Exemption-linked refund for naphtha upheld where end-use in fertilizer manufacture was verified despite procedural objections.

CESTAT Kolkata held that refund under Notification No. 6/2002-CE could not be denied where naphtha cleared on payment of duty was shown, through depot records, stock statements and jurisdictional verification, to have been received and used in fertilizer manufacture. The substantive condition of the exemption was satisfied in substance, so alleged procedural non-compliance did not defeat entitlement. On the same factual and legal basis, the refund for the subsequent period was also upheld. The assessee's appeal was allowed and the Revenue's appeal rejected.

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Issues: (i) Whether clearance of naphtha on payment of duty for use in manufacture of fertilizers by the recipient entitled the assessee to refund under Notification No. 6/2002-CE dated 01.03.2002 notwithstanding non-fulfilment of the procedural requirements initially alleged by the Department; (ii) Whether the refund granted for the subsequent period was sustainable on the same factual and legal basis.

Issue (i): Whether clearance of naphtha on payment of duty for use in manufacture of fertilizers by the recipient entitled the assessee to refund under Notification No. 6/2002-CE dated 01.03.2002 notwithstanding non-fulfilment of the procedural requirements initially alleged by the Department.

Analysis: The exemption under Sl. No. 22 of Notification No. 6/2002-CE was intended to ensure that naphtha cleared from the refinery was actually used in the manufacture of fertilizers. The record showed that the goods were received by the recipient factory through the depot route, were accounted for in its registers, and were certified by the jurisdictional Superintendent after verification. The stock statements prepared by the intermediary also established correlation of the clearances. On these facts, the purpose of the notification stood satisfied.

Conclusion: The refund could not be denied and the assessee succeeded on this issue.

Issue (ii): Whether the refund granted for the subsequent period was sustainable on the same factual and legal basis.

Analysis: The subsequent period stood on the same factual foundation, with verification showing receipt and use of naphtha in fertilizer manufacture and with the same notification conditions being met in substance. No infirmity was found in the order granting refund for that period.

Conclusion: The refund granted for the subsequent period was upheld and the Revenue failed on this issue.

Final Conclusion: The assessee's appeal was allowed and the Revenue's appeal was rejected, resulting in partial relief in favour of the assessee on the common controversy concerning eligibility to exemption-linked refund for naphtha cleared for fertilizer manufacture.

Ratio Decidendi: Where the substantive condition of an exemption notification is proved by records, verification, and end-use certification, refund or exemption cannot be denied merely for alleged procedural non-compliance.

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