Custom, Excise & Service Tax Tribunal
Gujarat State Fertilizers And ... vs Vadodara-I on 28 February, 2020
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST ZONAL BENCH : AHMEDABAD
REGIONAL BENCH - COURT NO. 3
EXCISE Appeal No. 10576 of 2019
[Arising out of Order-in-Original No OIO-VAD-EXCUS-001-COM-21-18-19 dated 11.01.2019
passed by Commissioner of Central Excise & ST, Vadodara]
Gujarat State Fertilizers And Chemicals Limited .... Appellant
Po Fertilizer Nagar, VADODARA
GUJARAT
VERSUS
Commissioner of Central Excise & ST, Vadodara.... Respondent
1st Floor, Central Excise Building, Race Course Circle, Vadodara, Gujarat-390007 APPEARANCE :
Shri Willingdon Christian, Advocate for the Appellant Shri T.G. Rathod, Joint Commissioner (AR) for the Respondent CORAM: HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. RAJU, MEMBER (TECHNICAL) FINAL ORDER NO. A/10703 / 2020 DATE OF HEARING : 03.02.2020 DATE OF DECISION : 28.02.2020 RAJU :
This appeal has been filed by M/s. Gujarat State Fertilizers & Chemicals Limited in respect of demand of duty on Sulphur purchased by them by availing benefit of exemption Notification No. 12/2012-CE dated 17 March 2012.
2. Learned Counsel for the appellant pointed out that Notification No. 12/2012-CE dated 17 March 2012 exempts goods falling under Chapter heading 25030010 from whole of Central Excise duty if the same are used for manufacture of fertilizer subject to the condition that where such use is elsewhere than in the factory of production, the exemption shall be allowed if the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 2 EXCISE Appeal No. 10576 of 2019 is followed. Entry 55 to the table of Notification No. 12/2012-CE dated 17 March 2012 reads as follows:-
Sl. No. Table Sl. No. Description of Rate Condition
Chapter of heading excisable goods
or sub-heading or
tariff item of the
First Schedule
1 2 3 4 5
55 25030010 All goods for Nil 2
manufacture of
fertilizers
Learned Counsel pointed that there is no dispute regarding following the condition specified in the said notification and therefore, the only issue before the Tribunal is if the goods, namely Sulphur, procured by them availing benefit of Notification No. 12/2012-CE dated 17 March 2012 is used in the manufacture of fertilizers or otherwise. Learned Counsel pointed out that there are four different issues involved. Learned Counsel produced a flow chart which indicates the use of Sulphur in four different streams in the factory. He pointed out that each one of different stream is used and being dealt differently to establish the used of Sulphur for the manufacture of fertilizer.
3. The first issue relates to the use of Sulphur for manufacture of Sulphuric Acid/Oleum which in turn is used in the Urea Plant for manufacture of Molten Urea. The Molten Urea is in turn used as fertilizer or in the manufacture of Melamine. Learned Counsel pointed out that since Molten Urea is manufactured, the condition specified in Notification No. 12/2012-CE that Sulphur is used for manufacture of fertilizer is satisfied. He pointed out that they use of Molten Urea, which itself is a fertilizer, in the manufacture of Melamine. He relied on the decision of Hon'ble Apex Court in their own case reported at 1997 (91) ELT 3 (SC) where a similar issue was dealt with. In 3 EXCISE Appeal No. 10576 of 2019 the said case, under Notification No. 75/84-CE dated 01.03.1984 granted concessional rate of duty to raw Naphtha intended for use in the manufacture of fertilizers and ammonia. Notification No. 40/85-CE dated 17.03.1985 granted total exemption to ammonia used in the manufacture of fertilizers. The ammonia so manufactured was used captively for manufacture of Molten Urea. In the said circumstances, it was held that Molten Urea is undisputedly classifiable as a chemical fertilizer under Heading 31.02 of Central Excise Tariff Act, 1985.
