JUDGMENT
G.N. Srinivasan, M(J)
1. Appeal taken up for disposal with the consent of both parties.
2. This is an appeal filed by the department against the decision of the Commissioner of Central Excise and Customs (Appeals), Ahmedabad made in Order-in-Appeal No.581/97 made in filed No. (24-KDL) CUS/COMMR/(A)/AHD dated 8.10.1997 whereunder he had held that the order passed by the Assistant Commissioner of Custom, Kandla made in Order-in-Original No. KDL A.C./04/96 APPB. G.R.I dated 29.11.1996 confirming the duty short levied amounting to Rs.22,57,65,172/- demanded under show cause notice dated 30.10.1996 was wrong and allowed the appeal of the respondents.
3. Respondents had been regularly importing heptene/nonene at Kandla. They were using these chemicals for manufacture of oxo chemicals at their factory. There was a dispute with regard to the classification as to whether heptene/nonene could be classified as “AIF/Motor Spirit” or “otherwise”. According to the opinion of the Chief Chemist, C.R.C.L., New Delhi, if end use and flash point criteria are taken into consideration, then heptene/nonene should be classified as “Raw Naptha”. However, on the basis of smoke point and final boiling point criteria laid down under heading 2710.21 heptene/nonene may be considered as ATF. On the basis of the Chief Chemist’s opinion, it was decided by the Central Board of Excise and Customs that heptene/nonene could be classified and assessed as “Raw Naptha” under Customs Tariff heading 2710.00 and “A.T.F.” under Central Excise Tariff Heading 2710.21. The respondent from 18.5.1992 to 28.12.1992 filed bills of entry nos.3101, 2679, 6574, 4212, 4395, 6771 and 5566 claiming classification as A.T.F. for both basic Customs duty and CVD but they were assessed as “Motor Spirit” for purposes of Customs duty with benefit of notification 35/90-Cus. For the period from 17.3.1993 to 12.1.1994 bills of entry nos.7307, 8557, 6656, 4352, 2882, 5117, 1335, 1523 and 416 were filed seeking to classify the product as ATF. It was noticed by the department that exemption availed under notification 158/76 dated 2.8.1976 was conditional and the assessee/imports was wrongly claiming the same as they were to give inter alia an undertaking for the use of the imported goods for manufacture of fertilisers and petrochemicals; to maintain accounts for its receipts or consumption in the place of manufacture as specified by the A.C. Customs and to produce the extract of such account within stipulated period. As the respondents never furnished such an undertaking as indicated above, exemption under the above notification was not found to be admissible. Further, since there is no other notification prior to 1994 providing exemption from Customs duty for raw naphtha, as such Customs duty was to be levied at the applicable rate from time to time for raw naphtha under Customs Tariff, 1975 and accordingly,
(i) during 1990-91 and 1991-92 Customs Duty Act 40% Adv. attracted under notification No.35/90 dated 20.3.1990 (at serial no.14) as raw naptha.
(ii) during 1992/93, Customs duty @ 45% Adv. attracted under notification 46/92 (under serial no.9) on raw naptha,
(iii) during 1993-94, raw naptha is classifiable under heading 2710.00 and attracts duty @ 45% Adv. and
(iv) since 1994 till date raw naptha is being classified under the heading 2710.00 attracting ‘nil’ rate of duty under notification no.19/94.
In view of the above on 30.10.1996 a show cause notice under Section 28(1) of the Customs Act, 1962 was issued claiming the differential duty amounting to Rs.28,12,14,503/- and for classification of heptene as raw naptha under Customs Tariff Act, heading 2710.00 and as ‘A.T.F.’ under Central Excise Act and as ‘A.T.F.’ under Central Excise Tariff sub-heading 2710.21 and also denying exemption of notification 158/76 for not fulfilling condition (please see page 38 of paper book). After extending opportunity of personal hearing, which the appellants failed to avail, in view of directions from the Hon’ble High Court of Gujarat to finalise the assessment before the end of November 1996 the matter was adjudicated upon by the Assistant Commissioner by his order dated 29.11.1996 ordering classification of the goods i.e. heptene and nonene as “raw naptha” under heading 2710.00 of the Customs Tariff Act and as “Avuatuib Turbine Fuel” under heading 2710.21 of the Central Excise Tariff and order finalisation of the provisional assessment accordingly. He further allowed the respondents:
– benefit of Customs notification 35/90 under sr.no. 14 for the period 1990-91 and 1991-92.
– benefits of notification 46/92 under sr.no.9 for the period 1992-93
– for the period 1993-94 tariff rate was applicable sine no notification was available
– for the period 1994 till date benefits of notification 19/94 was extended.
For the CVD purpose, the respondents were allowed to avail the relevant notifications as applicable to ATF. The Assistant Commissioner confirmed the demand of Rs.22,57,65,172/-. Against the finalisation of the provisional assessment by the Assistant Commissioner the respondents by the Assistant Commissioner the respondents filed an appeal before the Commissioner of Central Excise and Customs (Appeals) who by the impugned order set aside the above order of the Assistant Commissioner inter alia holding that basic conditions of notification 158/76 were fulfilled and that benefit could not be denied and that benefit could not be denied and that condition regarding maintenance of certain records had not been fulfilled. Hence this appeal by the department.
4. Learned SDR, Shri C.P. Rao, appeared for the department and Shri G.E. Vahanvati, senior advocate instructed by Shri V.S. Nankani, advocate appeared for the respondent.
