D.C. Mandal, Member (T)

1. The facts of the case, in brief, are that the appellants brought low sulphur heavy stock (LSHS) without payment of duty claiming exemption of duty under Notification No. 147/7 4-CE and following the Procedure laid down in Chapter X of the Central Excise Rules, 1944. This LSHS was to be used in the manufacture of fertilizers as feed stock. They used 3382.87 M/Tons of LSHS in the manufacture of Ammonia and subsequently used that Ammonia in the manufacture of Ammonium Nitrate (Prilled) during the period from 1-1-1980 to 31-12-1981. A show cause notice was issued to the appellants on 3-5-1982 alleging contravention of Rules 173-G(2) read with Rule 52-A, 173-F read with Rule 9(1), 192, 196 and 226 of the Central Excise Rules, 1944, on the ground that the LSHS was not used in the manufacture of fertilizers and they had not maintained the Central Excise records in spite of being specifically told to do so by the Inspector in-Charge of the factor. It was also alleged that they had wilfully suppressed the quantity of Ammonia used in the manufacture of Ammonium Nitrate (Prilled) by not showing it properly in the records, which led to the evasion of duty. By the impugned order, the Collector held the charges as established and asked the appellants to pay Central Excise duty amounting to Rs. 37,12,565.41 under Rule 196 read with Rule 9(2) of the Central Excise Rules, 1944 and Section 11A of the Central Excises and Salt Act, 1944, and also imposed on them a penalty of Rs. 5,00,000/- under Rule 173Q of the Central Excise Rules, 1944 for deliberate evasion of duty and for making deliberate misleading statements with intent to evade duty.

2. In upholding the charges, the Collector observed that :

(i) The claim of the assessee (the appellants herein) that the Ammonium Nitrate (melt) manufactured by them out of Ammonia produced from LSHS was a fertilizer, was based on a very long-winding argument that once upon a time, at Serial No. 1 of the Table attached to Notification No. 164/69, dated 11-6-1969 Ammonium Nitrate was shown as a fertilizer. This Notification was subsequently amended by Notification No. 225/70, dated 21-7-1979, omitting the above Serial No. 1-Ammonium Nitrate from the table of the Notification No. 164/69 because it was not a fertilizer and it did not appear as fertilizer in the Fertilizer (Control) Order, 1957 issued by the Central Government in exercise of the power derived under Section 3 of the Essential Commodities, Act, 1955. The Department also issued a Trade Notice No. 53/1-Fertilizer/79, dated 5-6-1979, informing all concerned that Ammonium Nitrate (melt) would be dutiable under Item 68 of the Central Excise Tariff and that Ammonia gas falling under Tariff Item 14H used in the manufacture of such Ammonium Nitrate (melt) would also be dutiable. Subsequently, the Notification No. 164/69, was rescinded by Notification No. 67/80, dated 7-6-1980. In view of the above, the argument that Ammonium Nitrate (melt) was a fertilizer was not acceptable.

(ii) The Ammonium Nitrate (melt) was never sold by the assessee (the appellants) as fertilizer. It was seen from the manufacturing process submitted by them that Ammonia gas was first vapourised into Vapour Ammonia, then reacted with Nitric Acid which resulted in Ammonium Nitrate (melt), which subsequently moved into a concentrator where steam of high pressure was applied and then the material moved to a prilling tower from which ultimately Ammonium Nitrate (Prilled) was obtained. The whole operation was a continuous, uninterrupted, integrated process and Ammonium Nitrate (melt) was never taken out of the stream-It came into existence only as an intermediary product in a continuous, uninterrupted, integrated process adopted for the manufacture of Ammonium Nitrate (Prilled) out of Ammonia gas. It is absolutely clear that neither at any stage they had any intention to manufacture Ammonium Nitrate (melt) as a product for sale, nor it was at all a fertilizer;