3.1 Learned Counsel also pointed out that the said decision has been wrongly distinguished by the original adjudicating authority by stating that Sulphuric Acid manufactured out of Sulphur has not been used to manufacture urea but for maintaining PH level of Cooling Towers. He pointed out that Sulphuric Acid is used in the manufacture of Urea and it is also used for cooling towers. The issue relating to cooling towers is being dealt separately. Learned Counsel argued that in view of the decision of Hon'ble Apex Court in their own case, the benefit of Notification No. 12/2012-CE cannot be denied.
3.2 Learned Counsel pointed out that second issue relates to the use of Sulphur in Caprolactam Plants where the Sulphuric Acid is used to manufacture Caprolactam and Ammonium Sulphate. He pointed out that Amonnium Sulphate is fertilizer. He pointed out that Sulphur used in Caprolactam Plant (HX Plant) which in turn used in the manufacture of HAS. He further pointed out that a part of Hydroxyamine Sulphate (HAS) is also cleared on payment of duty. He pointed out that in respect of Hydroxyamine Sulphate sold by them they are admitting their duty liability. He further pointed out that whatever duty is payable on Sulphar used in the 4 EXCISE Appeal No. 10576 of 2019 manufacture of HAS, the same is available to them as Cenvat credit and therefore the situation is Revenue neutral. As regards the sulphur used in the manufacture of Caprolactam which in turn used for Ammonium Sulpahte is concerned, they are entitled for the benefit of Notification No. 12/2012- CE. He pointed out that the issue is squarely covered by Hon'ble Delhi High Court decision in their own case reported at 2009 (241) ELT 190 (Delhi). In the said case, identical issue was dealt in respect of Sulphuric acid used to manufacture of fertilizers exempted under Notification Nos. 74/66-CE and 81/75-CE. He pointed out that the said decision of single Member Bench of Delhi High Court was challenged before the Division Bench of Delhi High Court by Revenue and the Division Bench dismissed the appeal of Revenue as reported at 2010 (252) ELT 339 (Del.). He argued that the said decisions were wrongly distinguished by the Adjudicating Authority on the ground that the said decision relates to use of Sulphuric Acid and not Sulphur. It is also argued that in this process, Ammonium Sulphate is only a bye-product and the Caprolactam is the main product manufactured. He pointed out that if 5 ton of Ammonium Sulphate is produced, the production of Caprolactam is just 1-ton therefore, it cannot be called bye-product. 3.3 Learned Counsel pointed out that the 3rd issue relates to use of Sulpuric Acid in the cooling towers. He pointed out that Sulphuric Acid is used to maintain PH balance in the cooling towers. Learned Counsel pointed that the said isuse is covered by following decisions:-
(a) 1999 (112) ELT 448 (Tri.) - Indo Gulf Fertilizers & Chemicals vs. CCE.
(b) 1996 (15) RLT 498 (SC) - Indian Farmers Fertilizers Cooperative Limited vs. CCE 5 EXCISE Appeal No. 10576 of 2019
(c) 1997 (23) RLT 594 (CEGAT) -Fertilizers Corporation of India Limited vs. CCE
(d) 1996 (85) ELT 187 (T) - CCE vs. Hindustan Fertilizers Corporation of India Limited
(e) 1987 (30) ELT 507 (T) -Fertilizers Corporation of India Limited vs. CCE He pointed out that maintaining of PH balance is essential in the manufacturing of fertilizers using sulphur for such purpose amounts to use in the manufacture of Urea and Ammonia Sulphate.
3.4 Learned Counsel pointed out that the 4th issue is Sulphur used in the manufacture of Phosphoric Acid and Phospho Gypsum (bye-product). He pointed out that Phosphoric Acid is used captively for manufacture of fertilizers i.e. Ammonium Phosphate Suplhate (APS). He pointed out that part of the Phosphoric Acid is sold by them in the open market on payment of duty. He admitted his liability of duty on Sulphur used in such Phosphoric Acid. He pointed out that the exercise would be Revenue neutral as they would be entitled for Cenvat credit for sulphur used in the manufacture of Phosphoric Acid which is sold on payment of duty. He pointed out that use of Phosphoric Acid for manufacture of Ammonium Phosphate Sulphate, Ammonium Sulphate and Phospho Gypsum amounts to use in fertilizers and thus entitled for exemption Notification No. 12/2012-CE. He pointed out that the benefit of notification has been denied on the ground that a product, other than fertilizers, namely Phospho Gypsum is manufactured. He pointed out that as far as production and clearance of Phospho Gypsum is concerned, the issue is covered by the following judgments:- 6
EXCISE Appeal No. 10576 of 2019
(a) 2008 (232) ELT 193 (SC) - CCE vs. National Organic Chemical Industries Limited
(b) 2007 (211) ELT 193 (SC) - CCE vs. Chennai Petroleum Corpn.
