ORDER
P.S. Bajaj, Member (J)
1. This appeal has been filed by the appellants against the order-in-original dated 16-2-1995 passed by the Collector of Central Excise vide which he had confirmed against them the demand of Rs. 70,64,686.28 under Section 11A of the Central Excise Act read with Rule 196 of the Central Excise Rules, 1944 framed thereunder.
2. The controversy involved in this appeal is regarding entitlement of the appellants of the benefit of one exemption Notification No. 181/86-C.E., dated 1-3-1986 vide which the urea if used as a fertiliser had been exempted from the whole of the excise duty and another Notification No. 75/84-CE., dated 1-3-1984 which provides concessional rate of duty on raw naptha when intended to be used in the manufacture of fertiliser and ammonia.
3. The appellants are engaged in the manufacture of urea fertiliser falling under Chapter Heading 3102 of the Schedule to Central Excise Tariff Act and are bringing raw naptha falling under Chapter Heading 2710.14 as per Chapter X Procedure at concessional rate for use in the manufacture of fertiliser. During the course of checking of their record on 27-2-1991, it was noticed by the Excise Department that they held 4242.05 MT of urea in their stock as per RG.16 and whereas in RG.l Register only 2153.05 MT of urea was shown. On physical verification of the stock of urea lying in silos, 4000 bags each of 50 Kgs. containing lumps of urea were found which weighed 200 MT (approx.). Except for these bags, no other stock was available in the silos. As such 4242.05 MT urea was found deficient. On further scrutiny of the record of the appellants, it revealed that they had been receiving raw naptha at a concessional rate of Rs. 5/- per KL at 15°C for the intended use in the manufacture of fertiliser and ammonia in terms of Notification No. 75/84, dated 1-3-1984. But since the urea manufactured by them for which raw naptha was received at concessional rate, was not shown to have been cleared for the use of fertiliser, the condition specified in the Notification No. 75/84 did not stand satisfied. Consequently, the appellants were called through a show cause notice to pay the excise duty of Rs. 14,83,232.78 on the urea and differential duty on the raw naptha of Rs. 55,81,453.50 under Section 11A of the Central Excises Act.
4. The appellants contested the correctness of the show cause notice. The stand taken by them was that it was a simple case of loss in urea lying in loose state in silos due to various factors which were noticed in the course of their stock checking by the registered and independent agency i.e. Chartered Accountants and the matter was duly reported to the Board of Directors and recorded in the Central Excise record after the same was written off by the Board. They gave the details of the losses during verification and percentages thereof in their reply yearwise from 1986-87 to 1991 as under :
Financial year Production (MT) Shortage Percentage Remarks
1986-87 1,82,780 2,289.000 1.25 Written off
1987-88 1,68,057 379.660 0.23 by the Board
1988-89 1,63,106 36.033 00.02 of Directors
1989-90 1,53,007 1,230.457 0.80 in their
1990-91 25,255 203.386 0.80 306 Meeting
Total Shortage 4,138.536
Sale of Urea 1.000
Total 4.139.536
According to them the stock of urea with them was 302.514 MT. They also averred that clearance of urea from the factory was effected by observing proper procedure and stock verification was done as per the standard procedure. The urea shortage occurred in handling as they are engaged in mass scale production and despatches thereof. They after receiving the write-off sanction from the Board of Directors, adjusted the quantity found short in their RG1 and RG 16 records. The shortage during the year 1986-87 of 2289 MT was duly adjusted in the RG 1 record after receipt of write-off sanction but could not be adjusted in RG 16 as sanction was not received by the officials maintaining that record. They further alleged that the goods falling under Chapter 31 of the Schedule to the Central Excise Tariff Act, 1985 are wholly exempt from the duty and they are entitled to the benefit of the Notification No. 181/86-C.E., dated 1-3-1986. They also denied their liability to pay differential duty on the raw naptha on these very grounds and maintained that they are entitled to the benefit of the Notification No. 75/84, dated 1-3-1984.
