TaxTMI 
TaxTMI 
1997 (2) TMI 105
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.... claimed total exemption from excise duty on the manufactured ammonia utilised by it for production of molten urea by captively consuming the aforesaid ammonia manufactured out of raw naphtha. The said claim is based on a similar exemption notification issued by the Central Government being Notification No. 40 of 1985, dated 17-3-1985, as amended from time to time. The aforesaid manufactured molten urea was further captively consumed for manufacturing melamine. This claim based on the aforesaid exemption notifications was sought to be negatived by issuance of six show cause notices by the excise authorities on the ground that the aforesaid exemption notifications were not applicable to raw naphtha utilised for manufacturing ammonia as well as to ammonia captively consumed for manufacturing molten urea on the ground that the ultimate product manufactured out of it was melamine which was not a fertiliser. It was also contended by the excise authorities that molten urea which was manufactured out of ammonia was not by itself a soil fertiliser and, therefore, on the express terms of the exemption notifications, the appellant was not entitled to get the benefit of concessional rate of e....
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....and February 1989. 4.The Collector of Central Excise, Vadodara, in exercise of powers vested in him under Section 35E of the Act directed the Assistant Collector to file appeals to the Collector, Central Excise (Appeals) against the aforesaid orders on the ground that molten urea which was classifiable under Chapter 31 Heading 31.02 was further used in the manufacture of melamine and hence the appellant would not be entitled to the benefit of the aforesaid notifications as the spirit of the notifications was that ammonia should be used in the manufacture of a soil fertiliser and not any other commodity. 5.Pursuant to the directions of the Collector, the Assistant Collector filed six appeals on diverse dates to the Collector, Central Excise (Appeals). The appellant filed cross-objections submitting in the alternative that assuming that molten urea was not a fertiliser, even then it was entitled to the benefit of Notification No. 217 of 1986, dated 1st March 1986 which exempted captively consumed excisable goods used for the manufacture of excisable final products as set out in the Table annexed to the said notification. As ammonia covered by Chapter 28 was mentioned as input a....
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.... by the appellant to be only soil fertiliser and not fertiliser of any other type and that express terminology of the notifications did not have such a restrictive meaning. It was alternatively contended that in any case, Notification No. 217 of 1986 applied to the facts of the present case and even on that ground, the demand-cum-show cause notices were liable to be quashed. Shri Bhat, learned Additional Solicitor General, on the other hand, contended that the express terminology employed by exemption Notification No. 75 of 1984, dated 1-3-1984 and Notification No. 40 of 1985, dated 17-3-1985 had to be appreciated in the light of the connotation of the term `fertiliser' as understood in common parlance and should not be read in the light of the subsequent Tariff Act which might have brought on the statute book relevant Chapters 31 or 32. Therefore, the wording of those chapters and the chapter notes could not be relied upon to cull out the meaning of the term `fertiliser' as employed by these notifications. Ultimately when the express terminology of these notifications was noticed by him making direct reference to the concerned chapters of the Tariff Act he did not pursue this poin....
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.... Plant for the manufacture of molten urea. Under the Central Excise Tariff Act, the excise authorities classified molten urea under Chapter 31 thereof dealing with fertilisers. That duty was being paid by the appellant at the relevant time on molten urea under Chapter Heading 31.02 which covered nitrogenous mineral and chemical fertilisers. It is no doubt true that molten urea in its turn was also captively consumed by the appellant in its Melamine Plant for manufacture of melamine which admittedly is not a fertiliser. 9.In the light of these background facts on which there is no dispute the short controversy posed for our consideration will have to be resolved. We have, therefore, to turn to the concerned two notifications which are brought on the anvil of scrutiny before us. Notification No. 75 of 1984, dated 1-3-1984, as amended from time to time, sought to grant a concession in the rates of central excise duty as specified in the Schedule to the said notification on goods of the description specified in column (2) of the Table subject to intended use or condition as laid down in column (4) thereof. The Table to the said notification mentioned at Sl. No. 2 raw naphtha as the ....
