the appellant has vehemently argued that the event when the duly becomes payable in respect of Naphtha would complete itself when it is subjected to any process which result into production of another product. According to the learned counsel it is not possible to produce fertilizer or Ammonia Nitrate or Nitric Acid without first producing ammonia from Naphtha. He has mentioned that once the aforementioned process is not disputed then the moment ammonia is produced the benefit contemplated by notification dated 23-7-1996 (as amended by notification dated 1-3-1997) becomes available. Accordingly, Naphtha which is otherwise excisable becomes duty free. Mr. Bansal has maintained that the revenue cannot take advantage of the fact that the by-product of Ammonia can further be processed to produce industrial product. According to the learned counsel ammonia or fertilizer are duty free if made from Naphtha and the beneficiary notification stand exha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the conditions, if any, laid down in the corresponding entry in column (5) thereof or as mentioned in said column (5) and specified below the said table: Provided that the item No. 17 of the Conditions below, wherever applicable in this notification, shall come into effect on and from the 1st day of August, 1996 TABLE Reference Chapter Description of Rate Condition 27.1 27 Naphtha and Natural Gasoline Liquid for use in the manufacture fertilizer or ammona ....... Specified in item No. (3) and (4) of condition below Conditions: 3. The exemption shall be subject to proving to the satisfaction of an officer not below the rank of Assistant commissioner of Central Excise, that such goods are cleared for the intended use specified in column (3) of the said Table. 4. Where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of the Central Excise Rules, 1944, is followed" 9. A perusal of the aforesaid notifications show that exemption has been granted to the goods specified in column no. 3 of the table and Naphtha is one of the items which has been described in chapter heading no or sub-heading no. 27 of the schedule to the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of ammonia even leaving aside the further question as to whether it was utilised for manufacture of any fertiliser. It is, therefore, difficult to appreciate as to how CEGAT could persuade itself to hold that because ammonia manufactured out of raw naphtha had resulted in molten urea which was not a soil fertiliser, the benefit of the aforesaid notification could not be made available to the appellant which had utilised raw naphtha in its Plant. Moment it was shown that raw naphtha was wholly utilised by the appellant for manufacturing ammonia, the condition laid down in column (4) of the notification got fully satisfied. On his short ground, the reasoning of the CEGAT for not extending the benefit of concessional rate of duty on raw naphtha to the appellant cannot be sustained. However, as discussed hereinafter, raw naphtha can also be said to have been utilised in manufacturing molten urea which is a chemical fertiliser covered by the term 'fertiliser' as employed by this very condition in column (4), Thus this condition can be said to have been fully complied with the appellant." (emphasis supplied). 10. The principles laid down by Hon'ble the Supreme Court does not leave an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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