Escaped ammonia gas not liable to excise duty where a binding circular excludes gases allowed to escape into the atmosphere.

Ammonia gas produced or stored in a factory and allowed to escape into the atmosphere was treated as outside central excise levy where a binding clarificatory circular covered gases under Chapters 27, 28 and 29. The circular stated that such escaped gases are not to be regarded as manufactured products or as cleared for duty, and that principle was applied to the integrated manufacturing and storage process here. The contrary reliance on general manufacture jurisprudence was found inapposite, and the Revenue could not advance a new factual case of clandestine removal beyond the show cause notice. Duty, penalty and interest were therefore unsustainable.

---

---

Issues: Whether ammonia gas produced or stored in the factory and allowed to escape into the atmosphere was liable to central excise duty, and whether the benefit of the Board circular exempting such escaped gases was available to the assessee.

Analysis: The circular clarified that gases falling under Chapters 27, 28 and 29, when produced in a factory and allowed to escape into the atmosphere, are not to be treated as manufactured products amounting to clearance and are not liable to duty. The decision turned on the statutory character of the circular and the factual position that the ammonia in question was part of the integrated manufacturing/storage process and escaped into the atmosphere. The contrary reliance on the Supreme Court decision concerning the taxable event of manufacture was held inapposite because the specific issue of escaped gases under the circular was not before that Court. The Revenue also could not raise a new factual plea beyond the show cause notice and had not established clandestine removal.

Conclusion: The escaped ammonia was not chargeable to duty and the assessee was entitled to the benefit of the circular. The demand, penalty, and interest were unsustainable.

Ratio Decidendi: Where a binding clarificatory circular states that gases produced in a factory and allowed to escape into the atmosphere are not liable to duty, such escaped gases cannot be subjected to excise duty in the absence of proof of clandestine removal.

---