5. It was contended by the learned SDR that the order of the Commissioner is wrong in law inasmuch as the interpretation given by him to the notifications 158/76-Cus and 35/90 is wrong. he in effect said that when the word “and” has been used in the notification 35/90 and is used in notification 158/76, it provided for certain conditions. The conditions are mentioned in the said notification in the form of a first proviso have to be complied with. He, therefore, argued that observations of the Commissioner in paragraph 24 of the order is, therefor, wrong. It was next argued by him that the word “Fertilisers and Petrochemicals” used in the said notification should be given full meaning to it. The word “and” could not be read as “or” in the said notification. He further stated that respondent did not show any intention of manufacturing both fertilisers and petrochemicals. What he emphasizes is that the end product should be used for manufacture of fertilisers and petrochemicals. he further stated that in view of judgment of the Supreme Court in Indian Aluminium Co. case reported in 55 ELT 454 for taking benefits of exemption notification whatever conditions have been mentioned in notification they have to be complied with even though they may be procedural. He further specifically invited our attention to the observations of the Supreme Court in paragraphs 3 and 4 thereof. He also invited our attention to the fact that however large the impracticabilities in complying with the conditions of the notifications the person who seeks the benefit of the notifications has to follow the conditions mentioned in the notification and he relies on the decision of the Supreme Court in the case of Bombay Oil Industries Pvt. Ltd. v. UOI (77) ELT 32 especially paragraph 8 thereof.
6. As against this Shri G.E. Vahanvati argues that in view of the judgment in the case of Gujarat State Fertilisers Co. reported in 1997 (91) ELT 3 he specifically invited out attention to paragraph 9 of the said judgment especially following words “now a mere look at the said notifications, shows that raw naptha was used in the manufacture of fertilisers and ammonia. It would earn the confessional rate of duty.” He specifically argued that it is not uncommon for the courts to hold that the word “and” used in the statute are sometimes used to be read as “or”. He cited the decision of Jay Kay & Company v. CC 1998 (38) ELT 709 and ITC Ltd. v. CC, Madras 1997 (89) ELT 90. He also cited the decisions in Consolidated Petrotech Industries Ltd. v. CC 1992 (57) ELT 81 and the judgment of Supreme Court in Ishwar Singh Bindra v. State of UP reported in AIR 1968 (SC) 1450 at para 11 thereof.
7. In reply to the said argument learned SDR stated that Consolidated Petrotech Industries case facts are different with the facts in this case. As far as ITC Ltd. case was concerned he stated that again that was the case of interpretation of tariff heading in respect of the Customs matter. As far as the third case viz. Jay Kay & Co.’s case is concerned, especially in para 4 thereof, he stated that was the case of interpretation of the ITC Policy which is not strictly a statute.
8. We have considered the rival submissions. The respondent imports heptene/none and they filed two bills of entry on 7.3.1991 and 20.6.1991 vide nos. 1801 and 3299 and claimed classification of these materials as motor spirit for the purpose of customs duty and claimed benefit of notification 35/90-Cus. Further on 18.5.1992 and 28.12.1992 they imported these items and filed further bills of entry viz. no.3101, 262/79, 65, 74, 2206, 4212, 4395, 6771 & 5566. In these cases also the product was claimed as motor spirit and they sought to claim benefit under notification 35/90-Cus. Further following bills of entry were filed viz. 7307, 8557, 4352, 2882, 5117, 1335, 1523 & 416 claiming the benefit of classifying the benefit of classifying the product as “ATF”. Show cause notice dated 30.10.1996 was issued. In that it was mentioned as follows:-
“There was a dispute whether heptene/nonene would be considered as ARF/Motor spirit or otherwise. Representative samples were also sent to the Chief Chemist, CRCL, New Delhi. After conducting tests, the Chief Chemist is of the view that if end use and flash point criteria is taken into consideration heptene nonene are to be considered as ‘Raw Naptha”. However, on the basis of smoke coil and final boiling coil criteria laid down under heading 2710.21 heptene/nonene may be considered as ATF. On the basis of the Chief Chemist’s opinion it has been decided by the Customs, and Central Excise Board that heptene and nonene would be classified and assessed “naptha” under heading 2710.00 under Customs Tariff head and as ATF under heading 2710.21 under Central Excise Tariff Act.
In view of above facts heptene nonene are being classified and assessed as raw naptha under CETA heading 2710.21 extending the benefit of notifications as existed from time to time for the reasons given therein.
Notification No.158.76 exempts raw naptha falling under chapter 27 of the First Schedule to the Custom Tariff Act 1975 when imported into India for manufacture of fertilisers and perto-chemicals.
Provided that the importer furnishes an undertaking to the effect that:-
(a) the said imported goods shall be used for the purpose specified above
(b) an account of the said imported goods received and consumed in the place of manufacture for the aforesaid purpose shall be maintained in the manner it is specified by Assistant Commissioner of Customs.
(c) He shall produce the extract of such account duty certified by the manufacturer evidencing receipt of the imported good in the premises of the place manufacture within a period of three months or such extended period as the Assistant Commissioner may allow.
(d) He shall pay on demand in the event of his failure to comply with (a), (b) or (d) above an amount equal to the difference between the duty leviable on such quantity of the said imported goods but for the exemption contained therein and that already paid at the time of importation.
Provided further that where raw naptha is to be processed before being supplied for use in the manufacture of fertiliser and petrochemicals such quantity of raw naptha as is proved to the satisfaction of the Assistant Commissioner to have been lost or used during such process or returned to any other refinery for further processing of petroleum products shall be deemed to have been used for the aforesaid purpose.
Further importer has never furnished an undertaking to the effect that conditions laid down in the above notification would be fulfilled. Hence benefit of this notification cannot be extended it is not admissible.”
