Exemption for oxygen used in fertilizer manufacture applies when it enters the integrated production process without diversion or misuse.

Oxygen consumed within an integrated gasification-based fertilizer manufacturing process satisfied the condition in Notification No. 145/71-C.E. that the goods be used in the manufacture of fertilizers. The exemption could not be denied merely because final fertilizer output was not shown, where the oxygen entered the plant system, was consumed in the process, and there was no finding of diversion, clandestine clearance, or misuse. The contention that the gas was not marketable oxygen because of lower purity was not accepted as a basis to refuse exemption in these circumstances. The disputed oxygen was therefore treated as eligible for the notified excise exemption.

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Issues: Whether oxygen consumed in the gasification plant was eligible for exemption under Notification No. 145/71-C.E. on the ground that it was used in the manufacture of fertilizer, and whether the argument that the gas was not excisable oxygen because of its purity could defeat the exemption claim.

Analysis: The exemption notification turned on the words "if used in the manufacture of fertilizers". The oxygen was not shown to have been sold, diverted, or used for any purpose other than the integrated fertilizer-making process; it entered the pipeline system, reached the gasification and synthesis gas stage, and was consumed in the plant designed for fertilizer production. The absence of final fertilizer output did not by itself mean that the oxygen was not used in manufacture, especially where there was no finding of clandestine clearance, misuse, or diversion. The plea that the gas was not marketable oxygen because of lower purity was not accepted as a ground to deny the exemption in the circumstances, and the attempt to rely on that contention was inconsistent with the claim for exemption as oxygen.

Conclusion: The oxygen was held to have been used in the manufacture of fertilizer within the meaning of Notification No. 145/71-C.E., and the exemption was allowed on the disputed quantity of oxygen; the contrary reasoning of the Collector and the Board was set aside.

Final Conclusion: The decision grants the assessee the excise exemption claimed for the disputed oxygen and rejects the departmental denial based on the absence of final fertilizer production.

Ratio Decidendi: Where an exemption notification allows goods used in manufacture, the condition is satisfied when the goods are put into the integrated manufacturing process for the specified end product, even if the finished product is not ultimately produced, provided there is no diversion or misuse inconsistent with that manufacture.

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