TaxTMI 
TaxTMI 
2026 (3) TMI 1632
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.....S.G. Mr. Siddharth Sinha, Adv., Mr. Shubhendu Anand, Adv., Mr. Devashish Bharukha, Sr. Adv., Mr. Rajeev Ranjan, Adv., Mr. B. Krishna Prasad, AOR. JUDGMENT PER UJJAL BHUYAN, J. Leave granted in Special Leave Petition (Civil) No. 21441 of 2013. 2. The subject matter in the three civil appeals being inter-connected, those were heard together and are hereby disposed of by this common judgment and order. 3. Civil Appeal No. 2219 of 2013 arises out of the order dated 27.03.2012 passed by the Customs Excise and Service Tax Appellate Tribunal, West Zonal Bench, Mumbai (CESTAT) in Appeal No. E/671/10-Mum whereas Civil Appeal No. 2220 of 2013 is preferred against the same final order dated 27.03.2012 passed by the CESTAT in Appeal No. E/801/10-Mum. 3.1. It may be mentioned that Appeal No. E/671/10-Mum was filed before the CESTAT against the order-in-original dated 27.01.2010 passed by the Commissioner of Central Excise and Service Tax as the original adjudicating authority. On the other hand, Appeal No. E/801/10-Mum was filed before the CESTAT against the order-in-original dated 04.02.2010 passed by the aforesaid Commissioner. By the common order dated 27.03.2012, both the....
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....ering the appellant ineligible for nil rate of duty under the aforesaid notifications. 8. Appellant submitted reply to the aforesaid show cause notice on 02.11.2001 denying the allegation made by the revenue. It was contended by the appellant that Naphtha was being utilized for its intended purpose and not diverted as alleged. 9. Following adjudication proceedings, the demand of duty amounting to Rs. 28,55,95,491.00 was confirmed by the Commissioner of Central Excise vide the order-in-original dated 04.02.2002. 10. This was followed by issuance of eight show cause notices by the revenue to the appellant on the same issue covering the period from April, 2001 to November, 2001. 11. Appellant preferred appeal before the CESTAT against the order-in-original dated 04.02.2002. On the stay application, an amount of Rs. 2 crores against the demand of Rs. 28.56 crores i.e. approximately 10 percent amount was ordered to be pre-deposited vide the order dated 17.01.2003. 12. While the appeal was pending, fourteen more show cause notices were issued by the department to the appellant on the same issue but covering the period from December, 2001 to January, 2003. It is stated that....
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....E/671/10-Mum before the CESTAT alongwith a stay application. However, CESTAT directed pre-deposit of Rs. 2 crores. 21. Appellant also filed another appeal being Appeal No. E/801/10-Mum alongwith a stay application before the CESTAT against the second order-in-original dated 04.02.2010. 22. Against the decision of the CESTAT directing the appellant to pre-deposit Rs.2 crores, appellant preferred an appeal before the High Court which was registered as Central Excise Appeal No. 68/2011. High Court allowed the aforesaid appeal vide the order dated 28.06.2011 and waived the condition of pre-deposit against execution of bond for the amount of duty and directed CESTAT to hear the appeal on merit. 23. CESTAT heard both the appeals i.e. Appeal No. E/671/10-Mum and Appeal No. E/801/10-Mum and thereafter pronounced the impugned final order dated 27.03.2012 partially allowing the appeals filed by the appellant by confirming the duty demanded alongwith interest and also upholding the imposition of penalty under Section 11AC of the Central Excise Act, 1944 but dropped the penalty imposed under Rule 173Q of the Central Excise Rules, 1944 and under Rule 25 of the Central Excise Rules, 200....