After considering the reply of the appellant Assistant Commissioner in his order has held at pages 12 to 17 as follows:-
“M/s. Indu Nissan Oxo Chemical Ind. Ltd. have not claimed the benefit of this notification during the relevant period in all the Bs/E which are provisionally assessed. On going through various letters and literature submitted by the party, it appears that they are manufacturing oxo-alcohols (party’s letter No.103/122/321 dated 15.6.93). They are using Raw Naptha to manufacture of 2-ethy1 hexanol, iso-octanol. According to their factor of 2-ety1 hexanol, iso-octanol. According to their letter, 2-ethy1 hexanol and iso-octanol are manufactured by oxo process. 2-eth1 hexanol is an isomer of octanol, similarly, iso-octanol is also mixture of isomers of octanol. The chemically it contains mostly dimthly hexanol 80% and other isomers 20%. It appears that Raw Naptha is being used by the party in manufacture of petrochemicals. The same facts have been verified from our lab that Oxo Chemicals can be considered as petrochemicals. However, if wordings of notification is strictly followed then it should be used in the manufacture of fertilisers and petrochemicals. The word “AND” is very important in the notification. It means that Ox-chemicals which are manufactured by the party should satisfy the definition of the fertilisers as well as petrochemicals. The party satisfies the definition of petrochemicals but not of the fertilisers. The party vide their letter No.112/20-C/1608 dated 29.7.91 has stated that the Oxo Chemicals which are produced by them are to be considered as petrochemicals, to support their contention they have attached the relevant page of book by James G. Speight. Their letter gives additional evidence that it should be considered as petrochemicals. But they failed to satisfy its use as fertiliser. If the intention of this notification was to give benefit to both petrochemicals and fertiliser industry then the word “OR” should be used. The benefit of this notification will be available to that industry which will be satisfying both fertilizer as well as petrochemicals. For example, if Naptha is used for manufacture of urea. The urea will satisfy both the definition of fertilizer and petrochemicals. Therefore, the party has not satisfied this condition.
The second condition of notification is that the party has to maintain an account of the said imported goods received and consumed in the place of the manufacture for the manufacture of petrochemicals. It has to be done as specified by Assistant Commissioner of Customs. The party has not produced any such account. Secondly, they have never asked Assistant Commissioner of Customs about the manner on which such account should be maintained. Therefore, this portion of notification is not followed by the party.
According to third condition of aforesaid notification, they shall produce the extract of such account duly certified by the manufacturer evidencing receipt of the imported goods in the premises of the place of manufacture within a period of 3 months or such extended period as Assistant Commissioner may allow. The party has not fulfilled this condition also. The fourth clause of this notification clearly stated that the party shall pay on demand in event of his failure to comply with above mentioned conditions. The amount will be equal to the difference between the duty leviable on such quantity of the said imported goods but for the exemption contained herein and that already paid at the time of importation. Therefore, the Dept. has right to recover differential duties. It is further provided in notification that the party has to produce the undertaking that they will fulfill the conditions of this notification. In proviso of this notification, it is stated that they have to prove to the satisfaction of Assistant Commissioner about the quantity have been lost or used during such process or returned to any other refinery for further processing of petroleum products. They have never stated this regard to the satisfaction of Assistant Commissioner. Nothing has been said about the quantity lost or used during the process of manufacture of petrochemicals. However, they have written about naptha being returned for further use. From their letters, it appears that they have not fulfilled this condition also.
It appears from the wordings of their letter No.112/20/CUS/K/1322 dated 21.12.1995 that they are not fulfilling this condition therefore, their Bonds cannot be cancelled. In their another letter No.112/20/CUS/K dated 16.10.1995, they have stated that any return generated is either captively consumed as feed stock or sold only to crude oil refinery. They have stated in context of ITC restriction. But those facts are also applicable to this notification. According to this notification also the left over naptha has to be returned to any other refinery for further processing of petroleum products. It is further stated in above mentioned letter that they have offered the by-products obtained in our process to M/s. Indian Oil Corporation. They have refused to purchase saying that the products are not suitable for blending into any of their finished products. Therefore, they are using as fuel in their boiler. The party vide their No.112/20/C/3000 dated 10.3.92 has given details about Chemistry of the Raw Naptha. They have attached a schematically diagram showing the different processes followed and the products/by products obtained at different stages. They have quoted the Tribunal’s judgment of M/s. IPCL published in 1992 (57) ELT 485 (Trib.) to support their contention. According to this letter and judgment, the pyrolysis gasoline obtained as a by-product of thermal cracking of raw naptha is also raw naptha. The learned bench has further stated that at every stage of stripping of one product, the balance of input continues to be raw naptha. The technical information of raw naptha from the Hawley’s Chemical Dictionary at page 206, clearly indicates that several products can be extracted of each product, what is left over is considered as residue. The residue in this case after extraction of each item, however, continues to be raw naptha of different grade. The learned bench has also taken the stand that a product which is not readily usable at the stage of extraction but is still in the nature of raw material capable of being a source of extraction of several products is to be considered as raw naptha. Considering their letter and the judgment quoted by them, I accept their plea that the left over material (Return Stream) is nothing but Raw Naptha. Therefore, to avail the benefit of notification they should send this material to another refinery which they are unable to do. Thus the benefit of this notification they should send this notification cannot be extended to the party. In the above referred judgment, the benefit of notification was denied because the party is not using return stream as per conditions of notification. In the present case, the party has not followed this condition but other conditions are also not followed as discussed above. Therefore, the benefit of notification No.158/76 as amended cannot be extended to the party.
The notification No.52/87 as amended cannot be extended to Raw Naptha. This notification allows lower rate of duty on Disobutylene, Heptene, and Nonene if imported for manufacture of Oxoalcohols. Since the products imported by the party cannot be considered as Heptene and Nonene as discussed above, the benefit of this cannot be extended. The reasoning for not considering as Heptene and Nonene is given by the party themselves in their various letters as quoted above in finding and discussion portion of this order. Therefore, I disallow the benefit of aforesaid notification.
