H.R. Syiem, Member (T)

1. In his Order No, 12/14H/79/Collector 2/79, dated 21-7-1979 the Collector of Central Excise and Customs, Bhubaneswar observed-

However, their contention that the quantity of oxygen consumed in their gasification plant are also covered by the exemption Notification No. 145/71, dated 26-7-1971 as amended is doubtful. In Item 4 of the table annexed to this notification it is indicated that the Government exempted oxygen from the whole of the duty of excise leviable thereon if it is used in the manufacture of fertilizer falling under Item 14 HH of the First Schedule of the Central Excises and Salt Act. As per statistics furnished by them they started consuming oxygen in their gasification plant from the month of April 1978 but the production of fertilizer in the factory has not yet started even today (July 79). In other words the Talcher Fertilizer Plant has been consuming oxygen in their gasification plant for the last more than one year without producing any fertilizer. Since the condition of exemption of oxygen from duty under the above-mentioned notification is, "if used in the manufacture of fertilizer" it will not be correct to say that oxygen consumed by this factory in their gasification plant from April 1978 onwards was in the manufacture of fertilizer.

2. This dispute was in respect of 6,572,000NM3 oxygen manufactured by the Talcher factory of M/s. Fertilizer Corporation of India. The Collector decided that exemption under Notification No. 145/71 should not be given to the oxygen because no fertilizer came out even after a year of use. The matter went up in appeal to the Central Board of Excise and Customs which dismissed the appeal saying that there was a difference between the Notification No. 145/71 and Notification No. 187/61-C.E. which the appellants say should help their case. There was a clarification about Notification No. 187/61-C.E. that it was available to raw naphtha whether used as feed stock or process fuel so long as the intention was for the naphtha to be used in the manufacture of fertilizer. The Board said that there was a basic difference in the two notifications because 1961 notification used the term ''intended for use in the manufacture of fertilizers", while the 1971 exemption used the words "if used in the manufacture of fertilizers". This, said the Board, could be interpreted only as referring to instant or direct or physical use.

3. The arguments before us were long and lively. The Fertilizer Corporation was represented by Shri C.M. Oberoi while the department was represented by Shri N.V.R. Iyer and S.N. Khanna. Mr. Oberoi argued that the oxygen that was produced was not excisable for the purpose of the Central Excises Act as it was not a commercial commodity and had not been bottled or compressed and could not have been taken to the market for sale : its purity was only around 96%. In view of the Supreme Court judgment in the DCM case-1977 E.L.T. J 199, the South Bihar Mill MANU/SC/0112/1968 : AIR 1968 S.C. 922, it can be confidently said that this oxygen was not known to the market as an oxygen. The oxygen went at least upto the synthesis gas stage. Unfortunately, no fertilizer emerged because the plant was still very new and it had not yet been stabilised. This is a problem that all new fertilizer plants have-the gestation and stabilisation period vary, but in all cases they are quite long. There is no known reason why fertilizer did not emerge from the process, but it is a fact that none did.

4. When they look at the Notification No. 187/61-C.E., they can draw comfort from the fact that the Government of India issued clarification which broaden the utility of that notification so as to cover even naphtha that could be said to be not within the terms of the notification. The learned Counsel suggested that the same should be done in this case. After all, intention to use a raw material under concession of duty must be an honest intention, bona fide and unaccompanied by