2020 (2) TMI 1253 - AT - Central Excise

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

Gujarat State Fertilizers And Chemicals Limited Versus Commissioner of Central Excise & ST, Vadodara

The Tribunal partially allowed the appeal, granting exemptions for Sulphur used in the manufacture of fertilizers but confirming duty for Sulphur used in ... Demand of duty on Sulphur purchased - N/N. 12/2012-CE dated 17 March 2012 - use of Sulphur for manufacture of Sulphuric Acid/Oleum which in turn is used in the Urea Plant for manufacture of Molten Urea - Revenue’s objection is that the some quantity of Molten Urea is used as input for the manufacture of Malamine and therefore, the appellants are not entitled to benefit of notification. HELD THAT:- Molten Urea which comes into existence is itself a chemical fertilizer, as held by Hon’ble Apex Court in the appellant’s own case GUJARAT STATE FERTILIZERS CO. VERSUS COLLECTOR OF CENTRAL EXCISE [1997 (2) TMI 105 - SUPREME COURT] - there are no merit in the Revenue’s case in so far as the use of Sulphur in manufacture of Urea is concerned - Exemption in respect of Sulphur used in manufacture of Urea is allowed. Use of Sulphur in the manufacture of Sulphuric Acid/Oleum which in turn used in Caprolactam Plant - HELD THAT:- Caprolactam is manufactured along with Ammonium Sulphate, which is undisputedly a chemical fertilizer, and therefore, the appellant would be entitled to avail benefit of Notification No. 12/2012-CE in respect of use of Sulphur which in turn used in the manufacture of Ammonium Sulphate - The impugned order seeks to distinguish this decision on the ground that Ammonium Sulphate produced by the appellant in this stream is only a bye-product and Caprolactam is main product. Revenue neutrality - HELD THAT:- A small quantity of Hydrozylamine Sulphate (HX/HAS) sold by the appellant and they have admitted their liability in respect of duty free Hydroxylamine Sulphate sold by them in the open market on payment of duty and their argument is only Revenue neutrality - in so far as demand of duty on Sulphur used in the quantity of Hydroxylamine Sulphate sold by them in the open market needs to be confirmed. Use of Sulphuric Acid in maintaining PH balance in cooling towers - HELD THAT:- Issue decided in INDO GULF FERTILIZERS & CHEMICALS VERSUS COMMISSIONER OF C. EX., ALLAHABAD [1999 (6) TMI 80 - CEGAT, NEW DELHI] where it was held that the benefit of Notification 81/75-C.E. in respect of sulphuric acid used in the cooling tower in appellants’ unit. Use of Sulphuric Acid in the manufacture of Phosphoric Acid (and Phospho Gypsum) which in turn used to produce Ammonium Phosphate - benefit denied on the ground that bye-product Phospho Gypsum is also manufactured and sold in the open market on payment of duty - HELD THAT:- It is not in dispute that Ammonium Sulphate is fertilizer. In this regard, the arguments in respect of Sulphuric Acid used in the manufacture of Urea would equally apply that Sulphuric Acid was in turn used for production of Ammonium Sulphate - reliance placed in the case of COMMISSIONER OF CENTRAL EXCISE, MUMBAI VERSUS M/S NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED [2008 (11) TMI 6 - SUPREME COURT] where it was held that inevitable and automatic emergence of ethane and methane can’t be a ground for denying the exemption - benefit of exemption cannot be denied. There are no merit in the Revenue’s arguments that benefit of Notification No. 12/2012-CE dated 17 March 2012 can be denied on the ground that during manufacture of Phosphoric Acid which in turn used in the manufacture of fertilizer and Phospho-gypsum is manufactured. Penalty u/s 11AC - HELD THAT:- No penalty can be imposed under Section 11AC, as there is no apparent malafide intention and the issue relates to interpretation. However, we find that liability for Central Excise duty would arise nonetheless in respect of Sulphur used in the manufacture of Phosphoric Acid which was cleared on payment of duty. The demand except for the demand within limitation on the quantity of Sulphur used in the manufacture of Hydroxylamine Sulphate (HX/HAS) and Phosphoric Acid sold by them on payment of duty. In these circumstances the benefit of limitation is also extended - Appeal allowed in part. 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.