1. Assessee claimed excise duty exemption on Naphtha procured for use in fertilizer/ammonia production; Revenue alleged diversion for non-specified uses and demanded duty for extended period. (Para 6 , 7 , 8 , 9 , 18 , 19 , 23 )
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2026 Supreme(SC) 311
SUPREME COURT OF INDIA
MANOJ MISRA, UJJAL BHUYAN, JJ.
M/s. Rashtriya Chemicals and Fertilizers Limited – Appellant
Versus
Commissioner of Central Excise and Service Tax (LTU) – Respondent
Civil Appeal Nos. 2219-2220 of 2013, Civil Appeal No. 3757 of 2026 [Arising Out of SLP (Civil) No. 21441 of 2013]
Decided On : 24-03-2026
Important Points
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.
Subject
Tax Law - Excise Duty
Act Referred
CENTRAL EXCISE ACT: S.11, S.35, S.37, S.5
Central Excise Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods Rules: R.6
CENTRAL EXCISE RULES: R.173(q), R.192, R.25
PUNJAB GENERAL SALES TAX ACT: S.5
Central Excise Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods Rules: R.6
CENTRAL EXCISE RULES: R.173(q), R.192, R.25
PUNJAB GENERAL SALES TAX ACT: S.5
Headnote
(A) Central Excise Act, 1944 - Section 11AC - Central Excise Rules, 1944 - Recovery of duty and penalties - Confirmed duty imposed on the appellant for alleged misclassification regarding Naphtha procurement, necessitating assessment of its intended use for fertilizer production - The Court held that exemption notifications must be liberally construed, confirming intent was met despite utilization alongside other products. (Paras 56, 60, 61)
(B) Duty Assessment - Extended period of limitation - Court ruled that the invocation of the extended period for duty recovery on grounds of alleged suppression was unjustified as the appellant complied with prescribed procedures for exemption. (Paras 59, 62)
Facts of the case:
Appellant procured Naphtha exempt from duty under specific notifications, used predominantly in fertilizer production, challenged duty demands totaling Rs. 28,55,95,491.00 over multiple years, leading to disputes regarding intended use and penalty assessments.
Findings of Court:
The exemptions were upheld, with findings reflecting compliance with procedures; penalties under certain rules were set aside.
Issues: The core issues included eligibility for exemption on Naphtha use and the justification for invoking extended limitation periods for duty recovery.
Ratio Decidendi: The Court emphasized the importance of intent regarding the procurement of materials for use in manufacture, rejecting claims of deviation from the intended use which would justify penalty or extended recovery periods.
Result: Appeals allowed and prior orders set aside.
(B) Duty Assessment - Extended period of limitation - Court ruled that the invocation of the extended period for duty recovery on grounds of alleged suppression was unjustified as the appellant complied with prescribed procedures for exemption. (Paras 59, 62)
Facts of the case:
Appellant procured Naphtha exempt from duty under specific notifications, used predominantly in fertilizer production, challenged duty demands totaling Rs. 28,55,95,491.00 over multiple years, leading to disputes regarding intended use and penalty assessments.
Findings of Court:
The exemptions were upheld, with findings reflecting compliance with procedures; penalties under certain rules were set aside.
Issues: The core issues included eligibility for exemption on Naphtha use and the justification for invoking extended limitation periods for duty recovery.
Ratio Decidendi: The Court emphasized the importance of intent regarding the procurement of materials for use in manufacture, rejecting claims of deviation from the intended use which would justify penalty or extended recovery periods.
Result: Appeals allowed and prior orders set aside.