Limited
(c) 2011 (207) ELT 200 (Guj.) - CCE vs. Sterling Gelatin
(d) 1997 (92) ELT 294 (SC) - Indian Petrochemicals Corpn. Limited vs. CCE.
3.5 Learned Counsel also pointed that penalty has been imposed under the provisions of Section 11AC which is improper as they are entitled exemption of Notification No. 12/2012-CE in respect of Sulphur used in manufacture of fertilizers. He pointed out that in respect of Sulphur used in manufacture of Hydroxyl Amine Sulphate and Phosphoric Acid sold on payment of duty, they are entitled to Cenvat credit therefore, there is no intention to evade payment of duty.
4. Learned Authorised Representative relies on the impugned order. He pointed out that impugned order differentiate the case laws relied on by the appellants. He pointed out that they are seeking to deny benefit of Notification No. 12/2012-CE on Sulphuric Acid directly used in the manufacture of Urea. He also pointed out that the said decision relates to use of raw naphtha in manufacture of Urea and not in respect of Sulphur used in the manufacture of Urea. He pointed out that in so far as Sulphuric Acid claimed to be used in the manufacture of Urea is concerned, the use of Sulphur for maintaining PH balance of cooling towers does not amount to use of Sulphur in manufacture of fertilizers.
7
EXCISE Appeal No. 10576 of 2019 4.1 In so far as the issue No. 2 is concerned, learned Authorised Representative tried to distinguish on the ground that notification under consideration in two decisions is not the same. He pointed out that the decision in the case of Indo Gulf Fertilizers & Chemicals vs. CCE - 1999 (112) ELT 448 (T), relied on by the appellant relates to issue No.3 and he relied on the same for this issue.
4.2 In respect of 4th issue relating to use of Sulphur for manufacturing of Phosphoric Acid and Phospho Gypsum, learned Authorised Representative relies on the same arguments as for the use of Sulphur used in the manufacture of Ammonium Phosphate and Phospho Gypsum. Learned Authorised Representative further pointed out that there is no Revenue neutrality in the instant case.
5. We have considered the rival submissions. We find that the appellant are seeking benefit of Notification No. 12/2012-CE dated 17 March 2012. Notification 12.2012-CE grants exemption to goods falling under Chapter heading 25030010 from payment of Central Excise duty subject to condition, entry 55 which reads as under:-
Sl. No. Table Sl. No. Description of Rate Condition
Chapter of heading excisable goods
or sub-heading or
tariff item of the
First Schedule
1 2 3 4 5
55 25030010 All goods for Nil 2
manufacture of
fertilizers
The appellant have placed on record a flow diagram detailing the manner the Sulphur is used:-
8
EXCISE Appeal No. 10576 of 2019
6. The first issue relates to use of Sulphur used for manufacture of Sulphuric Acid/ Oleum which in turn used for manufacture of Molten Urea. Revenue's objection is that the some quantity of Molten Urea is used as input for the manufacture of Malamine and therefore, the appellants are not entitled to benefit of notification. It is noticed that Molten Urea which comes into existence is itself a chemical fertilizer, as held by Hon'ble Apex Court in the appellant's own case reported at 1997 (91) ELT 3 (SC). The Hon'ble Apex Court observed as under:-
"10. Then next we turn to exemption Notification No. 40 of 1985, dated 17-3-1985. As per the said notification, as amended from time to time, it had been laid down that the Central Government was pleased to exempt goods of the description mentioned in column (2) of the Table and falling under Chapters 25, 27, 28, 29 and 31 or 32, as the case may be, of the Schedule to the Tariff Act, from the whole of the duty of excise leviable thereon under Section 3 of the Central Excises and Salt Act, 1944, subject to the conditions, if any, laid down in the corresponding entry in column (3) thereof. column (2) of the Table referred to the description of goods and at Sl. No. 3 is mentioned ammonia. Thus ammonia which was manufactured by the appellant out of raw naphtha came under the sweep of the said exemption notification. The condition for earning exemption from excise duty on ammonia as laid down in column (3), which is relevant 9 EXCISE Appeal No. 10576 of 2019 for our present purpose, is Condition No. (ii) which provides that ammonia should be used in the manufacture of fertilisers. It is not in dispute that ammonia was captively consumed by the appellant in manufacturing molten urea. Therefore, the moot question is whether ammonia could be said to have been utilised for manufacturing any fertiliser.
