Exemption for raw naphtha upheld where an inevitable intermediate product was later used to make unlisted petroleum resins.

Raw naphtha covered by an exemption notification remained eligible for concessional duty where it was intended for use in manufacturing listed products such as ethylene, propylene, benzene and toluene. The fact that pyrolysis gasolene emerged only as an inevitable intermediate product, and the residual quantity was later used to make petroleum resins not named in the notification, did not amount to diversion of the input to an unlisted commodity. The exemption scheme was also supported by the separate notification exempting Chapter 27 goods used within the factory for manufacture of other goods. Excise duty on pyrolysis gasolene was therefore not payable.

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Issues: Whether raw naphtha obtained under Notification No. 27/89-C.E. remained eligible for concessional duty when the resulting pyrolysis gasolene, after extraction of benzene and toluene, was further processed to manufacture petroleum resins not listed in the notification.

Analysis: The notification granted exemption to raw naphtha intended for use in the manufacture of products specified in the annexed table. The entire quantity of raw naphtha was first subjected to thermal cracking for the manufacture of listed products such as ethylene, propylene, benzene and toluene. Pyrolysis gasolene emerged only as an inevitable intermediate product in that process, and the residual quantity was then used to manufacture petroleum resins. The Court treated this residual processing as use of an incidental by-product, not as diversion of raw naphtha to an unlisted product. The exemption scheme was also reinforced by the second notification, under which goods falling in Chapter 27 and used within the factory for manufacture of other goods were exempt from duty.

Conclusion: The concession could not be denied. The appellant was not liable to pay excise duty on pyrolysis gasolene, and the Tribunal's order was set aside.

Ratio Decidendi: Where an exemption notification is satisfied by the intended use of the input in manufacturing listed products, the fact that an inevitable intermediate or residual product is later used to manufacture an unlisted commodity does not amount to diversion of the input or defeat the exemption.

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