D.C. Mandal, Member (T)

1. Two issues are required to be decided by us in this appeal. The same are :-

(i) Whether Raw Naptha obtained at concessional rate of Central Excise duty at Rs. 4.40 per K.L. in terms of Government of India's Notification No. 187/61-C.E., dated 23-12-1961 for the manufacture of fertilizer against L-6 licence, which was fed into the Plant to keep it running but not actually utilised in the manufacture of Calcium Ammonium Nitrate, a fertilizer, is eligible for the benefit of the Notification; and

(ii) Whether the demand for duty raised in the show cause notice dated 23-4-1984 for the Raw Naptha so used during the period from 1-4-1981 to 31-10-1983 in terms of Rule 196 of the Central Excise Rules, and the bond executed by the appellants, was barred by limitation?

2. The brief facts of the case, as stated in the Order-in-Original dated 5-12-1986 passed by the Assistant Collector of Central Excise, Rourkela, are as follows :-

M/s. Steel Authority of India Limited, Fertilizer Plant, Rourkela (in short "SAIL") obtained Raw Naphtha falling under Item No. 6 of the Schedule to the Central Excises & Salt Act, 1944 on which the excise duty at a concessional rate of Rs. 4.40 P. per K.L. was paid under Notification No. 187/61-C.E., dated 23-12-1%! in terms of the Licence in form L-6 No. I/MOTOR SPIRIT/ ROURKELA/63, for use in the manufacture of the fertilizer, 'Calcium Ammonium Nitrate'. In the process of manufacture of the said fertilizer, SAIL, first manufacture Ammonia Gas from the Raw Naphtha. Ammonia Gas is also manufactured from 'Coke Oven Gas' as and when obtained from Rourkela Steel Plant. There are, therefore, two sources of raw materials for manufacturing "Ammonia Gas" viz. Raw Naphtha and Coke Oven Gas. Ammonia produced from both the sources are stored in the same Storage Tank. From this stock of Ammonia, a part is sold to outside parties and a part is used in the manufacture of Nitric Acid, out of which some quantity of Nitric Acid is sold to outside parties, and the remaining Nitric Acid and the remaining Ammonia is processed and "Ammonium Nitrate" is produced. A part of the Ammonium Nitrate is sold to outside parties and the rest is converted to "Calcium Ammonium Nitrate" which is a FERTILIZER. During the period of power shortage, large quantity of Raw Naphtha was consumed in the "Naphtha Reformation Plant" to keep the said Plant in working condition and the "Naphtha Reformed Gas" was let out (vented out) into the atmosphere, as in the absence of adequate supply of electricity they could not convert the Raw Naphtha into Ammonia Gas and subsequent products. During the period from 1-4-1981 to 31-10-1983 the appellants used 36,297.718 K.L. of Raw Naphtha in the above manner. As this quantity of raw naphtha obtained at concessional rate of Rs. 4.40 per K.L. for the manufacture of "Fertilizer" was not actually used in the manufacture of Fertilizer, a Show Cause Notice was issued by the Assistant Collector of Central Excise, Rourkela to the appellants on 23-4-1984 asking them to explain why the Central Excise duty to the said Raw Naphtha should not be recovered from them in terms of Rule 196(1) of the Central Excise Rules and in terms of B-8 bond executed by them. After considering the reply to the Show Cause Notice and hearing the appellants personally, the Assistant Collector held that the aforesaid quantity of Raw Naphtha, which was not actually used in the manufacture of fertilizer, but was consumed in the "Naphtha Reformation Plant" to keep the said Plant in running condition and venting out the Naphtha Reformed Gas into the atmosphere, was not entitled to the benefit of Notification No. 187/61-C.E. and he directed that differential duty amounting to Rs. 8,16,50,990.69 on 36,297.718 K.L. of Raw Naphtha at the rate of Rs. 2,249.48 per K.L. (i.e. Rs. 2, 253.88 P. per K.L. under the Notification No. 250/79-C.E., dated 17-8-1979 minus Rs. 4.40 P per K.L. under the Notification No. 187/61-C.E., dated 23-12-1