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....is mentioned ammonia. Thus ammonia which was manufactured by the appellant out of raw naphtha came under the sweep of the said exemption notification. The condition for earning exemption from excise duty on ammonia as laid down in column (3), which is relevant for our present purpose, is Condition No. (ii) which provides that ammonia should be used in the manufacture of fertilisers. It is not in dispute that ammonia was captively consumed by the appellant in manufacturing molten urea. Therefore, the moot question is whether ammonia could be said to have been utilised for manufacturing any fertiliser. It is no doubt true that molten urea in its turn became an input for producing the final product, namely, melamine which admittedly was not a fertiliser. But as required by the express language of the notification we have to find out whether molten urea which was manufactured out of ammonia was a fertiliser or not. It is now well settled by a catena of decisions of this Court that for deciding whether an exemption notification gets attracted on the facts of a given case, the express language of the exemption notification has to be given its due effect. In this connection, we may refer ....
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....Central Excise Tariff of India 1987-88 by Shri R.K. Jain show that so far as Chapter 31 dealing with fertilisers is concerned, Heading No. 31.02, amongst others, applies also to urea, whether or not pure. The said entry is found in Clause (2), sub-clause (A)(viii) of Note 2 under Heading No. 31.02. Sub-clause (D) of Clause (2) of Notes under Heading No. 31.02 shows that liquid fertilisers consisting of the goods of sub-paragraph (A)(ii) or (viii) above are also included in the said heading. It, therefore, becomes obvious that liquid urea is considered to be a chemical fertiliser. It is also not in dispute that the excise authorities themselves permitted clearance of chemical fertiliser, molten urea under sub-heading No. 31.02 of the said chapter. It must, therefore, be held that the view taken by the CEGAT that molten urea was not a fertiliser at all, is not correct. It is difficult to appreciate as to how the CEGAT could come to that conclusion when it was not called upon to go into that question by either of the parties before it. The only contention before CEGAT was whether the term `fertiliser' in each of the exemption notifications covered chemical fertiliser like molten urea ....
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....J. speaking for a two-Member Bench of this Court has observed that in trying to understand the language used by an exemption notification, one should keep in mind two important aspects : (a) the object and purposes of the exemption and (b) the nature of the actual process involved in the manufacture of the commodity in relation to which exemption was granted. It must be kept in view that the object and purpose of the exemption has to be culled out from the express language of the notification. If the express language of the notification does not indicate a contrary intention conveyed by the wide words employed by the notification, full effect has to be given to the wide terminology employed by the notification otherwise the result would be that in trying to search for the supposed intention underlying the notification, the intention flowing from the express language of the notification would get stultified or truncated. To recapitulate, on the express language of the notification an inevitable conclusion follows that the Central Government meant to exempt excise duty on the captively consumed ammonia if it had resulted in the manufacture of fertilisers and as it had resulted in the....
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....ten urea being a fertiliser. 13.That takes us to the consideration of the main submission canvassed by Shri Bhat, learned Additional Solicitor General, that the CEGAT had taken the view that ammonia which was utilised by way of captive consumption by the appellant for manufacture of molten urea was subjected to a continuous process of manufacturing which had resulted in the end product melamine which was admittedly not a fertiliser. That may be so. However, the question remains whether ammonia could be said to have been used in the manufacture of molten urea which was a chemical fertiliser. We have to recall that molten urea itself is an excisable commodity even though it might have been exempted from payment of excise duty by a notification issued by the Central Government. But for the said exemption notification molten urea would have been required to bear the full duty. As seen earlier, it has been classified as a chemical fertiliser under Heading 31.02 by the authorities themselves. For levying excise duty on such a commodity, namely, molten urea, if the department takes the view that it is to be subjected to excise duty as a chemical fertiliser on its clearance even for cap....
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....T or for that matter before the Assistant Collector or the Collector (Appeals). The only stand of the department was that exemption Notification No. 40 of 1985 would not apply to ammonia as it had resulted into the final product melamine which was not a fertiliser and the intermediate product of molten urea was utilised in a continuous process of manufacture and, therefore, it must be held that ammonia was captively consumed for the purpose of manufacturing the ultimate product of melamine and not molten urea. On the express language of the notifications, in question, it is not possible to agree with the contention of Shri Bhat, learned Additional Solicitor General that the term `fertiliser' employed by the said notification must be understood by adopting the common parlance test to be referred to soil fertiliser only. 15.As a result of the aforesaid discussion, it must be held that the Collector of Central Excise (Appeals) as well as the CEGAT had patently erred in law in taking the view that Notification No. 40 of 1985 did not cover captively consumed ammonia utilised by the appellant as input for manufacturing molten urea. It must also be held that Notification No. 75 of 1984....