5. The Collector, however, did not agree with the plea of the appellants and through the impugned order confirmed demand of Rs. 70,64,686.28.
6. The appellants have challenged the validity of the impugned order in this appeal on the ground that the demand has been raised by the Collector on the basis of assumptions and presumptions regarding the non-user of the urea as fertiliser. There is no evidence on the record to prove the clandestine removal of the urea from their factory premises for a use other than as fertiliser. They have also averred that the Collector had no evidence before him to hold that the raw naptha taken by them on concessional rate of duty was never intended to be used in the manufacture of fertiliser. Therefore, the impugned order passed by him is wholly illegal.
7. The learned JDR appearing on behalf of the Revenue has simply reiterated the correctness of the order of the Collector by contending that the deficiency found in the stock of urea at the time of physical verification was enough to raise an inference that it had not been cleared for use as fertiliser and that the raw naptha was also never used in the manufacture of the urea fertiliser.
8. We have heard both the sides. In our view, the plea taken by the appellants for explaining the shortage found in the stock of the urea at the time of physical checking deserves to be accepted. The appellants are admittedly engaged only in the manufacture of urea fertilizer and raw naptha is being brought by them in the factory at concessional rate for the manufacture of the fertiliser in terms of the Notification No. 75/84, dated 1-3-1984. At the time of physical checking the urea was found lying in loose state in silos and on that account the loss in the quantity could not be ruled out. Admittedly, the deficiency of 4242.05 MT of urea, detected at the time of physical checking on 27-2-1991 was not of one day or one month as even not disputed by the Collector in his impugned order, rather pertained to a longer period. The appellants had in their reply to the show cause notice given the details of the shortages found in the urea during the years 1986-87 to 1991 and which have also been detailed above. The Board of Directors on receipt of the reports from time to time regarding losses in the urea while lying in silos had been writing-off the same. The appellants had also produced even a photocopy of the decision of the Board in this regard on the file and this fact has not been even doubted or disputed in the impugned order.
9. Moreover, there is nothing on record to suggest that there had been any clandestine removal of urea from the factory premises for a purpose other than its use as a fertiliser. Even the Collector in the impugned order has nowhere opined that any document was ever found on checking the record which reflected the clandestine removal of the urea from the factory premises of the appellants for its use other than as a fertiliser. Therefore, in the absence of any such evidence, no presumption could be raised by the Collector for drawing the conclusion that the deficit urea had been used not as a fertiliser but for other purpose, so as to deny the benefit of exemption Notification No. 181/86, dated 1-3-1986.
10. Similarly, the benefit of the concessional rate of duty on the raw naptha in terms of the Notification No. 75/84, dated 1-3-1984 could not be denied to the appellants for the simple reason that the urea for the manufacture of which raw naptha was procured was found to had been not cleared as a fertiliser. There was no evidence whatsoever before the Collector to draw any inference that the raw naptha when procured by the appellants was never intended to be used in the manufacture of fertiliser and Ammonia. A similar demand after having found deficiency in the urea stock, for payment of differential duty on the raw naptha was also earlier raised by the Revenue from the appellants relating to the period October 1982 to March 1986 but the same was set aside by the Tribunal vide Final Order Nos. 1212-1213/93-C, reported in 1999 (30) RLT 480. In that case the Tribunal while following the ratio of the law laid down by the Apex Court in SAIL v. C.C.E. [1996 (15) RLT 493], was pleased to hold that, “there was no case for diversion of raw naptha for the purpose other than the permitted purpose after taking note of the manner of the use. The raw naptha was actually consumed for the manufacture of urea which was later on found short”. Therefore, for this reason also the demand of differential duty raised by the Revenue for the disputed period from the appellants in respect of raw naptha is legally not sustainable.
11. In view of the discussion made above, the appeal of the appellants is accepted. The impugned order of the Collector in appeal is ordered to be set aside.