Excise exemption for trial-run ammonia upheld where pre-production use in commissioning satisfied the notification's conditions.

Ammonia supplied to a heavy water plant for testing, trial run and commissioning was treated as falling within the excise exemption where the notification required supply under Chapter X procedure for use in manufacturing heavy water and return for use in fertilizer manufacture. The Tribunal reasoned that consumption during pre-production testing did not defeat the exemption, and later amendment expressly covering testing and commissioning was treated as clarificatory of the earlier position. It further noted that, when the goods were procured under Chapter X procedure and the recipient had undertaken the specified use, the duty burden could not be fastened on the manufacturer. The disputed ammonia was therefore covered by the exemption and the demand on the manufacturer was unsustainable.

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Issues: Whether ammonia supplied to a heavy water plant for testing, trial run and commissioning of the plant, and not returned in full, was entitled to exemption under the relevant excise notification.

Analysis: The notification exempted ammonia from excise duty subject to compliance with Chapter X procedure and to the condition that the ammonia be supplied to the heavy water plant for manufacture of heavy water and returned to the manufacturer for use in manufacture of fertilizers. The Tribunal noted that the quantity in dispute had been consumed during testing, trial run and commissioning of the plant before production of heavy water commenced. It relied on earlier decisions holding that goods used during trial runs prior to commissioning can satisfy the exemption condition even where the end product was not yet produced. The later amendment to the notification, which expressly referred to testing and commissioning, was treated as clarificatory of the earlier position. The Tribunal also held that where goods are procured under Chapter X procedure, the duty demand cannot be fastened on the manufacturer when the recipient who undertook to use the goods for the specified purpose was the person responsible.

Conclusion: The disputed ammonia was covered by the exemption and the demand raised against the manufacturer was unsustainable.

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