On going through various notifications, it appears that for the period after 20.3.1990 upto amendment of notification No.35/90, the befit of this notification as per serial No.14 can be given to the party. The Raw Naptha is not figured in any of this serial numbers but is classified under 2710.00 of Customs Tariff Act. The serial No.14 deals with other petroleum oils and oils obtained from bituminous minerals, other than crude, preparations not elsewhere specified or included, containing not less than 70% by weight of petroleum oils obtained from bituminous minerals, these oils being the basic constituents of the preparations. Therefore, Custom duty is leviable at the rate of 40% till amendment of this notification. This is amended by notification No.283/90-Cus, dated 15.12.1990; No.41/91-Cus dated 1.4.1991 and 53.91-Cus, dated 25.7.1991, 46/92, dated 1.3.1992 vide this notification serial No.9, the rate of Customs duty to 45% advalorem till amendment of this notification. Therefore during 93-94, they have to pay duty at the rate of 85% advalorem till notification No.19/94 as amended available to the party.
This office has given ample opportunities in order to fulfill the natural justice. In show cause notice itself, it was stated that they can appear for personal hearing on any working day on or before 15th November 1996. Since the party has not appeared for the personal hearing, this date was extended to 26.11.1996. They were given opportunity to appear on or before 26.11.1996 on any working day. They failed to avail this opportunity, therefore, I decide this issue on merit, on basis of facts and documents available to the Dept. Since the case has to be decided before the end of November as per Hon’ble High Court of Gujarat’s order in case of M/s. Indu Nissan Oxo Chemicals Ind. Ltd. in SCA No.6540/96 dated 1.10.1996, I decide the issue without giving another opportunity for PH.
It is contended by the learned SDR that if any conditions of notifications are very impracticable, on that score party claiming benefit of notifications cannot be held to say that they are difficult to comply. He relies on the judgment of Bombay Oil Industries Pvt.Ltd.’s case (77) ELT 32. In the said case, there was the colour specification from the table was removed from the specification. The original exemption notification was issued on 2nd August, 1976 colour specification was deleted by notification dated 2.9.1978. It was argued that subsequent notification issued in 1978 was a clarificatory in nature. Even then the Tribunal did not agree with him. The judgment of the Tribunal has been referred to by the Supreme Court in its judgment at page 40 of the reports as follows:-
“10. Before parting we may not one submission of the learned counsel. They submitted that laying down of condition No.2 in Notification dated 2.8.1976 was a clear error on the part of the Central Government which was corrected by them by the letter Notification dated 2.9.1978 and, therefore, the letter Notification read with above Notification of 2.8.1976. It is not possible to agree as the disputed imports with which we are concerned are prior to 2.9.1978. They are therefore, covered under the earlier Notification of 1976. It is true that the Tribunal by noting these submissions has observed in paragraph 35 of the judgment that the colour specification was an error and that the error be removed by for that reason could not ignore the colour specification when it was the part of the law. We entirely agree with the view of the Tribunal that even if the Central Government corrected its error about condition No.2 from 2.9.1978 by issuing fresh Notification, the earlier colour specification requirement remained operative for imports made by the concerned importers prior to 2.9.1978 when the earlier Notification dated 2.8.1976 was holding the field. The letter Notification cannot be said to be merely clarificatory Notification nor can it have any retrospective effect. It is a fresh Notification laying down fresh condition deleting the earlier condition No.2 about the colour specification. Hence this submission is of no avail to the learned counsel for the appellants.”
Commenting on the condition it was held in paragraph 8 of the judgment at page 36 of the report as follows:-
“8. It has to be kept in view that as per Section 12 of the Customs Act, duties of customs Tariff Act for goods imported in or exported out of India. It is not in dispute between the parties that the imported tallow attracted the customs duty as per the Customs Tariff Act, 1975 at the rate of 45 per cent ad valorem but the applicants staked their claim on the basis of the Notification issued by the Central Government under Section 25 of the Central Government under Section 25 of the Act granting partial exemption from duty on such imported tallow. It is obvious that whatever exemption is granted under Notification may be either absolute or subject to such conditions which have got to be fulfilled by the importers before earning such exemption. The Notification 141-Cus/76 which we have earlier referred does not grant such 30 per cent exemption in absolute terms but such exemption is based on fulfillment of conditions mentioned therein about the specification of imported tallow and if the imported tallow does not meet the specification required cannot earn the exemption. It is trite to say that in order to earn the exemption the person claiming the exemption must satisfy that his imported item has fulfilled all the conditions of the exemption Notification as such exemptions are granted in public interest. In connection with such exemption Notification issued under Section 25 of the Customs Act, a Bench of this Court in case Union of India and Ors. v. Jalyan Udyog and Anr. (AIR 1994 SC 88), speaking through B.P. Jeevan Reddy, J., has made the following observations:
“An exemption granted may be an absolute and/or subject to such conditions, as may be specified in the notification and further that the conditions specified may relate to a stage before the clearance of goods or to a stage subsequent to the clearance of goods. Section 25(1) is a part of the enactment and must be construed harmoniously with the other provisions of the Act. The power of species of delegated legislation. Whether it is one or the other, it is a power given to the Central Government to be exercised in public interest. Such a provision has become a standard feature in several enactments and in particular, taxing enactments. It is equally well settled by now that the power of taxation can be used not merely for raising revenue but also to regulate the economy, to encourage or discourage aw the situation may call for the import and export of certain goods as also for serving the social objectives of the State. Since the Parliament cannot constantly monitor the needs of and the emerging trends in the economy and is in no position to engage itself in day-today regulation and adjustment of import-export trade accordingly, power is conferred upon the Central Government to provide for exemption from duty of goods, either wholly or partly, and with or without conditions, as may be called for in public interest. Reading any limitation into this power is not warranted. If the public interest demands that exemption should be granted only subject to certain conditions it can provide such conditions. Then again if the public interest demands that conditions specified should relate to a stage subsequent to the date of clearance it can do so. The guiding factor is the public interest.”
