Court quashes show-cause notice, denies duty recovery. Petitioners entitled to restitution.

The court quashed the show-cause notice and ruled that the respondents could not recover Central Excise duty for Prilled Ammonium Nitrate (PAN) obtained from Ammonium Nitrate Melt (ANM) until a subsequent Circular was issued. The petitioners were entitled to restitution of the amounts recovered as excise duty. The question of whether the prilling process constituted "manufacture" was left for determination by the appropriate forum. The petition succeeded partially, with no costs awarded.

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Issues Involved:
1. Legality of seizure of records, documents, and goods.
2. Whether Prilled Ammonium Nitrate (PAN) obtained from Ammonium Nitrate Melt (ANM) is excisable and if the process of prilling/evaporating moisture constitutes "manufacture" under Central Excise law.
3. Validity of actions taken by respondents based on a show-cause notice and demand for excise duty, penalty, and interest.
4. Entitlement of the petitioner to restitution of amounts recovered as excise duties with interest.

Detailed Analysis:

1. Legality of Seizure of Records, Documents, and Goods
The petitioners challenged the seizure of records and goods by the Central Excise Department under panchnamas dated 31-3-2003 and 11-6-2003. It was noted that the seized records and documents had already been returned to the petitioners, rendering this issue moot.

2. Excisability and Manufacture of Prilled Ammonium Nitrate (PAN)
The petitioners argued that the process of converting Ammonium Nitrate Melt (ANM) into Prilled Ammonium Nitrate (PAN) does not constitute "manufacture" under Central Excise law. They relied on the Tribunal's decision in Collector of Central Excise, Aurangabad v. Anil Chemicals (P) Ltd., which held that mere improvement in quality and purity does not amount to manufacture. The Central Board of Excise and Customs had also issued Circular No. 44/89, stating that no excise duty should be charged on PAN obtained from ANM.

The respondents, however, argued that the process of prilling does constitute manufacture, citing the Tribunal's decision in M/s. I.D.L. Chemicals Ltd. v. Collector of Central Excise and the Larger Bench's decision in Supreme Chemical Works v. Collector of Central Excise, Jaipur, which held that conversion of ANM into Ammonium Nitrate Flakes amounts to manufacture due to different physical characteristics and commercial names.

The court noted that the Board did not rescind the Circular No. 44/89 even after these decisions, indicating that the Board did not intend to change its stance at the relevant time. The court held that the officers of the Central Excise Department are bound by the Circulars issued by the Board and cannot act contrary to them.

3. Validity of Show-Cause Notice and Demand for Excise Duty
The show-cause notice dated 1st November 2003, demanding central excise duty, penalty, and interest, was issued before the Board withdrew Circular No. 44/89 on 18th April 2007. The Supreme Court in Ranadey Micronutrients v. Collector of Central Excise and Paper Products Ltd. v. Commissioner of Central Excise held that Circulars issued by the Board are binding on the Department. The court concluded that the show-cause notice and the consequential demand were ab initio bad as they were contrary to the existing Circular of the Board.

4. Restitution of Amounts Recovered as Excise Duties
The court held that it was not permissible for the respondents to recover Central Excise duty from the petitioner company in respect of PAN obtained from ANM until the issuance of the subsequent Circular dated 18th April 2007. Consequently, the petitioners are entitled to restitution of the amount recovered as excise duty till that date, in accordance with the law.

Conclusion:
The court quashed the impugned show-cause notice dated 1st November 2003 and held that the respondents could not recover Central Excise duty from the petitioner company for PAN obtained from ANM until the issuance of the subsequent Circular dated 18th April 2007. The petitioners are entitled to restitution of the amounts recovered as excise duty. The issue of whether the process of prilling amounts to manufacture was left open for determination by the appropriate forum. The petition succeeded to the extent mentioned, with no order as to costs.

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