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.... As a consequence, appellant is required to sell the manufactured fertilizer at a price much below the cost incurred in producing the same. The difference in the cost and the maximum retail price is compensated to the appellant by way of subsidies granted by the Central Government. 27.4. That apart, the raw material i.e. the inputs used in the manufacture of fertilizer and ammonia are also exempted from paying excise duty with a view to reduce the cost of inputs used in the manufacture of fertilizer. Naphtha is one such product which is exempted from excise duty when intended for use in the manufacture of fertilizer or ammonia. 27.5. During the relevant period, appellant procured Naphtha from HPCL without payment of excise duty by availing the benefit of exemption under notification No. 4/1997-CE dated 01.03.1997, as amended from time to time. It is stated that Naphtha is used along with natural gas as fuel to generate steam which in turn is used in the manufacture of ammonia and fertilizer. 27.6. Stating that the primary activity carried out at the appellant's plant is the manufacture of ammonia and fertilizer, Mr. Balbir Singh submits that the plant also has turbo genera....
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....uestion of it being used elsewhere. 27.11. Learned senior counsel thereafter referred to the scheme of the exemption notifications bearing No. 75/1984-CE and No. 04/1997-CE, as amended from time to time. By the aforesaid notifications issued under Section 5A(1) of the Central Excise Act, 1944, the Central Government has exempted the excisable goods specified in column (3) of the table appended thereto from so much of the duty of excise leviable thereon subject to the conditions specified therein. He submits that Naphtha and natural gasoline liquid for use in the manufacture of fertilizer or ammonia are mentioned at serial No. 8 with the rate of duty mentioned as nil. Adverting to the conditions of exemption, learned senior counsel submits that the exemption was subject to proving to the satisfaction of an officer not below the rank of Assistant Commissioner of Central Excise that such goods were cleared for the intended use specified in column (3) of the table (in this case, for the manufacture of fertilizer or ammonia). As per the second condition, where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of the Central Excise Rules, 1944....
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....or the fertilizer or non-fertilizer plants could not be ascertained. Therefore, any calculation of demand on the premise that Naphtha was being diverted for non-fertilizer products is based on mere speculation. 27.15. It is also the contention of Mr. Balbir Singh, learned senior counsel that the claim for exemption as per the exemption notifications hinges on the interpretation of the expression 'intended use' of the exigible good(s) in the manufacture of fertilizer. He submits that when an exemption is conditioned on intended use, the benefit should be granted if the declared intended use is fulfilled. Explaining the principle, he submits that exemptions are granted to encourage or facilitate certain end uses and if an assessee uses the goods for that intended purpose, exemption's purpose is satisfied. In this connection, he has placed reliance on a decision of this Court in Steel Authority of India Vs. Collector of Central Excise (1996) 5 SCC 484 which has held that requirement of the exemption notification is the proof that raw Naphtha was intended for use in the manufacture of fertilizer and not that the raw Naphtha was used in the manufacture of fertilizer. In this regard, ....
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....he sake of argument that some portion of Naphtha was not eligible for the fertilizer exemption, the duty impact is revenue neutral. Any excise duty payable on Naphtha would have been available to the appellant as Central VAT credit for payment of excise duty on its other products. Therefore, no mala fide intent could be attributed to the appellant for the alleged evasion of payment of duty to justify invocation of the extended period of limitation. This Court in Nirlon Limited Vs. Chief Commissioner of Excise (2015) 14 SCC 798 has held that where the exercise would result in revenue neutrality and the appellant could not derive any benefit from it, it was not permissible for the revenue to invoke the extended period of limitation under the proviso to Section 11A(1). In any case, appellant being a public sector undertaking receiving subsidy from the Central Government for manufacture of fertilizer and ammonia, there ought not to be any apprehension on the part of the respondent about intention of the appellant to evade payment of excise duty as any excise duty paid by the appellant would ultimately be reimbursed by the Central Government by way of subsidies. Therefore, invocation of....
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....ed 01.03.2000 for manufacture of fertilizer and ammonia by following Chapter X procedure. The scrutiny also revealed that Naphtha was burnt in the steam generation plant to generate steam which in turn was consumed by various plants, such as, urea plant, ammonia plant, turbo generators, chemical group plant and heavy water plant. 28.2. Based on such scrutiny, it appeared to the department that appellant had claimed exemption incorrectly to the extent of steam generated by burning Naphtha and consumed in turbo generators for generating electricity consumed in the chemical group plant for manufacturing organic chemicals and also for use in the heavy water plant. Therefore, a view was taken that appellant had suppressed the actual use of Naphtha, thereby made mis-declaration while filing applications for CT-2 certificates to the effect that Naphtha which was procured under exemption would be used only in the manufacture of fertilizer and ammonia. In this regard, statements of various persons were recorded in which it was admitted that Naphtha was used as fuel to supplement deficiency of natural gas. Thus, a prima facie view was taken that Naphtha procured by the appellant without p....
