Steel Authority Of India LTD. vs Collector Of Central Excise

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1996 Supreme(SC) 1140

1996(5) Supreme 669
SUPREME COURT OF INDIA
S.P. Bharucha and K.T. Thomas, JJ.
M/s. Steel Authority of India Ltd. etc. -Appellants
versus
Collector of Central Excise -Respondent
Civil Appeal No. 3406-11 of 1990 etc.
Decided on 30-7-1996
Counsel for the Parties :
For the Appellants : V. Sreedharan, Sunil Kumar Jain, Jatinder K. Bhatia, Sanjeev Bansal and K.J. John, Advocates.
For the Respondent : Joseph Vellappally, Sr. Advocate, R. P. Srivastava, P. Parmeswaran and V.K. Verma, Advocates.

Headnote:Central Excise Rules-Rules 192 & 196-Exemption Notification No. 187 of 1961 dated 23.12.1961 as amended-Raw Naphtha excisable at a concessional rate of duty in terms of exemption notification-Duty at full rate would be leviable only if it could not be shown to have been used for the purpose and with intention of manufacturing fertiliser-It was not requisite to prove that raw naphtha had been actually used in manufacture of fertiliser.
       Held that the exemption notification required proof that the raw naphtha was "intended for use" in the manufacture of fertiliser and not that the raw naphtha was used in the manufacture of fertiliser. Due emphasis has to be given to the clear language of the first condition of the exemption notification and its effect cannot be nullified by an interpretation placed on the second condition. Both conditions must be so read as to give full effect to the clear language of the first condition. The emphasis in this behalf upon Rule 196 in the first order of the Tribunal appears to us misplaced. Rule 196 says that if any excisable goods obtained under Rule 192 are not accounted for as having been used for the purpose and in the manner required, full excise duty thereon is payable. It does not appear to be correct to hold, as the Tribunal did in the first order, that this meant that it was requisite that it should be proved that the raw naphtha had been actually used in the manufacture of fertiliser. In the context, what was required to be shown was that the raw naphtha was used for the purpose and with the intention of manufacturing fertiliser. Duty at the full rate on the raw naphtha would be leviable only if it could not be shown to have been used for the purpose and with the intention of manufacturing fertiliser. (Para 6)
       Further held that the raw naphtha that was fed by SAIL into its plant was for the purpose and with the intention of manufacturing fertiliser and that it was only because of supervening circumstances, namely, the low, uncertain and fluctuating availability of power, that the reformed gas produced during the interim stage of manufacture had to be vented out. The benefit of the exemption notification is, therefore, available to SAIL in regard to the raw naphtha that it utilised in its plant for the manufacture of fertiliser but which, for reasons over which it had no control, did not, in fact, result in the manufacture of fertiliser but had, at the interim stage of reformed gas, to be vented out. (Para 7)

JUDGMENT

Bharucha, J.-These are appeals against orders of the Customs, Excise & Gold (Control) Appellate Tribunal dismissing appeals filed by the present appellants, Steel Authority of India Ltd. (SAIL), before it.

2. SAIL has a plant at Rourkela which manufactures fertilisers. For such purpose SAIL uses raw naphtha. Raw naphtha was, at the relevant time, excisable at a concessional rate of duty in terms of an exemption notification (No. 187 of 61) dated 23rd December, 1961, as amended from time to time. The concessional rate of duty stated therein was admissible provided -

"(i) it is proved to the satisfaction of an officer not below the rank of an Assistant Collector of Central Excise that such raw naphtha is intended for use in the manufacture of fertiliser; and

(ii) the procedure set out in Chapter X of the Central Excise Rules, 1944 is followed."

It was the case of the Revenue that a substantial quantity of raw naphtha was not, in fact, used by SAIL in the manufacture of fertiliser. SAIL was, therefore, served with show cause notices demanding amounts of excise duty on quantities of raw naphtha allegedly not utilised for the manufacture of fertiliser. SAIL s explanation in that behalf, in the words of an Assistant Collector, read:

"The assessee contended that the consumption of raw naphtha was more due to abnormal operating conditions such as low load operation, interruption in the plant operations due to low, uncertain and fluctuating availability of power. It was stated that the consumption of naphtha was further high because gases produced (out of raw naphtha) had to be vented due to acute power crisis causing interruption/stoppages of down stream units of the plant. It was submitted that the two naphtha reforming plants have provisions in the system for automatic venting of gases, in the event gas formed cannot travel forward due to non-availability of power for operating the down stream plants, and excessive pressure build up. On many occasions gases are required to be vented out from the naphtha reforming plant when the said gases cannot be sent to down stream plants due to non-availability and low, interrupted and uncertain power supply or any other operational or maintenance problems in the plant. Moreover, the naphtha reforming plants have to be kept not for preventing damages to the equipments, Reformer furnaces and catalysts in particular. Under the circumstances, of severe power shortages/restriction there was no production of Ammonia on many days. However, considering the safety of the equipments and life of refractory furnaces and catalysts of the plant, naphtha had to be consumed on those days, when there was no production of Ammonia. Naphtha consumed for the gases vented out during those days when there was no production of Ammonia, was essential for keeping the naphtha reforming plant in operational fitness and safe condition so that the plant could be lined up for production of Ammonia and fertiliser at any time in the subsequent period depending on power availability."

3. The matter first came before the Tribunal in relation to an order passed by the Collector of Central Excise (Appeals), Calcutta, on 17th September, 1987. The Tribunal then placed reliance upon Rule 196(1) of the Central Excise Rules, which stated, "If any excisable goods obtained under rule 192 are not duly accounted for as having been used for the purpose and in the manner stated in the application .......... the applicant shall, on demand by the proper officer, immediately pay the duty leviable on such goods." An exception was made in the said Rule in the case of excisable goods which were shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or unavoidable accident during transport. The Tribunal noted that it was not the case of SAIL that the concerned quantity of raw naphtha had been lost or destroyed. It had, in fact, been burnt in the naphtha reforming plant of

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