It is no doubt true that molten urea in its turn became an input for producing the final product, namely, melamine which admittedly was not a fertiliser. But as required by the express language of the notification we have to find out whether molten urea which was manufactured out of ammonia was a fertiliser or not. It is now well settled by a catena of decisions of this Court that for deciding whether an exemption notification gets attracted on the facts of a given case, the express language of the exemption notification has to be given its due effect. In this connection, we may refer to a decision of this Court to which our attention was invited by Shri Dave, learned Senior Counsel for the appellant. In M/s. Hemraj Gordhandas v. H.H. Dave, Assistant Collector of Central Excise & Customs, Surat and Ors. [1978 (2) E.L.T. (J 350)], a Constitution Bench of this Court speaking through Ramaswami, J. has made the following pertinent observations in paragraph 5 of the Report :
"....It is well established that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different but that is not the case here..."
In Steel Authority of India Ltd. v. Collector of Central Excise [1996 (88) E.L.T. 314 (S.C.)], one of us S.P. Bharucha, J. speaking for a Bench of two learned Judges, while dealing with an exemption notification in connection with raw naphtha laid down in paragraph 5 of the Report that due emphasis had to be given to the clear language of the condition mentioned in the exemption notification. Same view was reiterated in the case of Prince Khadi Woollen Handloom Prod. Coop. Indl. Society v. Collector of Central Excise [1996 (88) E.L.T. 637 (S.C.)]."
"13. That takes us to the consideration of the main submission canvassed by Shri Bhat, learned Additional Solicitor General, that the CEGAT had taken the view that ammonia which was utilised by way of captive consumption by the appellant for manufacture of molten urea was subjected to a continuous process of manufacturing which had resulted in the end product melamine which was admittedly not a fertiliser. That may be so. However, the question remains whether ammonia could be said to have been used in the manufacture of molten urea which was a chemical fertiliser. We have to recall that molten urea itself is an excisable commodity even though it might have been exempted from payment of excise duty by a notification issued by the Central Government. But for the said exemption notification molten urea would have been required to bear the full duty. As seen earlier, it has been classified as a chemical fertiliser under Heading 31.02 by the authorities themselves. For levying excise duty on such a commodity, namely, molten urea, if the department takes the view that it is to be subjected to excise duty as a chemical fertiliser on its clearance even for captive consumption, it is difficult to appreciate the contrary stand of the very same authority that it would cease to be a fertiliser for the purpose of exemption Notification No. 40 of 1985, even though ammonia results in the manufacture of the same excisable item, namely, molten urea. Such a stand cannot be permitted to be adopted by the department, as it would amount to blowing hot and cold at the same time. If molten urea is treated to be an excisable item under Heading 31.02 as a chemical fertiliser, it has to be treated on the same lines while construing the sweep of exemption Notification No. 40 of 1985 which expressly refers to Chapter 31 amongst others. In short, molten urea must be treated to be a fertiliser for the purpose of its exigibility to 10 EXCISE Appeal No. 10576 of 2019 duty under Heading 31.02 of the Tariff Act and simultaneously also for the purpose of exemption Notification No. 40 of 1985. It is also easy to visualise that if molten urea would have been sold by the appellant in outside market instead of being captively consumed further for the manufacture of melamine, it would have borne full duty subject to exemption notification, if any, under Tariff Item 31.02. Only because it was captively consumed in the onward process of manufacture which had resulted into melamine, it could not be said that the final product for the purpose of Excise Act had not emerged in the shape of molten urea by the captive consumption of ammonia."