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.... was not used in the exemption notification nor was it a condition precedent for availing the benefit of exemption as per such notification. Appellant denied that electricity generated in the turbo generation plant was not used in the manufacture of fertilizer. Appellant also denied that it had intentionally sold electricity to the Maharashtra State Electricity Board but the same had to be sold under technical compulsion. Denying that Naphtha was not being used directly in the manufacture of fertilizer, appellant asserted that it had fulfilled the conditions of the exemption notifications. Appellant, therefore, sought for dropping of the show cause notice. 28.6. However, the reply of the appellant was not accepted by the revenue resulting in the passing of the order-in-original dated 04.02.2002. 28.7. Though the appellant had challenged the aforesaid order-in-original before the CESTAT, the same resulted in several rounds of litigation back and forth and also requiring the appellant to approach the High Court regarding pre-deposit. Ultimately, the original adjudicating authority passed two separate orders i.e. order-in-original dated 27.01.2010 in respect of the first show ca....
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....ammonia but was also being used in the manufacture of other goods which were not specified in the exemption notifications. Exemption granted for Naphtha to be used in the manufacture of fertilizer or ammonia could not be extended to goods other than fertilizer or ammonia. 30.1. Further observation was made that part of the electricity generated from the turbo generator plant was being sold by the appellant to Maharashtra State Electricity Board. The show cause notice noted that there was a digital control system in the steam generation plant which could measure the flow of steam. It was also observed that Naphtha and natural gas were burnt simultaneously in the steam generation plant to generate steam. Therefore, the percentage of consumption of Naphtha in the generation of steam used in the plants other than fertilizer and ammonia could not be arrived at directly. However, on the basis of the statements of the officials, percentage of steam consumed in plants other than fertilizer and ammonia was worked out and thereby the quantum of Naphtha consumed to generate this steam was arrived at. Applying the above methodology, the total Naphtha consumed in the plants other than fertil....
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.... and observes all the formalities and procedures in the manufacture and clearance of the excisable goods. 31.1. Explaining the process of manufacture, appellant stated that it had an annual installed capacity for manufacture of 14.85 lakh MT of the fertilizer urea at its factory. In the manufacturing process, steam is used in the urea and ammonia plant. The steam is generated in the steam generation plant. A part of the steam so generated is also used in the turbo generation plant for generation of electricity mostly for in-house consumption. 31.2. The steam is produced in the steam generation plant by using both natural gas and Naphtha simultaneously as the appellant is equipped with a dual fuel firing system for which it is also maintaining the data of natural gas and Naphtha used. Thereafter, appellant explained the procedure which is followed in the steam generation plant. However, steam is not only generated in the steam generation plant by using Naphtha and natural gas but it is also generated in the ammonia plant. 31.3. Appellant explained that the steam generation plant was totally a utility plant providing steam and power to the factory as a whole. It was essentia....
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....otifications that exemption is allowed if the goods are cleared for the 'intended use' as specified in column (3) of the table to the notifications. It would be an incorrect interpretation to say that if Naphtha was not used directly in the manufacture of fertilizer then the benefit of exemption would not be available to the Naphtha consumed in the manufacture of fertilizer. Naphtha was procured from HPCL after submitting necessary CT-2 certificates categorically stating that Naphtha would be used in the manufacture of fertilizer. The use of Naphtha could be both direct and indirect. In so far appellant is concerned, Naphtha was used as a supplementary fuel for generation of steam at the steam generation plant. Out of the total quantity of steam so generated, around 75% was used directly in the fertilizer plant and balance 25% was used in the production of electricity in the turbo generation plant. However, the generated electricity was not used elsewhere but used in the fertilizer plant only. 31.8. Asserting that appellant had used the Naphtha so procured in the generation of steam which in turn was used in the manufacture of fertilizer directly and also through generation of e....
