TMI Blog1999 (1) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... 1980, the provision vesting power in the Central Government to review the decision of the Board, stood repealed. 3.The petitioner M/s. Fertilizer Corporation of India Ltd. is an existing Company within the meaning of Companies Act, 1956 and is a Government Company wholly owned by the Government of India Undertaking. It manufactures and produces inter alia, fertilizer for being sold in the market, and is one of the biggest Oil based plants in India working on partial oxidation process. Since the use of L.S.H.S. and F.O. is essential for the purpose of manufacture of fertilizer by the partial oxidation process, the petitioner applied for permission to procure L.S.H.S. and F.O. under Rule 192 of Chapter X of the Rules and the same was granted by the Collector. Consequently the petitioner obtained requisite licence for receiving L.S.H.S. and F.O. free of duty in terms of Notification No. 147 of 1974. The petitioner was granted this concession from the very beginning till the present dispute arose. 4.The subject Notification No. 147/74, dated 30-10-1974 is reproduced below for the sake of convenience. "Exemption to Furnace Oil and Heavy petroleum stock if used as feed stock in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant facts of each case. CWJC No. 4888 of 1987 : 7.In response to show cause notices issued to the petitioner, the petitioner showed cause and appeared before the Collector of Central Excise, Patna and denied the charge that they had contravened any provision of law, and consequently denied their liability to pay the duty as mentioned in the show cause notice as well as penalty. It is not necessary to refer to the other questions which arose for consideration, because the dispute in this batch of writ petitions is confined to the issue whether the petitioner had contravened the terms of licence issued in their favour for procurement of L.S.H.S./F.O. intended for use as 'feed stock' in the manufacture of fertilizer, which were exempted from the whole of the excise duty leviable thereon. It was contended on behalf of the petitioner that the L.S.H.S./F.O. obtained by them and used in the manufacture of fertilizer as 'feed stock' was totally exempted from duty under the subject notification, while L.S.H.S./F.O. used in the manufacture of fertilizer or other industrial product, otherwise than as 'feed stock', was entitled to partial exemption under Notification Nos. 195 of 1976 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ], the Board allowed the appeal upholding the contention of the petitioner. It held that the quantity used during the trial run for stabilization, as well as the quantity used for the generation of steam, qualified for exemption under the subject notification, but the quantity used in the manufacture of ammonia which was sold for use as chemical, did not qualify for exemption. In this batch of writ petitions, the petitioner has not claimed the benefit of exemption for the quantity of L.S.H.S./F.O. used in the manufacture of ammonia which was sold as chemical, but in one of the writ petitions (CWJC No. 4902/87), it has claimed that benefit to the extent such ammonia produced was again utilized in the manufacturing process for the manufacture/production of fertilizer. The Board has recorded its finding as follows :- "The Board has considered the different contentions of the appellants. The Board finds that both on the point of use of feed stock during the trial run and in the generation of steam, it was not correct to hold that the requirements of the relevant Notifications about use of the feed stock in the manufacture of fertilizers have not been fulfilled. The trial run is an es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed for generation of steam in the plant as entitled to compelete exemption as 'feed stock' under the subject notification be not set aside and the order to that extent modified. The relevant part of the final order of the Tribunal allowing the appeals dated 17-12-1986 reads as follows :- "From the notification produced above, it would be seen that the decision of this appeal depends on meaning of the expression 'feed stock' in the manufacture of fertilizers used in the notification. While Shri Banerjee has no doubt contended that the review notice drawing upon the meaning of expression 'feed stock' in glossary of petroleum terms IS-406978 to mean "Primary material introduced into a plant for processing" would mean setting up a new case and cause prejudice to the respondents, we are not impressed with this argument. At all material times, the question was whether FO/LSHS obtained by the respondents at nil rate of duty was used as feed stock in the manufacture of fertilizers. The precise meaning of the word 'feed stock' not have been in the show cause notice; if they have been put in the show cause notice, this does not mean that the respondents has to meet new case. The expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h may be the process material or not depending on the evidence which has not been produced by the assessee before the adjudicating authority, but for the LSHS which has been burnt in the furnace for heating water which results in the generation of steam. Besides, the steam itself is generated in the SMP Plant and SMP is not by itself a fertilizer; it is assessable under item 60 of the tariff. It is, therefore, so obvious that FO/LSHS which gets burnt in the furnace for the purpose of heating water can by no stretch of imagination be the process material or feed stock for manufacture of fertilizer. It needs no further argument that it cannot be termed by any logic or reasoning as a feed stock used in the manufacture of fertilizer and hence is not entitled to any exemption under Notification No. 147/74. The expression "feed stock" means "primary material introduced into a plant for processing" as defined in Glossary of Petroleum terms IS 4639/68. Feed stock, therefore, means the raw material which is processed into a finished product itself. There is absolutely no doubt that FO/LSHS which gets burnt in the furnace while heating water to generate steam loses its existence by virtue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself, and not fertilizers. In the process, the ammonia (2%) gets consumed in the manufacture of ammonia itself; the stage of fertilizer is never reached at all. And yet the assessee has propounded an absurd theory that the L.S.H.S. used in the above 2% ammonia should be deemed to have been used as feed stock in the manufacture of fertilizers and claimed exemption of duty upon such L.S.H.S. under Notification No. 147/74. I reject the arguments and the contentions of the assessee as being totally absurd and illogical." An appeal was preferred before the Tribunal which following its decision in an earlier appeal, which has been annexed as Annexure-5 dated 9-1-1987 dismissed the appeal by its order Annexure-4 dated 30-4-1987. From a perusal of Annexure-5, it appears that the question that fell for consideration of the Tribunal was whether L.S.H.S/F.O. used in the manufacture of ammonia sold by the assessee to the outside parties, could not be treated as use in the manufacture of fertilizers, since ammonia so produced is not used as fertilizer or in the manufacture of fertilizer. Counsel for the petitioner submitted that in the instant case, the petitioner did not claim any benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the process of manufacture in the plant of the petitioner L.S.H.S./F.O. was indispensable for the production of gas, from which ammonia and carbon dioxide are produced, and the reaction of the two results in the production of Urea. Thus L.S.H.S./F.O. constituted a primary material used for processing in a continuous and integrated process of manufacture. It was submitted that without the use of L.S.H.S./F.O. it would not be possible to manufacture fertilizer under the process used in the petitioner's plant. 