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Issues: (i) Whether raw naphtha cleared at concessional duty under Notification No. 187/61-C.E. remained eligible for the concession when it was consumed only to keep the plant running and was not actually used in the manufacture of fertilizer; and (ii) whether the duty demand raised under Rule 196 of the Central Excise Rules, 1944 was barred by limitation under Section 11A of the Central Excises and Salt Act, 1944.
Issue (i): Whether raw naphtha cleared at concessional duty under Notification No. 187/61-C.E. remained eligible for the concession when it was consumed only to keep the plant running and was not actually used in the manufacture of fertilizer.
Analysis: The notification granted exemption only where the raw naphtha was intended for use in the manufacture of fertilizers and the procedure under Chapter X of the Central Excise Rules, 1944 was followed. Rule 192 required the assessee to declare the purpose and manner of use, and Rule 196(1) made the duty payable on demand if the goods were not duly accounted for as having been used for the stated purpose and manner. The quantity in dispute was burnt only to keep the reformation plant operating and the gas was vented out without reaching the fertilizer manufacturing stream. Such use did not amount to use in the manufacture of fertilizer, and the concession could not be extended on a deemed-use theory.
Conclusion: The raw naphtha was not eligible for the concessional benefit and the finding was against the assessee.
Issue (ii): Whether the duty demand raised under Rule 196 of the Central Excise Rules, 1944 was barred by limitation under Section 11A of the Central Excises and Salt Act, 1944.
Analysis: The demand arose under Rule 196 read with the bond executed under Chapter X. The Tribunal followed its earlier view that no period of limitation is prescribed for a demand under Rule 196 when the goods obtained under concession are found not to have been used for the declared purpose. Section 11A was held not to control such a demand in this context.
Conclusion: The demand was not barred by limitation and the finding was against the assessee.
Final Conclusion: The concessional duty benefit failed on the merits and the duty demand survived; the appeal was therefore unsuccessful.
Ratio Decidendi: Where a concessional exemption is conditioned on intended and actual use for a specified manufacturing purpose and compliance with Chapter X procedure, goods diverted to an ancillary plant-maintenance use do not satisfy the condition, and a demand under Rule 196 is not barred by Section 11A limitation.
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