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....was required to be established was only the 'intended use', the adjudicating authority held that in addition to being used for the manufacture of fertilizer and ammonia, the procured Naphtha was certainly used for other purposes which disentitled the appellant from availing the benefit of the exemption notifications. 32.4. As regards the extended period of limitation is concerned, the adjudicating authority held as under: 35. In the present case, the assessee very well knew that the percentage of consumption of naphtha in generation of steam used in plants, other than fertilizer and ammonia cannot be arrived at directly. Despite this fact, they chose to avail the exemption (which was available only when the basic feed is used in the manufacture of fertilizer) and continue to justify it by arithmetical calculations. There should have at least been a proportionate payment (to the extent of naphtha not used in the manufacture of fertilizer, using the very same arithmetical calculations). This was not the case, even at the adjudication stage, they continued to maintain the same stand. As such the allegations in the notice to this extent are correct. 32.5. Therefore, the adjudi....
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....hat natural gas was the main fuel and Naphtha was used as a supplement and held that from such statement, the percentage of steam consumed for non-fertilizer purposes could be ascertained which in fact was relied upon by the revenue in the show cause notice. Therefore, CESTAT concluded that demanding duty on the basis of proportionate use for non-fertilizer purposes was a reasonable method for determining and demanding duty. 33.2. CESTAT also rejected the contention of the appellant that Naphtha was in short supply which was admitted by the department and that when something was in short supply, allegation of diversion of the same cannot survive. 33.3. As regards the exemption notifications, CESTAT was of the view that in so far the description of goods for exemption was concerned, the expression used was Naphtha and natural gasoline liquid 'for use' in the manufacture of fertilizer or ammonia whereas in the first condition, the expression used was that the exemption would be allowed if it was proved to the satisfaction of the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise that such goods were cleared for the 'intended use'. According to CES....
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....he person who is liable to pay duty as determined under sub-section (2) of Section 11A shall be liable to pay a penalty equal to the duty so determined. We also find that Section 11A has been made applicable to the recipient of the goods under Chapter X procedure and under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 as Section 11A is separately mentioned in Rule 196 of the Central Excise Rules and in Rule 6 of Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. We, therefore, uphold the penalty imposed by the adjudicating authority in Order No. 31/2009 dated 27.01.2010 under Section 11AC of the Act on the appellant. However, penalty imposed under Rule 173Q and Rule 25 of the Central Excise Rules in Order No. 32-56/2009 dated 05.02.2010 is set aside. 34. Let us now have a broad overview of the relevant statutory framework. 35. Section 5A of the Central Excise Act deals with the power to grant exemption from duty of excise. As per sub-section (1), if the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notif....
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....uation of excisable goods under any other provisions of the Central Excise Act or the rules made thereunder, a Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short levied or short paid or to whom the refund has erroneously been made, requiring him to show cause as to why he should not pay the amount specified in the notice. 37.1. Thus, as would be evident from the above, the normal limitation period for issuance of show cause notice in case of duty not levied or not paid or short-levied or short paid or erroneously refunded in terms of Section 11A was one year from the relevant date prior to 08.04.2011. 38. This brings us to the proviso to sub-section (1) of Section 11A, as it stood at the relevant point of time, which is relevant and is therefore extracted hereunder: Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rule....
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....ves any excisable goods in contravention of any of the provisions of the Central Excise Rules, 1944; or b) does not account for any excisable goods manufactured, produced or stored by him; or bb) takes credit of duty in respect of inputs or capital goods for being used in the manufacture of final product or capital goods for use in the factory of manufacturer of final product, as the case may be, wrongly or without taking reasonable steps to ensure that appropriate duty on the said inputs or capital goods has been paid etc. or takes credit of duty which he knows or which he has reason to believe, is not permissible under the Central Excise Rules do not utilises the inputs or capital goods in the manner provided for in the rules or utilizes credit of duty in respect of inputs or capital goods in contravention of any of the provisions of the Central Excise Rules etc.; or bbb) enters wilfully or incorrect particulars in the invoice issued for the excisable goods dealt by him with intent to facilitate the buyer to avail of credit of the duty of excise or the additional duty under Section 3 of the Customs Tarriff Act, 1975 in respect of such goods which are no....
