Concessional excise use in manufacture treated broadly where technological constraints prevented actual fertilizer output

Raw naphtha taken under a concessional excise scheme was treated as used in fertilizer manufacture where reformed gas had to be vented because power shortage prevented operation of the ammonia plant. The analysis states that procurement for fertilizer production, coupled with compliance with the prescribed Chapter X procedure, satisfied the intended concessional use, and that the venting was a technological necessity rather than diversion to a non-eligible purpose. It further notes that such exemption notifications should be construed liberally to advance their object, and that even pre-commissioning trial use can qualify as use in manufacture. The appeals were dismissed as the Tribunal considered itself bound by earlier contrary precedent.

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Issues: Whether raw naphtha obtained under concessional excise notifications could be treated as having been used in the manufacture of fertilizer when reformed gas generated from it had to be vented because the fertilizer plant could not operate on account of power shortage, so that duty demand for the quantity so consumed was unsustainable.

Analysis: The concessional rate was available where the naphtha was intended for use in the manufacture of fertilizer and the prescribed Chapter X procedure was followed. The factual position accepted in substance was that the naphtha had been procured for fertilizer manufacture, but operational constraints and lack of power made it necessary to vent the reformed gas before it could be fed to the ammonia plant. The decision treated this as a technological necessity rather than a diversion to any non-eligible use. It also held that exemption notifications of this kind should be construed in a liberal manner to advance their object of reducing the cost of fertilizer inputs, and relied on the principle that use in pre-commissioning trial runs, though not resulting in actual output, could still qualify as use in manufacture.

Conclusion: The consumptive use of naphtha in the circumstances described was held to fall within the intended concessional use, but the appeals were nevertheless dismissed because the Tribunal considered itself bound by the earlier contrary decision.

Ratio Decidendi: Where an input is procured for manufacture under a concessional notification and its apparent non-production result is due to unavoidable technological constraints incidental to that manufacture, the use may still be treated as use in manufacture for the purpose of the exemption, subject to binding precedent.

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