Legal Category Hierarchy
Advocates Appeared:
For the Appellants : Mr. Balbir Singh, Sr. Adv. Mr. Karan Sachdev, Adv. Mr. HG Dharmadhikari, Adv. Ms. Shivani Shah, Adv. Mr. Rajesh Kumar, AOR Ms. Lalita Phadke, Adv. Mr. Rahul Krishna, Adv. Mr. Praveen Agnihotri, Adv. Mr. Siddharth Singh, Adv. Mr. Rajkumar Prasad, Adv. Mr. Vinod Kumar, Adv. Mr. Alek Apurv, Adv. Mr. Mohit Singh, Adv. Ms. Manishà Sharma, Adv. Mr. Devavrat Anand, Adv. Ms. Lalita Phadke, Adv. Mr. Alekh Apurv, Adv. Mr. Mukesh Kumar Maroria, AOR
For the Respondents: Mr. M.H. Patil, Adv. Mr. Sandeep Narain, Adv. Ms. Manasi Patil, Adv. Mr. Viraj Reshamwalla, Adv. M/s S. Narain & Co., AOR Mr. Gurmeet Singh Makker, AOR Mr. Vikramjit Banerjee, A.S.G. Mr. Siddharth Sinha, Adv. Mr. Shubhendu Anand, Adv. Mr. Devashish Bharukha, Sr. Adv. Mr. Rajeev Ranjan, Adv. Mr. B. Krishna Prasad, AOR
For the Appellants : Mr. Balbir Singh, Sr. Adv. Mr. Karan Sachdev, Adv. Mr. HG Dharmadhikari, Adv. Ms. Shivani Shah, Adv. Mr. Rajesh Kumar, AOR Ms. Lalita Phadke, Adv. Mr. Rahul Krishna, Adv. Mr. Praveen Agnihotri, Adv. Mr. Siddharth Singh, Adv. Mr. Rajkumar Prasad, Adv. Mr. Vinod Kumar, Adv. Mr. Alek Apurv, Adv. Mr. Mohit Singh, Adv. Ms. Manishà Sharma, Adv. Mr. Devavrat Anand, Adv. Ms. Lalita Phadke, Adv. Mr. Alekh Apurv, Adv. Mr. Mukesh Kumar Maroria, AOR
For the Respondents: Mr. M.H. Patil, Adv. Mr. Sandeep Narain, Adv. Ms. Manasi Patil, Adv. Mr. Viraj Reshamwalla, Adv. M/s S. Narain & Co., AOR Mr. Gurmeet Singh Makker, AOR Mr. Vikramjit Banerjee, A.S.G. Mr. Siddharth Sinha, Adv. Mr. Shubhendu Anand, Adv. Mr. Devashish Bharukha, Sr. Adv. Mr. Rajeev Ranjan, Adv. Mr. B. Krishna Prasad, AOR
Table of Contents
2. Assessee contended intended use satisfied exemption eligibility and duty was revenue neutral; Revenue asserted mis-declaration of actual use and diversion to non-specified processes. (Para 27 )
3. Court held exemption depends on intended use, which is satisfied here, and Revenue failed to establish deliberate fraud or suppression of facts to invoke extended limitation period. (Para 54 , 58 , 59 )
4. Exemption notifications conditioned on intended use are satisfied if the goods are procured for that purpose, regardless of incidental outcomes, precluding extended limitation absent deliberate suppression. (Para 53 , 54 )
5. Appeals allowed, lower orders demanding duty and penalty set aside on merits and limitation, with related proceedings disposed of as academic. (Para 60 , 61 )
6. Does an exemption notification conditioned on 'intended use' require proof of actual use in the final product?
No, the court held that an exemption conditioned on 'intended use' is satisfied if the raw material is procured and utilized for the specified purpose and intention, even if technical constraints or incidental processes lead to deviations not resulting in the final product. (Para 53 , 54 )
7. Under what condition can the Revenue invoke the extended period of limitation under Section 11A of the Central Excise Act?
The extended period is available only when duty short-levy or non-payment results from fraud, collusion, willful misstatement, or suppression of facts, or contravention of statutory provisions with a proven intent to evade duty; mere omission without deliberate intent is insufficient. (Para 49 , 50 , 56 )
8. Does the principle of revenue neutrality affect the invocation of the extended period of limitation?
Yes, where the entire excise exercise is revenue neutral—because any duty paid would be eligible for CENVAT credit or reimbursed via subsidy—the assessee holds no motive to evade duty, making it impermissible for Revenue to invoke the extended limitation period. (Para 57 , 58 )
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 th