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.... to the provisions of section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or an importer who issues an invoice on which CENVAT credit can be taken or a registered dealer, - (a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or (b) does not account for any excisable goods produced or manufactured or stored by him; or (c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or (d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or an importer who issues an invoice on which CENVAT credit can be taken or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or ....
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.... hereby clarified that subject goods shall be deemed not to have been used for the intended purpose even if any of the quantity of the subject goods is lost or destroyed by natural causes or by unavoidable accidents during transport from the place of procurement to the manufacturer's premises or during handling or storage in the manufacturer's premises. 46. Let us now turn our attention to the exemption notification No. 75/1984-CE dated 01.03.1984. This notification was issued by the Central Government in exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 exempting the goods described in column (3) of the table appended thereto and included in the first Schedule to the Central Excise Act, 1944 from so much of the duty of excise leviable thereon subject to the intended use or the conditions laid down in the corresponding entry in the table appended. At serial No. 6.02 is mentioned raw Naphtha at the concessional rate of duty as mentioned in column (4). In column (5) of the table, it is mentioned that such concessional rate of duty would be available if the raw Naphtha was procured for the intended use in the manufacture of fertilizers and....
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....tisfaction of an officer not below the rank of the Assistant Commissioner of Central Excise, that such goods are cleared for the intended use specified in column (3) of the said Table. 4. Where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of the Central Excise Rules, 1944 is followed. * * * * * * * * 48. Having surveyed the law and the exemption notifications, let us now turn to the show cause notices. The first show cause notice is dated 29.08.2001. This show cause notice covers the period from 27.11.1996 to 31.03.2001. Within the aforesaid period, the last period in respect of which the aforesaid show cause notice was issued was from 16.02.2001 to 31.03.2001. The subsequent 25 show cause notices are from dated 05.10.2004 to dated 03.08.2005. The show cause notice dated 05.10.2004 covered the period from September, 2003 to June, 2004. As regards the show cause notice dated 03.08.2005 is concerned, the same covered the period from July, 2004 to February, 2005. 49. As we have noted above, prior to 08.04.2011, the limitation period under Section 11A of the Central Excise Act was one year. It is thus evident that all the sh....
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.... the exemption clause would have been different as, for example, 'goods actually used' or 'goods used'. 52.1. Thus, this Court expressed the view that the real question which it was called upon to determine was whether the cement supplied was intended for use directly in the generation or distribution of electrical energy. If it was so intended, the exemption was attracted but not otherwise. Certificates issued by the Punjab State Electricity Board clearly showed that the intention of the Board was that the cement should be used for a purpose directly connected with the generation or distribution of electrical energy. The mere fact that some of the cement supplied was infact used by the Board for activities not directly connected with the generation or distribution of electrical energy would not make any difference regarding the availability of the exemption. 53. This expression intended for use again came up for consideration in the case of Steel Authority of India Ltd. That was a case where Steel Authority of India Limited (SAIL) procured Naphtha from the market at concessional rate of duty in terms of the extant exemption notification for use in its plant at Rourkela for m....
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.... the manner required, full excise duty thereon is payable. It does not appear to be correct to hold, as the Tribunal did in the first order, that this meant that it was a requisite that it should be proved that the raw naphtha had been actually used in the manufacture of fertiliser. In the context, what was required to be shown was that the raw naphtha was used for the purpose and with the intention of manufacturing fertiliser. Duty at the full rate on the raw naphtha would be leviable only if it could not be shown to have been used for the purpose and with the intention of manufacturing fertiliser. 7. There can be no doubt that the raw naphtha that was fed by SAIL into its plant was for the purpose and with the intention of manufacturing fertiliser and that it was only because of supervening circumstances, namely, the low, uncertain and fluctuating availability of power, that the reformed gas produced during the interim stage of manufacture had to be vented out. The benefit of the exemption notification is, therefore, available to SAIL in regard to the raw naphtha that it utilised in its plant for the manufacture of fertiliser but which, for reasons over which it had no c....
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.... 4. Section 11-A empowers the Department to reopen proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does ....