Appellant Granted Exemption for Sulphur Use in Fertilizer Production

The appellant sought exemption for Sulphur used in manufacturing Sulphuric Acid/Oleum for subsequent production of Molten Urea, classified as a chemical fertilizer. The exemption was allowed as Molten Urea qualifies as a fertilizer. Similarly, Sulphur used for Ammonium Sulphate and Caprolactam production was exempted, except for Hydroxylamine Sulphate sales. The use of Sulphuric Acid in cooling towers and for Phosphoric Acid, leading to Ammonium Phosphate, was also exempted. No penalty was imposed, and the appeal was partly allowed based on previous rulings, with the judgment pronounced on 17.11.2021.

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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 for the manufacture of Sulphuric Acid/Oleum and subsequently Ammonium Sulphate and Caprolactam.
3. Use of Sulphuric Acid in maintaining pH balance in cooling towers.
4. Use of Sulphuric Acid in the manufacture of Phosphoric Acid and Phospho Gypsum, which in turn is used to produce Ammonium Phosphate.

Issue-wise Detailed Analysis:

1. Use of Sulphur for the Manufacture of Sulphuric Acid/Oleum and Subsequently Molten Urea:
The appellant sought exemption under Notification No. 12/2012-CE for Sulphur used in the manufacture of Sulphuric Acid/Oleum, which is then used to produce Molten Urea. The Revenue's objection was that Molten Urea is also used to manufacture Melamine, which is not a fertilizer. However, it was established that Molten Urea itself is a chemical fertilizer, as held by the Hon’ble Apex Court in a previous case involving the appellant. The court emphasized that the express language of the exemption notification should be given due effect, and since Molten Urea is classified as a chemical fertilizer, the exemption is applicable. Thus, the exemption for Sulphur used in the manufacture of Urea was allowed.

2. Use of Sulphur for the Manufacture of Sulphuric Acid/Oleum and Subsequently Ammonium Sulphate and Caprolactam:
The appellant argued that Sulphur used in the manufacture of Sulphuric Acid/Oleum, which is then used in the Caprolactam Plant, also produces Ammonium Sulphate, a chemical fertilizer. The Revenue's contention that Ammonium Sulphate is merely a by-product was rejected. The Hon’ble Delhi High Court had previously ruled that the exemption notification does not distinguish between primary and by-products. Since Ammonium Sulphate is a fertilizer, the exemption applies. However, the appellant admitted liability for Hydroxylamine Sulphate sold in the market, and the demand for duty on this was confirmed.

3. Use of Sulphuric Acid in Maintaining pH Balance in Cooling Towers:
The appellant relied on previous decisions where the use of Sulphuric Acid in cooling towers for pH balance was deemed eligible for exemption. The Tribunal cited the case of Indo Gulf Fertilizers & Chemicals vs. CCE, where it was held that Sulphuric Acid used in cooling towers is used in relation to the manufacture of fertilizers and thus qualifies for exemption. The appeal was allowed in this regard.

4. Use of Sulphuric Acid in the Manufacture of Phosphoric Acid and Phospho Gypsum, which in Turn is Used to Produce Ammonium Phosphate:
The appellant argued that Sulphuric Acid used to produce Phosphoric Acid, which is then used to manufacture Ammonium Phosphate, a fertilizer, should be exempt. The Revenue's objection regarding the by-product Phospho Gypsum was dismissed. The court referenced the case of National Organic Chemical Industries Limited, where it was held that the emergence of by-products does not negate the exemption for the primary product. The appellant admitted liability for Sulphur used in the manufacture of Phosphoric Acid sold in the market. The Tribunal found no merit in denying the exemption for Sulphur used in the manufacture of fertilizers.

Penalty and Conclusion:
No penalty under Section 11AC was imposed due to the absence of malafide intention and the interpretative nature of the issue. The demand was set aside except for the quantity of Sulphur used in the manufacture of Hydroxylamine Sulphate and Phosphoric Acid sold on payment of duty. The appeal was partly allowed, extending the benefit of limitation.

Final Judgment:
The issues involved in this case were identical to those in the appellant's previous case, and the appeal was allowed on the same terms as the previous order. The judgment was pronounced in open court on 17.11.2021.

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