TMI Blog2006 (9) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... outhern States. Low Sulphur Heavy Stock (LSHS) is used initially as secondary fuel to raise the furnace temperature sufficiently for firing the primary fuel, which is called the start-up operation . It is also used for sustaining the combustion process whenever the furnace temperature drops due to reduction in supply of the primary fuel (lignite). This operation is also called flame stabilisation . During rainy season LSHS is even used as a substitute for wet lignite i.e., as a primary fuel. During the period August, 1998 to October, 2002, NLC had procured LSHS without payment of duty by availing exemption under Notifications 5/98-C.E. dated 2-6-1998, 5/99-C.E. dated 28-2-1999, 6/2000-C.E. dated 1-3-2000, 3/2001-C.E. dated 1-3-2001 and 6/2002-C.E. dated 1-3-2002. LSHS intended for use as fuel for generation of electrical energy by Electricity Undertakings controlled by the Central Government was exempt from payment of duty, subject to certain conditions, under entry No. 19 in the Table annexed to Notification 5/98-C.E. It was exempt likewise under the corresponding entries of the subsequent Notifications also Entry No. 19 under Notification No. 5/98-C.E. is reproduced below :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption from payment of duty on LSHS procured during the period of dispute. Accordingly, a show-cause notice dated 14-8-2003 was issued to NLC invoking the proviso to Section 11A(1) of the Central Excise Act and demanding duty of Rs. 1,78,48,164/- and proposing to impose penalty under Section 11AC of the Act. The proposals in the show-cause notice were contested both on merits and on limitation. In adjudication of the dispute, the Commissioner confirmed the above demand of duty against NLC under the proviso to Section 11A(1) of the Act (with interest on duty under Section 11AB of the Act) and imposed on them equal amount of penalty under Section 11AC of the Act read with Rule 173Q of the Central Excise Rules, 1944/Rule 25 of the Central Excise Rules, 2001/2002. This decision of the Commissioner is under challenge in Appeal No. E/503/2004. Another show-cause notice dated 22-6-2004 was also issued to M/s. NLC raising a similar demand of duty (Rs. 60,40,843/-) on LSHS procured during the period from August, 2003 to January, 2004 and proposing imposition of penalty. This notice, however, was within the normal period of limitation. This notice also was contested by the party. Learned Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HS proportionate to the power consumed in plant and mine, i.e., not sold by NLC. 3. In order to answer the first question, it has to be determined as to whether the LSHS used in start-up operation and flame stabilization can be said to be intended for use as fuel for the generation of electricity . M/s. NLC used it as a secondary fuel for generation of electricity, a fact which is not in dispute. The Notification uses the word fuel and does not specify primary or secondary . Hence the word fuel used in the Notification must include secondary fuel also and, therefore, LSHS is within the ambit of fuel used in the Notification. The question now is whether it was intended for use as fuel for generation of electrical energy. This expression was considered and interpreted by the Supreme Court in the case of Steel Authority of India Ltd. v Collector of Central Excise [1996 (88) E.L.T. 314 (S.C.)]. SAIL had a plant manufacturing fertilizers. They used raw naphtha for the manufacture of certain fertilizers. Raw naphtha carried a concessional rate of duty under Notification No. 187/1961 (as amended) where it was intended for use in the manufacture of fertilizer and if the procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative Ltd. v. Collector of Central Excise, Ahmedabad [1996 (86) E.L.T. 177 (S.C.)], the High Court examined the question whether LSHS/FO which was burnt up in the process of generating steam was intended for use as feedstock in the manufacture of fertilizer , and held as under :- The words used in the subject notification, namely, intended for use as feed stock in the manufacture of fertilizer should not be read in a restricted manner. The exemption notification must be so construed as to give due weight to the liberal language it uses. If a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture, may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in the notification will qualify for total exemption. Consequently L.S.H.S./F.O. used for the purpose of steam generation, which is a necessary part of the process of manufacturing of fertilizer has to be held to be used in the manufacture of fertilizer. Though, in the case of Fertilizer Corporation of India Ltd., LSHS/FO was completely used up in steam generation (initial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch use of electricity by NLC in their own plant and mine was not involuntary. Hence on strict interpretation required of any Exemption Notification the benefit of the subject Notifications is not admissible to that quantity of LSHS which was used as fuel for generation of electricity which was not sold but used in the plant and the mine. The issue is, accordingly, held against the appellants. We think, we can claim support from the High Court s judgment in Fertilizer Corporation of India (supra). In that case, a certain quantity of ammonia which emerged in the course of manufacture of urea was sold as such in the open market. Obviously, this quantity of ammonia was not allowed to be converted to the fertilizer. Therefore, the LSHS/FO used for the manufacture of this quantity of ammonia was held not intended for use as feedstock in the manufacture of fertilizer and accordingly the benefit of Notification No. 147/74 was held to be inadmissible. The Hon ble High Court held as under :- I also hold that so much of the L.S.H.S./F.O. as is utilised for the purpose of manufacture of ammonia which is further processed, culminating in the manufacture of fertilizers, attract the benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not correct insofar as the manner of use of LSHS is concerned. He also found that NLC had never disclosed to the department that a portion of the electricity produced by them would be used for running auxiliary equipments in the power plant or for lignite mining operations. In their application for L-6 licence, they had mentioned Agricultural, Industrial and Other uses against Purpose to which manufactured product is applied. It appears to us that the use of a portion of NLC s power production in the plant itself and in the lignite mine is covered by industrial use mentioned in their application for licence. In this view, non-disclosure cannot be found against the appellants in regard to the use of electricity either. The impugned orders do not provide valid ground for invoking the extended period of limitation. The appellants Counsel has raised the plea of bona fide belief and cited case law in support thereof, but we need not examine the plea at this stage as the Commissioner s decision on the limitation issue has already been rejected. 7. For the reasons recorded above, the demand of duty for the period, 8/1998 - 10/2002 is set aside partly on merits and partly on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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