(Emphasis supplied).
9. In respect of the additional duty whether it is provisional or not the same has been dealt with extensively by the Collector (Appeals). He held at para 23 that show cause notice has been issued and that too after 4 years. He held further that the demand of customs duty being not within six months is barred by limitation. He held that in para 24 thereof the word “and” mentioned in notification 158/76 will be read as “or”. He also held that the very purpose of issuing the notification will not be redundant. He also sought to follow the judgment of the Supreme Court in two cases Mat Laboratories 74 ELT 769 and Wood Papers Ltd. 47 ELT 500. As far as conditions contained in the notification 158/76 are concerned, he held as follows at para 24 of his order.
“It is admitted position that the Central Excise authorities at Baroda have certified the Heptene and Nonene received at the factory have been utilised in full for the manufacture of Iso-octanol/ISO-decanol both being oxoalcohols which are petro chemicals. I have perused the certificate issued by the Superintendent of Central Excise, AR Baroda and the appellants have clearly established not only the goods manufactured are petrochemicals but the imported goods are only used for the said purpose. The other condition laid down in the notification are technical in nature and the appellants cannot be denied the benefit of notification particularly when the CE authorities have confirmed the entry of the imported goods into the factory premises of the appellants situated in Baroda and have been used only for the manufacture of petrochemicals. The proviso to the Notification has no application to the facts of the case as raw naptha i.e. to say Heptene and Nonene is not required to be processed before being used for the manufacture of these petrochemicals.”
10. As far as the exemption Notification is concerned, it cannot be treated in a liberal way as mentioned in para 24 of the order where the Collector has held as follows: “Liberal and strict instruction of an exemption provision are to be invoked at different stages of interpreting it.” However, the Supreme Court in interpreting the exemption notification has held in the case of Novopan India Ltd. 1994 (73) ELT 769 the strict interpretation is to be given to such notification in case of doubt or it must go to the state saying the said at para 18 thereof. In deciding the said case, however, it must be mentioned that the court also refers to the judgment of the Supreme Court in UOI v. Wood Paper Ltd. 1990 (47) ELT 500 referred to by the appellant.
11. Shri Vahanvati, learned senior counsel for the appellants tries to justify the order passed by the Commissioner (Appeals). He states that the case squarely falls within the judgment of the Supreme Court in Gujarat State Fertilisers v. CCE 1997 (91) ELT 3. That was a case where the company claimed the confessional rate of duty under notification 75/84 in respect of the ammonia manufactured by it which was utilised by it for production of molten urea by captively consuming the afore-said ammonia manufactured out of raw naptha. He stated that the case was based on similar notification issued by Central Govt. bearing Notification No.40/85. This notification reads as follows:
Raw Naptha Rs.2,255
per kl. at
15’C
Raw Naptha Rs.5 per Intended for use
kl. at in the manufacture
15’C of fertilizers
and ammonia:
Provided that
where the intended
use is in the
manufacture of
ammonia such
ammonia is used
elsewhere in the manufacture of
fertilisers and
the procedure
set out in
Chapter X of the
Central Excise
Rules, 1944, is
followed.
In dealing with this question the Supreme Court in the case of Gujarat State Fertilizers Co. v. CCE 1997 (91) ELT 3 held at para 9 pages 7 & 8 of the reports as follows:
“In the light of these background facts on which there is no dispute the short controversy posed for out consideration will have to be resolved. We have, therefore, to turn to the concerned two notifications which are brought on the anvil of scrutiny before us. Notification No.75 of 1984, dated 1.3.1984, as amended from time to time, sought to grant a concession in the rates of central excise duty as specified in the Schedule to the said notification on goods of the description specified in column (2) of the Table subject too intended use or condition as laid down in column (4) thereof. The Table to the said notification mentioned at Sl.No.2 raw naphtha as the commodity on which confessional rate of duty was permitted subject to the condition mentioned in column (4) which provided that raw naphtha must be intended for use in the manufacture of fertilisers and ammonia. We are not concerned with the proviso to the said condition mentioned in column (4). Now a mere look at the said notification shows that when raw naphtha was utilised for manufacture of fertilisers and ammonia, it would earn the confessional rate of duty. It is not in dispute between the parties that raw naphtha which the appellant purchased from the open market was in fact utilised by it in manufacture of ammonia even leaving aside the further question as to whether it was utilised for manufacture of any fertiliser. It is, therefore, difficult to appreciate as to how the CEGAT could persuade itself to hold that because ammonia manufactured out of raw naphtha had resulted in molten urea which was not a soil fertiliser, the benefit of the aforesaid notification could not be made available to the appellant which had utilised raw naphtha in its Plant. Moment it was shown that raw naptha was wholly utilised by the appellant for manufacturing ammonia, the condition laid down in column (4) of the notification got fully satisfied. On this short ground, the reasoning of the CEGAT for not extending the benefit of confessional rate of duty on raw naphtha to the appellant cannot be sustained. However, as discussed hereinafter, raw naphtha can also be said to have been utilised in manufacturing molten urea which is a chemical fertiliser covered by the term ‘fertiliser’ as employed by this very condition in column (4). Thus this condition can be said to have been fully complied with by the appellant.”
12. Here we are concerned with notification 158/76 in which the conditions are stated as follows:
“Notification No.158/76 exempts raw Napths following under Chapter 27 of the first schedule to the Customs Tariff Act 1975 when imported into India for manufacture of fertilisers and petro chemicals.
Provided that the importer furnishes an undertaking to the effect that:-
(a) The said imported goods shall be used for the purpose specified above.
