2003 (9) TMI 95 - HC - Central Excise

Court rules impure Nitrogen gas not liable for excise duty, quashes orders, cancels Bank Guarantee.

BOC INDIA LTD. Versus UNION OF INDIA

The Court held that the impure Nitrogen gas released during the manufacturing process was not liable for excise duty as it was not considered a marketable ... Excisability - By-product - Marketability Issues:- Whether impure Nitrogen gas discharged into the atmosphere during the manufacturing process is liable for excise duty.- Whether the Nitrogen gas released as a safety measure is a marketable commodity under the Excise Tariff.Analysis:1. The primary issue in this case revolves around the liability of impure Nitrogen gas discharged during the manufacturing process for excise duty. The Petitioners argued that the Nitrogen gas released as a safety measure is not a marketable commodity and hence should not be subject to excise duty, despite Nitrogen gas being excisable under the Excise Tariff.2. The Petitioners are engaged in manufacturing Liquid Oxygen, Liquid Nitrogen, and Nitrogen gas through a fractional distillation plant. The process involves obtaining Liquid Oxygen and Liquid Nitrogen at extremely low temperatures, storing Liquid Nitrogen in tanks, and converting it into gaseous Nitrogen. The gaseous Nitrogen, after purification processes, is filled into cylinders for industrial use.3. The authorities issued show cause notices demanding excise duty on the Nitrogen gas released into the atmosphere from the gas holders. The Petitioners contended that such released Nitrogen gas is not a marketable commodity. The Assistant Collector of Central Excise upheld the demand, which was confirmed by the Collector of Central Excise (Appeals) and subsequently dismissed by the Joint Secretary, Government of India.4. The Petitioners argued that the Nitrogen gas released as a safety measure is not marketable until it undergoes purification and packaging processes. They also claimed that the exemption Notification No. 177/87 should have retrospective effect to cover the period in question.5. The Counsel for the Petitioners relied on a Supreme Court decision emphasizing that for an item to be excisable, it must not only be manufactured but also be marketable. Since the Revenue failed to prove marketability, the Petitioners sought to quash the orders demanding excise duty.6. On the other hand, the Respondents argued that the Nitrogen gas obtained through the distillation process is marketable, and subsequent procedures are incidental to packing, not improving marketability. They contended that the Nitrogen gas, once manufactured, remains excisable regardless of actual sale.7. The Court noted that even though Nitrogen gas is excisable under the Central Excise Tariff, excise duty cannot be levied unless the gas is proven to be marketable. The purification process is crucial for industrial use, and until the gas is marketable, no excise duty should apply to the released Nitrogen gas.8. Consequently, the Court quashed the orders demanding excise duty, stating that the released Nitrogen gas was not marketable, thereby rendering it exempt from excise duty. The Court did not address the retrospective effect of the exemption Notification No. 177/87, as it was unnecessary given the finding of non-marketability.9. The ruling resulted in the orders being set aside, with the Bank Guarantee furnished by the Petitioners being canceled and returned to them within a specified timeframe. The parties were directed to act upon the Court's order accordingly.