Gowri Shankar, Member (T)
1. The appellant is engaged in the manufacture of ethylene, propylene, butadiene, toluene and other products. It had claimed benefit of notifications 190/75, 75/84, 27/89 and 102/90 during the various periods with which this appeal is concerned. These notifications provide partial exemption from duty to raw naphtha used in the manufacture of commodities specified therein, subject to other conditions contained in the notification. One of the conditions of the notifications is that where the exemption is claimed for the raw naphtha in a place other than the factory of its production the procedure contained Chapter X of the rules must be applied for. Notice was issued to the appellant on 3-6-1994 demanding duty on the raw naphtha. The notice mentioned that the appellant obtained in its manufacture carbon black feedstock (CBFS for short), which is not mentioned as final products in any of the notifications; it therefore alleged that the raw naphtha was not used for the purpose specified in the notifications. Duty was therefore demanded for the period January 1989 to February 1994. The duty was demanded in terms of Rule 196 of the Central Excise Rules, 1944. Penalty was also proposed. The Collector after considering the cause shown and hearing the appellant confirmed the demand for duty. Hence this appeal.
2. The appellant had followed the Chapter X procedure as required by the notifications. It had applied for and obtained a licence specified in Rule 192, (generally known as L-6 licence). Rule 196, which is part of Chapter X, provides that if goods obtained under Rule 192 are not accounted for, as having been used “for the purpose and in the manner stated in the application” or are not shown to have lost or destroyed by natural causes or unavoidable accident during their transport from the place of procurement to the premises of the applicant under Rule 192 or during handling and storage in the premises approved under Rule 192, the L-6 licensee shall pay the duty leviable.
3. One of the various conditions that were raised before us by the advocate for the appellant is that this rule is not available to the department. The appellant had, in its application for a licence under Rule 192, specified CBFS as one of its final products. Therefore, it cannot be said that the goods were not used for the purpose and in the manner stated in the application. Hence provisions of Rule 196 could not have been invoked.
4. The applicant had made two applications for the issue of L-6 licence. The first was made on 11-7-1977. In this application seven products were stated by it to be intended to be manufactured out of raw naphtha in respect of which the concession was sought, of which carbon black feedstock was the first. A second application was made on 30th November 1979. The reason for the second application is not clear. This application also mentions, amongst various products, CBFS as one of the final products.
5. It is in response to these applications the applicant was licenced under Rule 192 and permitted to receive the raw naphtha under concessional rate of duty. In this situation it would not be correct to say that raw naphtha obtained under Rule 192 was not used for the purpose and in the manner stated in the application. The provisions of Rule 196 therefore could not have been invoked. This was the view taken by the Tribunal in Arti Paints & Chemicals Industries v. CCE -1984 (15) E.L.T. 206. The Tribunal was concerned in that decision with the benefit of concessional rate of duty under Notification 37/73 to toluene received by the assessee under Chapter X procedure because it was used in the manufacture of goods other than those specified in the notification. It was used in the manufacture of thinner, which is not one of the goods not specified in the notification. The Tribunal found that the application made by Arti Paints and Chemicals Industries for L-6 licence has included thinner amongst the goods to be manufactured by it. It said that if the department being aware that thinners are not covered by notification, it chose to issue licence under Rule 192, the duty could not be recovered under Rule 196.
6. The learned advocate for the department had no specific answer to this point and relies on the Collector’s order. The Collector only says that the appellant misused the concession by declaring the products that were not specified in the notification. This however, does not answer the question as to why the department, being aware that CBFS was not one of the products mentioned in the notification, (if that is the case), chose to issue L-6 licences on two occasions which were permitted to continue undisturbed for over a period of ten years or so.
7. We accordingly hold that demand for duty under Rule 196 is not valid and penalty therefore could not be imposed.
8. Appeal allowed. Impugned order set aside.