(b) An account of the said imported goods received and consumed in the place of the manufacturer for the aforesaid purpose shall be maintained in the manner specified by Assistant Commissioner of Customs.
(c) He shall produce the extract of such account duly certified by the manufacturer evidencing receipt of the imported goods in the premises of the place of manufacture within a period of 3 months or such extended period as the Assistant Commissioner may allow.
(d) He shall pay on demand in the event of his failure to comply with (a), (b) or (c) above an amount equal to the difference between the duty leviable or such quantity of the said imported goods but for the exemption contained herein and that already paid at the time of importation;
Provided further that where raw Naptha is to be processed before being supplied for use in the manufacture of fertiliser and petro chemicals such quantity of raw naptha as is proved to the satisfaction of the Assistant Commissioner to have been lost or used during such process or returned to any other refinery for further processing of petroleum products shall be deemed to have been used for the aforesaid purpose.
Further, importer has never furnished and undertaking to the effect that conditions laid down in the above Notification would be fulfilled. Hence benefit of this Notification cannot be extended / is not admissible.”
13. The conditions in notification 158/76 are entirely different from what was contained in notification 75/84. It was a case of manufacture of molten urea and the case before us is in respect of utilisation of imported material in the manufacture of fertilisers and amonia. Here it is not so. Here the item is not utilised in the manufacture of fertilisers and chemicals. The facts admittedly is that they have not used for manufacture of the items as mentioned in the notification. According to us the conditions mentioned in the notification 158/76 were never complied viz. utilisation of the imported material in the manufacture of fertiliser and amonia and keeping of accounts.
14. In this connection it is relevant to mention that the conditions which are very onerous have to be fulfilled if any person claims exemption. This is what the judgment of the Supreme Court in the case of Bombay Oil Industries Ltd. 1995 (77) ELT 32vide paragraph 8 thereof which we have extracted earlier. Here, it is not a case of type of fertiliser whether it is a soil fertiliser as was the case in the Gujarat State Fertilisers Co. decided by the Supreme Court. In fact in paragraphs 12 to 15 of the judgment in GSFC case (supra) it is very clear that the Supreme Court discussed about varieties of fertilisers viz. chemical fertiliser etc. That type of questions do not arise here. Therefore, the decision of the Supreme Court in that judgment will not be applicable to facts of the instant case.
15. In this connection, it is useful to refer to the decision of the House of Lords in respect of precedents where the House of Lords has held as follows:
” Quinn v. Leathem (1901) A.C. 495, 506: Now before discussing the case of Allen v. Flood, (1898) A.C. 1 and what was decided therein, there are two observations of a general character which I wish to make, and one is to repeat what I have very often said before, that every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical Code, whereas every lawyer must acknowledge that the law is not always logical at all.”
This judgment has been followed by our Supreme Court in the case of State of Orissa v. S.S.Misra AIR (1968) SC 647 which reads as under:
“A decision is only an authority for what is actually decides. What is all the essence in a decision is its ratio and not every observation found therein nor what logically flows form the various observations made in it.”
16. As far as the ITC’s case 1997 (89) ELT 90 is concerned, cited by the learned counsel, the question for consideration is regarding the interpretation of the heading 8459 in the Custom Tariff which does not contain any conditions. In this case the question regarding fulfilment of conditions as contained in notification 158/76 which is mentioned in the SCN. The question for consideration is entirely different. Therefore we cannot accept the argument of Shri Vahanvati.
17. Here it is relevant to mention the argument of Shri Vahanvati. He tries to seek benefit of judgment in Gujarat State Fertilisers Co.Ltd. case. Notification 35/84 reads as under:
” Exemption/Effective rates of duty for goods falling under Chapter 27. In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods of the description specified in column (2) of the Table hereto annexed and falling under Chapter 22 or 27 or 29 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from so much of the duty of excise leviable thereon under the Central Excises and Salt Act, 1944 (1 of 1944), at the rate of specified in the said Schedule, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (3) of the said use, or the conditions, if any, laid down in the corresponding entry in column (4) thereof:
Provided that where any such exemption is subject to the intended use, the exemption in such case shall be subject to the following conditions namely:-
(i) that it is proved to the satisfaction of an officer not below the rank of an Asst. Collector of Central Excise that such goods are cleared for the intended use specified in column (5) (now column 4) of the said Table;
(ii)where such use is elsewhere thn in the factory of production, the procedure set out in Chapter X of the Central Excise Rules 1944, is followed.
S.No. Description of Rate of Intended use/ goods duty condition 1. Raw Naptha and Rs. 5.50 Intended use in the Natural Gasoline per Kl. at manufacture of fer- Liquified 15'C tilizers and ammon- ia; Provided that where the intended use is in the manufacture of fertilizers and the procedure set out in Chapter X of the Central Excise Rules 1944, is followed. 2. Raw Naphtha & Rs. 5.5 Intended for use Natural Gasoline per Kl. (i) within the Liquified at 15'C Heavy Water Plant at Baroda or Tuti- corin for the manu- facture of synthe- sis gas or ammonia or both which are to be utilised in the manufacture of heavy water in such plants; (ii) by M/s. Gujarat State Fertiliser Corpn. Baroda or M/s Southern Petro Chem- icals Industrial Corporation, Tutico- rin, for manufacture of synthesis gas or ammonia or both and if the synthesis gas or ammonia or both so manufactured is supplied respective- ly to the Heavy Water Plants at Baroda or Tuticorin for the manufacture of Heavy Water in such plants."
18. In our view, the judgment will not be applicable to the facts of this case inasmuch as the content of the notification 75/84 which are different from the content of notification 158/76 which is the notification under consideration. Therefore, we need not follow it. In this context, it is useful to refer to the details in the leading case of Quinn v. Leathem as extracted above.
