Decided on May 06,1986



S.Kalyanam, - (1.)THIS appeal is filed by the Collector of Central Excise, Guntur and directed against the order of the Collector of Central Excise (Appeals), Madras dated 19-3-1985 setting aside the order of the Deputy Collector of Central Excise, Visakhapatnam dated 31-10-1984 and holding that the respondents herein are entitled to the benefit of Notification No. 352/77-C.E., dated 16-12-1977 in respect of Low Sulphur Heavy Stock (LSHS) used as fuel by the respondents herein for the trial run of a boiler plant in their refinery premises for the production and manufacture of finished petroleum products. Shri K.M. Vadivelu, the learned Departmental Representative submitted that an exemption notification in law will have to be construed strictly and no deviation would be permissible nor would a Court of Law or quasi-judicial authority be entitled to go into the intendment and the spirit behind the notification and extend the same in favour of the party on a strained construction. It was urged that the said notification stipulates three conditions namely, -
(i) production of petroleum products;

(ii) production in the same refinery; and

(iii) utilisation of the petroleum products falling under Items 6 to 11A of the Central Excise Tariff as fuel.

The learned D.R. urged that admittedly in the instant case the respondents utilised LSHS as fuel only for the trial run of a new boiler and not for the manufacture of any petroleum products.

(2.)Shri Dave, Taxation Manager of the Respondent-Company submitted that the issue that arises for determination in the case is squarely covered by the ratio of the Special Bench ruling in the case of 'Neyveli Lignite Corporation, Tamilnadu v. Collector of Central Excise, Madras', reported in 1985 (19)-ELT 617 (Spl. Bench-C), Cegat).
I have considered the submissions of the parties herein. The question that arises for consideration is whether the respondents are entitled to the benefits of the exemption Notification No. 352/77-CE, dated 16-12-1977. For the purposes of convenience, I am extracting the notification hereunder:-

"In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No. 180/77-Central Excises, dated the 17th December, 1970, the Central Government hereby exempts petroleum products, falling under Item Nos. 6 to 11-A of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), produced in refineries, wherein, refining of crude petroleum or shale or blending of non-duty paid petroleum products is carried on, and utilised as fuel within the same premises for the production or manufacture of other finished petroleum products, from the whole of the duty of excise leviable thereon."

In the instant case it is not disputed by the party that all the conditions envisaged in the notification are satisfied excepting one condition namely, that LSHS was used by the respondents as fuel in the boiler plant to manufacture steam and the steam was not used for the production of any finished petroleum products since the steam produced was merely let out in the air as a boiler was put on a trial run. It is not denied that LSHS was used as a fuel in the boiler plant which was to undergo a trial run or a run before it could be integrated with the entire manufacturing system and the trial run itself was done only for the purpose of ultimate production of finished petroleum products. In such a situation it would not be correct to disintegrate and view in isolation the trial run of the boiler plant in the light of the wording of the exemption notification. The Special Bench in the 'Neyveli Lignite Corporation' case, referred to supra, has held that the furnace oil was used in that case for test and trial run of the gasification, desulphurisation and decarbonation units of the fertilizer plant and these processes are essential stages preparatory to the commercial production of urea starting with furnace oil. In the Special Bench ruling I find that furnace oil was used for test and trial runs in respect of gasification, desulphurisation and decarbonation units of the fertilizer plant and such trial run did not actually result in the production or manufacture of any urea. In such a situation the Special Bench on a very considered reasoning, has taken the view that test or trial run is an essential stage preparatory to the production and in this view of the matter when LSHS is utilised for putting the boiler plant on a test run, it would well be construed as utilisation in the eventual manufacture or production of petroleum products within the meaning of the exemption notification stated supra. In this view of the matter I uphold the impugned order appealed against and dismiss the appeal.

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