By TIOL News Service

MUMBAI, OCT 24, 2013: THE appellant was supplying Naphtha in terms of exemption notification 6/2002-CE, 6/2006-CE to M/s. Rashtriya Chemicals & Fertilizers Ltd. against the International Competitive Bidding for use in the manufacture of fertilizers.

The jurisdictional authorities "found" that the Naphtha so supplied to M/s RCF was being burnt in the steam generation plant to generate steam which in turn was consumed by various plants like Urea Plant, Ammonia Plant, Turbo Generators, Chemical Group Plant and Heavy Water Plant. Steam generated is consumed in Turbo Generators for generating electricity and also used in S.M. Header for further distribution to Organic Chemical Plant and Heavy Water Plant.

So, it is the Revenue contention that in respect of Naphtha used for purpose other than manufacture of fertilizers, appellants are not entitled to duty free clearance and are required to pay excise duty on the said quantity.

Four demands are the subject matter of the present appeals and cover the period from November 2005 to June 2007 & from April 2008 to September 2008 and involve a total duty in excess of Rs.28 Crores.

The appellant is before the CESTAT.

Whereas the appellant submitted that the duty, if any, should be demanded from M/s Rashtriya Chemicals & Fertilizers and not from them as use of the goods is a post-clearance condition and the appellant has no means to enforce the post-clearance condition as the Naphtha is out of his control, the Revenue representative submitted that the term used in the relevant notification is "All goods supplied against International Competitive Bidding" as against the word "procured"; that since the words used in the notification are "supplied" it is the responsibility of the manufacturer of Naphtha to ensure proper use of the goods and appellant is required to pay the duty as it is the appellant who has taken the benefit of notification.

The Bench visited the notifications in question and observed -

"10. It is clear from the Notification No.6/2002-CE dt. 1.3.2002 (or 6/2006-CE dated 1.3.2002) that all goods supplied against International Competitive Bidding are exempt from payment of excise duty provided the said goods are exempt from duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 and the additional duty leviable under Section 3 of the Customs Tariff Act. It is also seen that goods falling under heading 27.10 or 2714.90 are exempt from payment of Customs duty and additional duty for the manufacture of fertilizer. However, the said customs duty exemption is not unconditional. The Customs duty exemption is available if the importer follows condition No.5 in the Customs Notification No.21/2002 which mandates that the importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods)Rules, 1996.

11. On perusal of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 we find that these Rules prescribe procedure to be followed by a manufacture of excisable goods while importing any inputs/material at concessional rate for the manufacture of excisable goods….In case, such imported goods are not used for the intended purpose, Jurisdictional Central Excise Assistant/Deputy Commissioner is required to take action to recover the Customs duty along with interest etc. from the manufacturing unit where the goods were intended to be used.

14. In case of failure to use the imported goods for the intended purpose (in this case fertilizers), the manufacturer where the goods were intended to be used is required to pay the differential customs duty….In view of the above position, we are of the view that in a situation where the goods are locally procured under the Notification No.6/2002-C.E. dated 1.3.2002, (or 6/2006-C.E dt. 1.3.2006) the liability to pay the differential duty will be that of the user manufacturer. In the present case that of M/s. RCF Ltd., Appellant viz. M/s. HPCL Ltd. at the time of clearance has satisfied both the pre clearance conditions of the notification viz. goods were supplied against 1] International Competitive Bidding, 2] for the manufacture of Fertilizers. The actual use of the goods is a post-clearance condition and is required to be fulfilled by the buyer/user in this case M/s. RCF Ltd. The M/s. HPCL cannot be expected to ensure the precise use of the goods by M/s. RCF."

On the emphasis being laid by the Revenue representative on the word "supplied" employed in the notification, the Bench had this to say -

"15. In the impugned order as also Ld. Commissioner (A.R.) laid lot of emphasis on the word "supplied" used in the Central Excise Notification. According to Ld. A.R. the words used are not "procured" and therefore it is the supplier who is responsible for the intended use of the goods. We are not impressed with this argument. In any transaction of this type, there would be a supplier and purchaser will be a procurer. The supplier manufacture of the goods cannot be expected to ensure the intended use of the goods by the procurer, after clearance from the suppliers unit. Here, it is not the case that procurer could have not used the goods for intended purpose. In fact, substantial quantity was used for the manufacture of the fertilizer, only part quantity was used for purpose other than manufacture of fertilizer. The case laws quoted are not anywhere near to the issue in the present case."

Holding that the duty cannot be demanded from the appellant, the appeals were allowed.

Tail spark - In all probability, this may not be the end!

(See 2013-TIOL-1573-CESTAT-MUM)