19. As far as Jay & Jay Co. case is concerned 1986 (38) ELT 701 it has been held at paragraph 4 thereof that word “and” should be treated as “or”. The question arose where the term “in powder form and of non-jewelry quality” should be interpreted as “or” powder form or of non jewelry quality.” These are the words found in 1985-98 policy. In our view even if we do treat the policy as a statute the conditions contained therein and the notification under consideration are entirely different.
20. As far as the Supreme Court judgment, cited by learned senior counsel, in the case of Ishwar Singh Bindra v. State of U.P. (AIR) 1968 (SC) 1450 is concerned that was the case under Drugs Act, 1940 as amended by Drugs and Cosmetics Amendment Act, 1944. In our view the scheme of the said Act is different from the scheme of the Customs Act. The Customs Act is a revenue earning legislation viz. taxing statute whereas Drug Act is a regulatory Act. Hence the decision in the said case may not be made applicable to the facts of this case. In this connection, it will be useful to refer to judgment of Mac Beth v. Chislett 1910 appeal case page 220 where the court has held as follows:
“It would be new terror in the construction of acts of parliament if we were required to limit the word to an unnatural sense because in some act which is incorporated referred to such an interpretation is given to it for on the basis of that act.”
Above observation of the Houses of Lords have been approved by the Supreme Court in jagar Prints (I) Ltd. v. UOI AIR (1998) SC 516 at 530. Above judgment will also be equally applicable to the judgment referred by Shri Gulam Vahanvati to case of Gujarat Fertiliser’s case. Firstly the facts of this case are not identical to the facts in the instant case. The content of both of the notifications under consideration are entirely different. The notification specifically requires certain conditions. Those conditions firstly have not been fulfilled by the appellants. Nowhere did they state that they have complied with. In fact no reply to show cause notice was ever filed. Much debate was revolved round the words “Fertilisers’s and Petrochemicals”. Naptha will be petro chemical and fertiliser but it does not mean that naptha cannot be used for some other material. As has been observed by the Supreme Court in Gujarat State Fertilisers Co.’s case, the term fertiliser is a genus at page 11 and at para 12 of the judgment that term fertiliser is a genus which may be concerned of various species of chemicals viz. chemical fertiliser, soil fertilisers animal or vegetable fertiliser. Even in respect of various species there can be individual items which may be different from one another. If we taken for example assessee’s contention that the word “and” should be read as “or” should be accepted the words contained in the notification will become redundant. The exemption notifications or the special category of legislations in the fiscal statute, therefore, we have to view the words as they are contained and the Tribunal should not by means of interpretations create situation of redundancy of the words.
21. We do not agree with the contentions raised by Shri Gulam Vahanvati on behalf of the assessee respondents. As has been held by the Supreme Court in the Bombay Oil Industries’s case, the difficulty of fulfilment of the conditions cannot be a ground for not following it. The respondents did not file any reply to the SCN. Moreover no ground has been made as to how the Collector comes to the conclusion that the conditions in the notifications are technical in nature. The conditions mentioned in the notifications in our view are not at all technical and procedural but mandatory. We are, therefore, of the view that the appeal of the department is to be accepted and the contentions raised by the respondents have to be rejected.
22. Appeal stands allowed.
ORDER
1. With great regret I am unable to agree with the reasoning suggested and the
conclusion proposed by my learned colleague. The notification exempts from
duty naphtha used for the manufacture of fertilisers and petrochemicals. The
reasoning of the Assistant Collector which is found favour with my colleague, the
sentence ‘fertilisers and petrochemicals’ and the word “and” occurring in this
clause is to be read with conjunctively that is to say in the commodity
manufactured has been for the fertiliser and petrochemical.
2. Apart from anything else, this line of reasoning would result in the word
‘petrochemicals’ occurring in the notification redundant. Fertiliser manufactured
out of naphtha the same chemical and it is a petrochemical. In that it is
manufactured out of naphtha.
3. Hawley’s Condensed Chemical Dictionary defines the word petrochemical
as follows: “an organic compound for which petroleum or natural gas is the
ultimate raw material” It says that the term is also applied to substance such as
ammonia, because the hydrogen used to form the ammonia is derived from natural
gas. Thus synthetic fertilisers are considered to be petrochemicals.
4. Therefore in the manner in which the expression ‘fertilisers and
petrochemicals’ have been interpreted, it would result in the word petrochemical
being rendered redundant. The framers of the notification, being aware of the
term ‘petrochemicals’ would necessarily include fertilisers, have considered it
necessary to indicate as the end product not only for fertiliser but petrochemicals.
As I have said, an interpretation rendering notification redundant is impermissible.
Therefore the word petrochemical occurring in the notification must necessarily be
read to me, as a petrochemical other than fertiliser. The goods manufactured by
the respondent are two — ethyl exnol and iso-octonol — These are oxo-chemicals.
According to the Condensed Chemical Dictionary these are processes refers to the
production of alcohols, aldehydes and other oxygenated organic compounds by
passage of olefin hydrocarbon vapours over cobalt catalysts in the presence of
carbon monoxide and hydrogen. Olefins are classified under unsaturated ulifatic
hydrocarbons. These are thus petrochemicals. In any event there is no dispute in
the impugned order that they are petrochemicals. The reasoning for denial of the
notification is only that they are not fertilisers. This therefore is not a valid ground
for denial of the notification.
5. I agree that the judgment of the Supreme Court in Gujarat State Fertilisers
and Petrochemicals Ltd 1997 (91) ELT 3 will not be relevant to the facts of this
case. The Supreme Court in that case was concerned with the interpretion of the
notification, exempted raw naphtha intended to use for manufacture of fertiliser
and ammonia. It was considering the decision of the Tribunal which held that
molten urea was not fertiliser since it was not a fertiliser and therefore the
condition of the notification was not specified. The question as to whether the
‘ammonia and fertilisers’ to be read conjunctively or disconjuctively were not
before the Supreme Court. This decision therefore does not constitute authority
that the respondent could rely upon. Even so, for the reasons that I have indicated
this matter is to be held in favour of the respondent.
