Furnace oil exemption for steam generation fails on merits, while extended limitation and penalty are set aside.

Furnace oil used to generate steam in fertilizer manufacture was held not to qualify as feed stock for exemption under the relevant notifications, following settled Supreme Court law, so the exemption claim failed on merits. The demand for the period beyond one year from the show-cause notice was, however, held time-barred because the procurement was under CT-3 certificates and within departmental knowledge, making the extended period unavailable. Penalty was also set aside because the substantive exemption dispute and extended-period demand could not be sustained in full. The result was partial relief only to the extent of the demand within the normal limitation period.

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Issues: (i) whether furnace oil procured and used for generating steam in the manufacture of fertilizers qualified as feed stock for exemption under the relevant notifications; (ii) whether the demand for the period beyond one year from the show-cause notice was barred by limitation; (iii) whether penalty was sustainable.

Issue (i): Whether furnace oil procured and used for generating steam in the manufacture of fertilizers qualified as feed stock for exemption under the relevant notifications.

Analysis: The exemption was claimed on the basis that furnace oil was used as feed stock. The binding law laid down by the Supreme Court had already settled that furnace oil used for generating steam for manufacture of fertilizers could not be treated as feed stock for the purpose of the exemption. In view of that legal position, the assessee could not retain the benefit of exemption on merits.

Conclusion: The issue was decided against the assessee and in favour of Revenue.

Issue (ii): Whether the demand for the period beyond one year from the show-cause notice was barred by limitation.

Analysis: The procurement of furnace oil was undertaken under CT-3 certificates issued by the jurisdictional department, and the material movement was within the department's knowledge. On that factual basis, the extended period was not available, and the demand beyond one year from the date of the show-cause notice was hit by limitation.

Conclusion: The demand beyond one year from the show-cause notice was set aside in favour of the assessee.

Issue (iii): Whether penalty was sustainable.

Analysis: The dispute turned on interpretation of the exemption notifications and the extended-period demand itself was unsustainable. In those circumstances, there was no basis to sustain penalty.

Conclusion: The penalty was set aside in favour of the assessee.

Final Conclusion: The exemption claim failed on merits, but the extended period demand was restricted by limitation and the penalty was deleted, resulting in a partial success for Revenue only to the extent of the demand within the normal period.

Ratio Decidendi: Furnace oil used to generate steam in the manufacture of fertilizers does not qualify as feed stock for exemption, and where the department had knowledge of the procurement through CT-3 documentation, the extended period cannot be invoked for the demand beyond the normal limitation period.

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