Tribunal grants Sulphur exemptions for certain uses, confirms duty for others. Penalties not applicable.

The Tribunal partially allowed the appeal, granting exemptions for Sulphur used in the manufacture of fertilizers but confirming duty for Sulphur used in products sold in the market. Penalties under Section 11AC were deemed inapplicable due to the absence of malicious intent. The Tribunal upheld the exemption for Sulphur used in Urea production, Caprolactam Plants for Ammonium Sulphate, and in cooling towers for maintaining pH balance. However, duty was confirmed for Sulphur used in Hydroxylamine Sulphate and Phosphoric Acid sold in the market.

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Issues Involved:
1. Use of Sulphur for the manufacture of Sulphuric Acid/Oleum and subsequently Molten Urea.
2. Use of Sulphur in Caprolactam Plants for the production of Caprolactam and Ammonium Sulphate.
3. Use of Sulphuric Acid in cooling towers for maintaining pH balance.
4. Use of Sulphur in the manufacture of Phosphoric Acid and Phospho Gypsum.

Detailed Analysis:

1. Use of Sulphur for the Manufacture of Sulphuric Acid/Oleum and Subsequently Molten Urea:
The appellant argued that Sulphur is used to manufacture Sulphuric Acid/Oleum, which is then used in the Urea Plant to produce Molten Urea, a fertilizer. The Revenue objected, stating that Molten Urea is also used to manufacture Melamine, which is not a fertilizer. The Tribunal referenced a Supreme Court decision (1997 (91) ELT 3 (SC)) in a similar case, which held that Molten Urea is a chemical fertilizer. The Tribunal found that the Sulphuric Acid is directly used in the manufacture of Urea, and the exemption under Notification No. 12/2012-CE should be allowed for Sulphur used in Urea production.

2. Use of Sulphur in Caprolactam Plants for the Production of Caprolactam and Ammonium Sulphate:
The appellant contended that Sulphur is used in Caprolactam Plants, producing Caprolactam and Ammonium Sulphate, the latter being a fertilizer. The Tribunal noted that the issue is covered by a Delhi High Court decision (2009 (241) ELT 190 (Del.)) and upheld by the Division Bench (2010 (252) ELT 339 (Del.)). The Tribunal rejected the Revenue's argument that Ammonium Sulphate is a by-product, emphasizing that the production ratio (5 tons of Ammonium Sulphate to 1 ton of Caprolactam) indicates significant fertilizer production. The Tribunal allowed the exemption for Sulphur used in producing Ammonium Sulphate but confirmed the duty for Sulphur used in Hydroxylamine Sulphate sold in the market.

3. Use of Sulphuric Acid in Cooling Towers for Maintaining pH Balance:
The appellant claimed that Sulphuric Acid is used to maintain pH balance in cooling towers, essential for fertilizer manufacturing. The Tribunal referenced several decisions, including Indo Gulf Fertilizers & Chemicals vs. CCE (1999 (112) ELT 448 (Tri.)), which supported the use of Sulphuric Acid in cooling towers as part of the fertilizer manufacturing process. The Tribunal allowed the exemption for Sulphuric Acid used in cooling towers.

4. Use of Sulphur in the Manufacture of Phosphoric Acid and Phospho Gypsum:
The appellant argued that Sulphur is used to produce Phosphoric Acid, which is then used to manufacture fertilizers like Ammonium Phosphate Sulphate (APS). The Revenue objected, citing the production of Phospho Gypsum, a by-product sold in the market. The Tribunal referenced several decisions, including National Organic Chemical Industries Limited (2008 (232) ELT 193 (SC)), which held that the emergence of by-products does not negate the primary use of inputs for exempted goods. The Tribunal found that the production of Phospho Gypsum does not disqualify the use of Sulphur for exemption under Notification No. 12/2012-CE. However, the Tribunal confirmed the duty for Sulphur used in Phosphoric Acid sold in the market.

Penalty:
The Tribunal found no malafide intention on the appellant's part and ruled that penalties under Section 11AC were not applicable. The demand was set aside except for the quantity of Sulphur used in Hydroxylamine Sulphate and Phosphoric Acid sold on payment of duty. The benefit of the limitation period was also extended.

Conclusion:
The appeal was partly allowed, with the Tribunal granting exemptions for Sulphur used in the manufacture of fertilizers but confirming duty for Sulphur used in products sold in the market. The penalty under Section 11AC was set aside due to the absence of malafide intention.

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