Exemption notifications under the Central Excise Act must be interpreted generously, focusing on the intended use of materials in production rather than exclusive use to deny benefits.

JUDGMENT :

UJJAL BHUYAN, J.

1. Leave granted in Special Leave Petition (Civil) No. 21441 of 2013.

2. The subject matter in the three civil appeals being inter-connected, those were heard together and are hereby disposed of by this common judgment and order.

3. Civil Appeal No. 2219 of 2013 arises out of the order dated 27.03.2012 passed by the Customs Excise and Service Tax Appellate Tribunal, West Zonal Bench, Mumbai (CESTAT) in Appeal No. E/671/10-Mum whereas Civil Appeal No. 2220 of 2013 is preferred against the same final order dated 27.03.2012 passed by the CESTAT in Appeal No. E/801/10-Mum.

3.1. It may be mentioned that Appeal No. E/671/10-Mum was filed before the CESTAT against the order-in-original dated 27.01.2010 passed by the Commissioner of Central Excise and Service Tax as the original adjudicating authority. On the other hand, Appeal No. E/801/10-Mum was filed before the CESTAT against the order-in-original dated 04.02.2010 passed by the aforesaid Commissioner. By the common order dated 27.03.2012, both the appeals were disposed of by the CESTAT affirming the levy of duty qua the two orders-in-original. CESTAT also upheld the penalty imposed by the adjudicating authority under Section 11AC of the Central Excise Act, 1944 but set aside the penalties imposed under Rule 173Q of the Central Excise Rules, 1944 and under Rule 25 of the Central Excise Rules, 2002.

4. Aggrieved thereby, the two appeals came to be filed. This Court vide the order dated 04.03.2013, admitted the appeals but declined the prayer for stay.

5. Civil Appeal No. of 2026 (arising out of Special Leave Petition (Civil) No. 21441 of 2013) has been preferred against the final order dated 21.02.2013 passed by the High Court of Judicature at Bombay (briefly ‘the High Court’ hereinafter) in Central Excise Appeal No. 129 of 2012 ( M/s. Rashtriya Chemicals and Fertilizers Limited vs. Union of India ). The aforesaid appeal was filed assailing an order dated 16.07.2012 passed by the CESTAT on an application filed by the appellant for rectification of the order dated 27.03.2012. Rectification was sought for on the ground that issues raised in the memo of appeal were not considered by the CESTAT. CESTAT had rejected the application filed by the appellant stating that those grounds were not argued during the hearing; it had considered only those grounds which were argued. By the impugned order, High Court did not find any merit in the said appeal and dismissed the same.

Facts

6. On 13.02.2001, officers belonging to the Central Excise Department visited the premises of the appellant and scrutinized the record. It was observed that appellant was procuring Naphtha at nil rate of duty from Hindustan Petroleum Corporation Limited (HPCL) by claiming benefit of exemption under notification Nos. 75/84-CE dated 01.03.1984 and 4/97-CE dated 01.03.1997, as amended, for ‘intended use’ in the manufacture of fertilizer. It was further observed that the said Naphtha was also used alongwith the natural gas as fuel for generation of steam in the steam generation plant.

7. Thereafter, the revenue issued show cause notice dated 29.08.2001 to the appellant demanding duty amounting to Rs. 28,55,95,491.00 for the period from November, 1996 to March, 2001 by alleging that Naphtha procured by the appellant was being used not only in the manufacture of fertilizer but also in the manufacture of other chemicals; thus rendering the appellant ineligible for nil rate of duty under the aforesaid notifications.

8. Appellant submitted reply to the aforesaid show cause notice on 02.11.2001 denying the allegation made by the revenue. It was contended by the appellant that Naphtha was being utilized for its intended purpose and not diverted as alleged.

9. Following adjudication proceedings, the demand of duty amounting to Rs. 28,55,95,491.00 was confirmed by the Commissioner of Central Excise vide the order-in-original dated 04.02.2002.

10. This was followed by issuance of eight show cause notices by the