2017 (3) TMI 1081 - AT - Central Excise

Nitrogen gas in bonded warehouse deemed integral to production, exempt from duty

The tribunal held that the Nitrogen gas used in the manufacturing process within the Customs Private Bonded Warehouse was integral to production and ... Warehouse - whether the appellants licensed Warehouse (Customs Bonded Warehouse) located within the appellant's factory would be considered as part of factory as defined under Section 2 (e) of Central Excise Act? - Held that: - the licence for Private Bonded Warehouse is granted for the storage and exclusive use of the appellant-assessee. It is an admitted fact that the dutiable or excisable products of the appellant namely Acrylic Fibre cannot be manufactured without availability of the raw material being imported Acrylonitrile Nitrogen Monomer or ACN. Thus, the “Nitrogen Gas” utilized in drawing the raw materials from the Bonded Warehouse is a part of the manufacturing activity, integrally connected in the process of manufacture, and accordingly, I hold that they are entitled to exemption of duty under N/N. 3/2005-CE being a captive consumption under the facts and circumstances - the Customs Private Bonded Warehouse of the appellant is a part of the factory as defined u/s 2 (e) of CEA - appeal allowed - decided in favor of appellant. Issues: Determination of whether a licensed Warehouse located within a factory premises can be considered part of the factory as defined under Section 2(e) of the Central Excise Act.Analysis:1. Background: The appellant, a manufacturer of Acrylic Fibre, had a separate license for a Customs Bonded Warehouse within their factory premises for storing non-duty paid material under Section 58 of the Customs Act, 1962.2. Manufacturing Process: The appellant manufactured 'Nitrogen Gas' in their factory, using it in the Customs Bonded Warehouse for unloading non-duty paid imported raw material and flushing out stored raw material to duty paid tanks after paying appropriate Customs Duty.3. Legal Proceedings: Several Show Cause Notices (SCNs) were issued to the appellant from January 2006 to May 2011, demanding Central Excise Duty on the manufacture of Nitrogen gas used in their Customs Bonded Warehouse, leading to the confirmation of demands, interest, and penalties against the appellant.4. Appellant's Submission: The appellant argued that the Nitrogen gas consumed in the manufacturing process was exempt under Notification No.3/2005-CE. They contended that the warehouse license specified that it was within the factory premises and used for manufacturing excisable goods, aligning with the definition of a factory under Section 2(e) of the Central Excise Act.5. Legal Precedents: The appellant relied on various case laws to support their argument, emphasizing that the activities in the bonded warehouse were connected with the production of excisable goods.6. Revenue's Argument: The Revenue contended that the warehouse license was primarily for storing imported goods without duty payment, distinct from a factory licensed for manufacturing excisable goods. They argued that the warehouse, although within the factory premises, had separate activities and purposes.7. Judgment: After considering both sides, the tribunal found that the Nitrogen gas used in the manufacturing process was integral to production and exempt from duty. The tribunal held that the Customs Private Bonded Warehouse was part of the factory as defined in the Central Excise Act, granting the appellant exemption and allowing the appeals with consequential benefits.