ORDER

The appellants manufacture explosives from ammonium nitrate melt 80% at a plant in Rourkela, Orissa. The said ammonium nitrate is purchased from SAIL, which also has a plant in Rourkela.

2. On 11th June, 1969 an Exemption Notification under the Central Excises and Salt Act, 1944, (No. 164/1969) was issued by the Central Government exempting ammonium nitrate from the whole of the excise duty leviable thereon if it was intended to be used in the manufacture, inter alia, of explosives, provided that the procedure set out in Chapter X of the Central Excise Rules, 1944, was followed. The appellants applied for a licence under the said Chapter X in respect of the said ammonium nitrate for use in the manufacture of explosives. The licence having been granted, the appellants enjoyed the benefit of the said Exemption Notification.

3. At all relevant times, ammonimu nitrate was classified as a fertiliser under Tariff Item 14HH. On 16th April, 1977 a show cause notice wa issued to SAIL by the Superintendent in the Office of the Assistant Collector of Central Excise, Rourkela, to show cause why ammonium nitrate should not be reclassified under Tariff Item No. 68. On 10th August, 1977, the Assistant Collector, having examined the case, came to the conclusion that there was no need to so reclassify ammonium nitrate.

4. On 6th January, 1978, the Central Board of Excise and Customs wrote to the Collector, Central Excise, Bhubaneshwar, on the subject of ammonium nitrate melt 80% used in the manufacture of explosives and its classification as a fertiliser. The letter stated that the matter had been examined in consultation with the Ministry of Chemicals and Fertilisers and the Ministry had stated that ammonium nitrate was not classified as a fertiliser in the Fertiliser Control Order and that in the event of ammonium nitrate being accepted as a fertiliser without further processing, the item would have to be included in the Fertiliser Control Order before it could be marketed as a fertiliser. Hence, the said ammonium nitrate fell outside the purview of Tariff Item No. 14HH. This being so, the question of exemption of duty under the said Exemption Notification did not arise. Not being a fertiliser known in commercial trade parlance, ammonium nitrate merited assessment under Tariff Item 68 and would be liable to the appropriate duty thereon.

5. Based upon the said letter of the Central Board, the Superintendent, Central Excise, Rourkela, wrote to SAIL and demanded excise duty upon the said ammonium nitrate under Tariff Item 68 at the rates prevailing from time to time with effect from 1st March, 1975. On 7th February, 1978, SAIL, in turn, demanded payment of the said amount of excise duty from the appellants.

6. On 27th July, 1978, the Central Board issued a show-cause notice to SAIL to review the order of the Assistant Collector dated 10th August, 1977, aforementioned. The matter was contested by SAIL in a reply dated 8th November, 1978. By an order (No. 6/80 of 1980 made in November, 1980, the Central Board set aside the order of the Assistant Collector dated 10th August, 1977, and reclassified the said ammonium nitrate under Tariff Item 68 with effect from 1st March, 1975. On 16th December, 1980 SAIL wrote to the appellant demanding the excise duty on the said ammonium nitrate in accordance with the order of the Central Board dated November, 1980, with effect from 1st March, 1975, to 23rd January, 1978, in the sum of Rs. 34,52,919.23. On 2nd February, 1981 the appellant filed a writ petition (No. 183/1981) which challenged the order of the Central Board dated November, 1980 and the demand made pursuant thereto.

7. In the meantime, on 21st July, 1979, a notification was issued whereby ammonium nitrate was excluded from Exemption Notification No. 164/1969 with effect from 21st July, 1979. This notification was challenged by the appellants before the Orissa High Cour