18.It was further submitted that the term processing implies processing in any form which leads to the production of the end-product. There was no warrant for interpreting the term in the manner interpreted by the department, namely, that unless the inputs constitute a component of the end-product, they cannot be termed as raw materials introduced into a plant for processing. Where the process is so integrally connected with the ultimate production of goods that but for that process, manufacture of processing of goods would not be possible, or would be commercially inexpedient, raw material or goods required in that process would qualify for exemption from duty under the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that unless designs are prepared it would be "impossible for the workmen" to turn out goods for sale. If the process of designing is so intimately connected with the process of manufacture of cloth, we see no reason to regard the process of designing as not being a part of the process of manufacture within the meaning of R.13 read with S. 8(3)(b). The process of designing may be distinct from the actual process of turning out finished goods. But there is no warrant for limiting the meaning of the expression "in the manufacture of goods" to the process of production of goods only. The expression "in the manufacture" takes in within its compass, all processes which are directly related to the actual production. Goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. Drawing and photographic materials falling within the description of goods intended for use "equipment" in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use "in the manufacture of goods". 20.In 1989 (43) E.L.T. 804 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in the chemical technology of manufacture of any end-product might comprise, amongst others, of those which may retain their dominant individual identity and character throughout the process and also in the end-product; those which, as a result of interaction with other chemicals or ingredients, might themselves, undergo chemical or qualitative changes and in such altered form find themselves in the end-product; those which, like catalytic agents, while influencing and accelerating the chemical reactions; however, may themselves remain uninfluenced and unaffected and remain independent of and outside the end-products and those, as here, which might be burnt-up or consumed in the chemical reactions. The question in the present case is whether the ingredients of the last mentioned class qualify themselves as and are eligible to be called "Raw Material" for the end-product. One of the valid tests, in our opinion, could be that the ingredient should be so essential for the chemical process culminating in the emergence of the desired end-product, that having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning-up is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly because of the supervening circumstances, that the reformed gas produced during the interim stage of manufacture had to be vented out. In such a case, the benefit of the exemption notification was available to the appellant. Counsel for the petitioner emphasised that in the subject notification as well, the words used are 'intended for use as feed stock in the manufacture of fertilizer'. He further drew my attention to the observations of the Tribunal in that case, which were quoted with approval by the Supreme Court, wherein it was observed that the subject notification should be interpreted in a liberal spirit looking to the object of the notification viz; reducing the cost of inputs for fertilizers. 22.In the second case (Indian Farmers Fertilizer Corporation Limited v. Collector of Central Excise, Ahmedabad) a question arose whether the off-site plants are part of the process of manufacture of urea. The exemption notification in that case applied in respect of such raw naphtha as was used in the manufacture of ammonia, provided such ammonia was used elsewhere in the manufacture of fertilizer. The Collector took the view that the use of ammonia in the water treatment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. (II) In the chemical technology of manufacture of any end-product, even those ingredients which might be burnt up or consumed in the chemical reaction, qualify themselves and are eligible to be called 'feed stock' if its utilisation in the manufacturing process is essential, and the ingredient goes into the making of the end- product, and should be essential for the chemical process culminating in the emergence of the desired end-product. Having regard to its importance in, and indispensability for the process, it could be said that its very consumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Section 36 of the Act was amended and the power of the Central Government to review the decision of the Board stood repealed. I do not consider it necessary to go into the merit of the submissions advanced by the counsel for the petitioner in these writ petitions. In the view that I have taken, the order of the Tribunal must be set aside and the order of the Board has to be restored. It is, therefore, not necessary for the disposal of these writ petitions to go into that question, which may be gone into in an appropriate case. I, therefore, leave the question open to be decided in an appropriate case. 28.I, therefore, hold that the petitioner is right in submitting that under the subject notification, the L.S.H.S/F.O. which is used for the purpose of generation of steam qualify as 'feed stock' in the manufacture of fertilizer and therefore qualify for total exemption. The generation of steam is so integrally related to the ultimate manufacture of fertilizer that it must be held to be a necessary part of the manufacturing process. The mere fact that in the process, L.S.H.S/F.O. gets burnt up, is of no significance, as long as the generation of steam for which it is utilised, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