6. The other reason for denial of the notification is that the respondent had not
complied with the condition in the notification, that the respondent did not
maintain an account of the imported goods received and consumed for the
manufacture of the petrochemicals and has not produced the extract of the account
duly certified evidencing receipt of the goods. There is really no satisfactorily
explanation as to why these accounts was not produced. It appears that the
respondent did not reply to the letter issued by the department.
7. We must distinguish between substantive condition in the notification and a
procedural one. There does not seem to be dispute that the naphtha was received
by the manufacturer and was used in the manufacture of finished product although
admittedly it has not been established in the manner prescribed by the notification.
It was however contended before us that account had been maintained and could
be produced. I am therefore of the view that the matter should be remanded and
the appeal should be allowed on the substantive point of utilisation of the naphtha
for the manufacture of the end product and the matter should be remanded to the
Commissioner to satisfy himself that account has been maintained to show the
utilisation of the imported goods in the manufacture of the finished products.
8. Accordingly the matter may be referred to a third member to resolve the
following points of different.
i. Whether the term ‘fertiliser and petrochemical’ occurring in the
notification should be interpreted to mean only so as to include
petrochemicals other than fertilisers.
ii. If the answer to question (i) is in the affirmative, whether the appeal
is to be allowed by remanding the matter to the Assistant
Commissioner to determine whether the conditions in the
notification relating to maintenance of accounts and utilisation of the
importer product that been complied with or whether the appeal
should be dismissed for not complying with these conditions.
J.H. Joglekar, Member (T)
1. I have heard Shri Rohan Shah, advocate appearing along with Shri Arun Mehta, advocate for the assessee and I have heard Shri Rohit Pardeshi, DR for the Revenue.
2. Notification No. 158/76 exempts raw naphtha when imported into India for manufacture of fertiliser and petrochemicals. The Member (Judicial) has held that in order to qualify for the benefit of the notification it has to be shown that the end product qualifies for both the terms. He has read the word “and” conjunctively. Member (Technical) has held that such conjunctive reading would render the word ‘petrochemicals’ as redundant.
3. The judgment reproduced in 1986 (38) ELT 701 urged by the assessee has not found favour with the Member (Judicial) since the issue related to the interpretation of the Import Policy. Nor does he favour the other judgment reproduced in AIR 1968 SC 145 since it deals with the Drugs Act. During the hearing Shri Shah placed before me two other judgments. The first is in the case of Elphistone Mills [1989 (42) ELT 150]. The Tribunal was dealing with the interpretation of the notification 56/78 which exempted air-conditioners used in “research and test laboratory”. The Tribunal held that the benefit could be available to “research laboratories” or “test laboratories” and that it was not necessary that the laboratory should be undertaking both tests and research. The second judgment on which reliance was placed was that of the Supreme Court in the case of CC v. Shibani Engineering Systems [1996 (86) ELT 453]. In the Tribunal’s order appealed against, the Tribunal had interpreted the enabling phrase occurring in notification No. 70/89 namely “cups and cones of rolls bearing” as to mean that such cups and cones imported together. The Supreme Court did not accept the Tribunal’s interpretation of the words in a conjunctive manner thereby disallowing the benefit of the notification to cups without cones. The Supreme Court in paragraph 10 of the order observed as follows:
“10. In our view, the Tribunal mis-directed itself. There is no question of reading the word “and” disjunctively here. The Exemption Notification must be read plainly, as an ordinary man would read it, and, so read, Sl. No. 6(a) says that cups of roller bearings are liable to the duty applicable to the bearings of which they are part and cones of roller bearings are liable to the rate of duty applicable to the bearings of which they are part. There is no justification for reading the entry conjuctively in the sense that the rate of duty applicable to the bearings of which they are part will apply only when the cups and cones of roller bearings are imported together but not if they are imported separately.”
4. Oxo chemicals manufactured by the assessee are petrochemicals and admittedly not utilised as fertilisers. If the intention of the Ministry was to exempt fertilisers alone then there was no reason for those two terms to have been used. In fact during the currency of the notification 158/76 another notification was in force, namely 160/76-Cus which exempted furnace oil and heavy petroleum stock imported for use as feed stock in the manufacture of fertilisers. It is not that petrochemicals cannot be made from furnace oil. Petrochemicals as per Hawley’s Condensed Chemical Dictionary are inorganic compounds for which petroleum is the raw material. But whereas the import of furnace oil was limited for manufacture of fertilisers, per notification No. 160/76-Cus a wider range of end products was provided for raw naphtha so imported in terms of notification 158/76-Cus. The restrictive coverage of other notification would bring out the fact that the intention behind the notification No. 158/76 was to give benefit to petrochemicals whether such petrochemicals were used as fertilisers or not.
5. Agreeing with the view held by Member (Technical) I hold that the term ‘fertiliser and petrochemicals’ cannot be restrictively interpreted so as to exclude petrochemicals other than fertilisers.
6. The papers may now be placed before the original bench for appropriate orders.
ORDER
1. In the light of the finding of the third member, on the point of difference, we set aside the finding of the Commissioner that the products manufactured by the appellant do not conform to the description of the end products specified in the notification. We hold that the goods that the appellant manufactured were petrochemicals and hence the substantive requirement of the notification had been complied with.
2. The matter is now remanded to the Commissioner to determine whether the condition in the notification requiring maintenance of accounts had been complied with by the appellant. Before passing his order, the Collector shall consider the evidence the appellant may produce and give it a reasonably opportunity of being heard.