Revenue has sought to distinguish this decision by stating that Sulphuric Acid used in Cooling Towers does not qualify as use in the manufacture of Urea. We find that claim of the appellant that Sulphuric Acid is directly used in the manufacture of Urea has not been contested by Revenue in the impugned order. We find that distinction made is not logical as Sulphuric Acid is also directly used in the manufacture of Urea as claimed by the appellant. In this circumstance, we find no merit in the Revenue's case in so far as the use of Sulphur in manufacture of Urea is concerned. Exemption in respect of Sulphur used in manufacture of Urea is allowed.
7. The second issue relates to use of Sulphur in the manufacture of Sulphuric Acid/Oleum which in turn used in Caprolactam Plant. Caprolactam is manufactured along with Ammonium Sulphate, which is undisputedly a chemical fertilizer, and therefore, the appellant would be entitled to avail benefit of Notification No. 12/2012-CE in respect of use of Sulphur which in turn used in the manufacture of Ammonium Sulphate. The issue is also covered by the decision of Single Member Bench of Hon'ble Delhi High Court in their own case reported at 2009 (241) ELT 190 (Del.) and approved by Division Bench of Hon'ble Delhi High Court reported at 2010 (252) ELT 339 (Del.). The Division Bench of Hon'ble Delhi High Court observed as follows:-
"7. Admittedly, the Respondent uses Oleum in the manufacture of Ammonium Sulphate and Caprolactum but according to the Appellant Ammonium Sulphate is only a by-product and as such Oleum is not used in the manufacture of fertilizers. There is no dispute that Ammonium Sulphate is nothing but a chemical fertilizer. The learned Single 11 EXCISE Appeal No. 10576 of 2019 Judge rightly held that the exemption notifications, on a plain reading, make no mention of a by-product or a primary product. All that is to be seen is whether the use of fuming sulphuric acid results in the manufacture of a fertilizer. In this case, the answer must be in the affirmative since the use of Oleum results in the manufacture of Ammonium Sulphate which is nothing but a chemical fertilizer.
8. Under the circumstances, both the ingredients of the exemption Notifications have been met by the Respondent, namely, that it is using fuming sulphuric acid which is included in the expression sulphuric acid falling in T.I. 14G of the First Schedule to the Act and that this fuming sulphuric acid is intended for use in the manufacture and is in fact used in the manufacture of fertilizer that is Ammonium Sulphate."
The impugned order seeks to distinguish this decision on the ground that Ammonium Sulphate produced by the appellant in this stream is only a bye- product and Caprolactam is main product. It has been argued that appellant produce 5 ton of Ammonium Sulphate to produce just 1ton of Caprolactam therefore, it cannot be treated as bye-product. We find that sulphur used for production of Ammonium Sulphate alongwith Caprolactam is exempted as held by Hon'ble Delhi High Court in the appellant's case reported at 2009 (241) ELT 190 (Del.). Relevant Para 30 of the decision is reproduced below:-
30. The crucial terms here are sulphuric acid "intended for use in the manufacture of fertilizers". There are no restrictive terms cutting down the width of the phrase "intended for use". Applying the canon of construction mentioned earlier, i.e. that such exemption notifications are to be considered in their own terms, the Court holds that the express terms here do not make a distinction between "primary" and "secondary"
product or "main product" and "by-product". As far back as in Hansraj's case, it was ruled that :
"It is well-established that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain terms of the exemption it cannot be denied its benefit by calling (emphasis supplied) In this case the notification does not prohibit the use of diverse technologies that may enable a manufacture to produce two kinds of goods, simultaneously, in the same process. It is not denied that for each ton of Caprolactum produced 5.1 tonnes of ammonium sulphate is produced. If indeed this is deemed a by-product it appears to be a case of the proverbial tail wagging the dog. The Court cannot be unmindful, here of the object of the notification which was to make fertilizers less expensive, and more widely accessible. The innovative use of a relatively less known technology to achieve production of ammonium sulphate concededly a fertilizer, cannot be denied the benefit of the exemption notification, which contains no support for the distinction between 12 EXCISE Appeal No. 10576 of 2019 "main product" and "by-product" relied upon by the revenue. Consequently, this question too has to be answered against the revenue.
