Substantial compliance under exemption notification preserved concession for diverted raw naptha used in intermediate products.

Raw naptha procured for fertiliser manufacture but diverted to synthesis gas, ammonia and nitric acid remained liable to duty because it was not used for the intended fertiliser stream; however, the concession under Notification No. 27/89-C.E. was still available because its conditions were substantially complied with and were not breached. The analysis applied the principle that exemption benefit is not denied where the notification's requirements are met in substance, even if the material is used through intermediate products and some outputs are cleared outside the fertiliser line. The assessee therefore retained the notification benefit, and the duty computation based on denial of that concession was set aside.

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Issues: Whether raw naptha procured under Notification No. 75/84-C.E. for manufacture of fertilisers, but diverted for use in synthesis gas, ammonia and nitric acid, could still attract the benefit of Notification No. 27/89-C.E. while computing duty liability.

Analysis: The raw naptha was admittedly not used for the intended fertiliser manufacture, so duty became recoverable. However, the only controversy was whether the duty could be computed by extending the concession available under Notification No. 27/89-C.E. The conditions of that notification were not found to be breached, and the same issue had already been decided in the appellants' own case in their favour. The governing approach applied was that where the notification conditions are substantially complied with, the concession remains available even though the material was used for intermediate products and some outputs were cleared outside the fertiliser stream.

Conclusion: The benefit of Notification No. 27/89-C.E. was available to the assessee, and the impugned order was set aside.

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