In these circumstances, we find merit in the arguments of the appellant.
However, we find that a small quantity of Hydrozylamine Sulphate (HX/HAS) sold by the appellant and they have admitted their liability in respect of duty free Hydroxylamine Sulphate sold by them in the open market on payment of duty and their argument is only Revenue neutrality.
We find, in so far as demand of duty on Sulphur used in the quantity of Hydroxylamine Sulphate sold by them in the open market needs to be confirmed. Accordingly, demand in so far as Sulphur used in the manufacture of Sulphuric Acid/Oleum used for manufacture of Ammonium Sulphate and Caprolactam, is set-aside.
8. 3rd issue relates to use of Sulphuric Acid in maintaining PH balance in cooling towers. In this context, the appellant relied on various decisions of Hon'ble Apex Court and Tribunal as referred to in Para 3.3 above. In the case of Indo Gulf Fertilizers & Chemicals vs. CCE - 1999 (112) ELT 448 (Tri.) (supra), the issue has been examined and following has been observed:-
"4. We find that the issue is covered by the earlier decision of the Tribunal in appellants' own case in appeal No. E/1357/95-C and the Tribunal vide Final Order No. 435/99-C, dated 19-5-1999 allowed the benefit of Notification 81/75-C.E. in respect of sulphuric acid used in the cooling tower in appellants' unit. The Tribunal held as under :
"The contention of the appellants is that the sulphuric acid is used in the cooling tower for the control of acid alkaline ratio (pH value) of the water which was later on used in the ammonia plant. The contention of the appellants is that since this sulphuric acid was used in or in relation to the manufacture of fertilisers, therefore, they are eligible for the benefit of the notification. The Notification No. 81/75-C.E., dated 22-3-1975 exempts from excise duty the sulphuric acid intended for use in the manufacture of fertilisers. We find the issue is covered by the decision of the Tribunal in the case of Fertiliser Corporation of India Limited v. C.C.E., Patna reported in [1997 (23) RLT 594 (CEGAT)]. In this case, the Tribunal, while following the earlier decisions in the cases of Fertilizer Corporation of India Limited v. C.C.E., Patna reported in [1987 (30) E.L.T. 507] and C.C.E., Patna v. Hindustan Fertiliser Corporation reported in [1996 (85) E.L.T. 187] held that sulphuric acid used in the fertiliser plant is eligible for the benefit of Notification No. 81/75-C.E."13
EXCISE Appeal No. 10576 of 2019 We find merit in the decision and therefore, relying on the said decision, we allow the appeal in so far as use of Sulphuric Acid in the Cooling Towers is concerned.
9. 4th issue relates to use of Sulphuric Acid in the manufacture of Phosphoric Acid (and Phospho Gypsum) which in turn used to produce Ammonium Phosphate. The benefit has been sought to be denied on the ground that bye-product Phospho Gypsum is also manufactured and sold in the open market on payment of duty. It is not in dispute that Ammonium Sulphate is fertilizer. In this regard, the arguments in respect of Sulphuric Acid used in the manufacture of Urea would equally apply that Sulphuric Acid was in turn used for production of Ammonium Sulphate. 9.1 Another objection raised, is in respect of use of Sulphuric Acid and Phosphoric Acid consumed for production of Phopho-gupsum which is a bye- product and sold in the market on payment of duty. The appellant have relied on the extracts of Year Book 2016 (Part-III) wherein following has been stated:-
"Phospho-gypsum is produced as a by-product during the manufacture of phosphoric acid by wet process.
Presently, most phosphoric acid plants dispose the phospho-gypsum generated, by way of stacking it within the plant premises. These stacks are subsequently sold off when demand arises for them. Phospho-gypsum generated from phosphoric acid plants contains three types of impurities such as residual acid, fluorine compounds and trace elements, including those that are radioactive that are considered to be potentially harmful."
The appellant have also relied on various decisions of Hon'ble Apex Court and High Courts as referred to in Para 3.4 above. In the case of National Organic Chemical Industries Limited reported at 2008 (232) ELT 193 (SC) (supra), the Hon'ble Apex Court observed as follows:- 14
EXCISE Appeal No. 10576 of 2019 "6. The respondent manufactures petro chemicals falling under chapters 27 and 29 from raw naptha. Raw Naptha is cracked in cracker containing number of burners and heated upto 800 degree centigrade. After the process of cracking, Ethylene and Propylene gases are produced in the factory. These gases are also captively consumed as a refrigerant for cooling since they have the property of reducing temperatures upto 100 degree c. and 30 degree c. respectively.
7. ......
8. It is the further case of the appellant that as per Exemption Notification No. 217/86-C.E., dated 2-4-1986, the inputs ethylene and propylene (falling under chapter
29) captively consumed in the manufacture of finished goods falling under chapter 29 are exempted from excise duty. As per the said notification such exemption will not be available to ethylene and propylene used in the manufacture of goods falling under chapter 27, namely methane and ethane. In other words, excise duty will have to be paid by the respondent assessee for such of the quantity of ethylene and propylene (inputs) captively consumed and used in the manufacture of products falling under chapter 27 namely methane and ethane.
9 to 29 .....
30. We have heard the learned counsel for the parties at length and perused the judgments cited at the Bar. The Tribunal's finding that the ethylene and propylene used as refrigerant has been used in or in relation to the manufacture of the same goods. The inevitable and automatic emergence of ethane and methane, therefore, by itself is no ground for denying the exemption contained in the notification. The Tribunal came to the categoric finding that the respondent could not have manufactured ethylene and propylene without manufacturing its by-products ethane and methane. The Tribunal held that in any technology the emergence of ethane and methane was inevitable and hence while it is no doubt correct to say that the ethylene and propylene have been used in or in relation to the manufacture of ethane and methane, the identical quantity of the same goods has simultaneously been used in the manufacture of ethylene and propylene. The emergence of ethane and methane, therefore, cannot be a ground to deny the benefit of exemption to the respondent.
31. In our considered view, no interference is called for in the well-reasoned judgment/order of the Tribunal. The appeal being devoid of any merit is accordingly dismissed. However, in view of the facts & circumstances of the case, the parties are directed to bear their own costs."
We find that ratio of aforesaid decision squarely apply to the instant case. 9.2 Thus, we find no merit in the Revenue's arguments that benefit of Notification No. 12/2012-CE dated 17 March 2012 can be denied on the ground that during manufacture of Phosphoric Acid which in turn used in the manufacture of fertilizer and Phospho-gypsum is manufactured. We find that appellant have admitted liability in respect of Sulphur which is used in the manufacture of Sulphuric Acid and sold in the open market on payment 15 EXCISE Appeal No. 10576 of 2019 of duty. They have contended that it is Revenue neutral situation. However, we find that liability for Central Excise duty would arise nonetheless in respect of Sulphur used in the manufacture of Phosphoric Acid which was cleared on payment of duty.
10. In this background, we find no penalty can be imposed under Section 11AC, as there is no apparent malafide intention and the issue relates to interpretation. In view of above, we set-aside the demand except for the demand within limitation on the quantity of Sulphur used in the manufacture of Hydroxylamine Sulphate (HX/HAS) and Phosphoric Acid sold by them on payment of duty. In these circumstances the benefit of limitation is also extended.
11. Appeal is partly allowed in the above terms.
(Order pronounced in the open court on 28.02.2020) (Ramesh Nair) Member (Judicial) (Raju) Member (Technical) KL