Bharucha, J. - (1.) These are appeals against orders of the Customs, Excise and Gold (Control) Appellate Tribunal dismissing the appeals filed by the present appellants, Steel Authority of India Ltd. (SAIL), before it.
(2.) SAIL has a plant at Rourkela which manufactures fertilisers. For such purpose SAIL uses raw naphtha. Raw naphtha was, at the relevant time, excisable at a concessional rate of duty in terms of an exemption notification (No.187 of 61) dated 23rd December, 1961, as amended from time to time. The concessional rate of duty stated therein was admisible provided - "(i) it is proved to the satisfaction of an officer not below the rank of an Assistant Collector of Central Excise that such raw naphtha is intended for use in the manufacture of fertiliser; and (ii) the procedure set out in Chapter X of the Central Excise Rules, 1944 is followed ." It was the case of the Revenue that a substantial quantity of raw naphtha was not, in fact, used by SAIL in the manufacture of fertiliser. SAIL was, therefore, served with show cause notices demanding amounts of excise duty on quantities of raw naphtha allegedly not utilised for the manufacture of fertiliser. SAIL's explanation in that behalf, in the words of an Assistant Collector, read: "The assessee contended that the consumption of raw naphtha was more due to abnormal operating conditions such as low load operation, interruption in the plant operations due to low, uncertain and fluctuating availability of power. It was stated that the consumption of naphtha was further high because gages produced (out of raw naphtha) had to be vented due to acute power crisis causing interruption/stoppages of down stream units of the plant. It was submitted that the two naphtha reforming plants have provisions in the system for automatic venting of gases, in the event gas formed cannot travel forward due to non-availability of power for operating the down stream plants, and excessive pressure build up. On many occasions gases are required to be vented out from the naphtha reforming plant when the said gases cannot be sent to down stream plants due to non-availability and low, interrupted and uncertain power supply or any other operational or maintenance problems in the plant. Moreover, the naphtha reforming plants have to be kept hot for preventing damages to the equipments. Reformer furnaces and catalysts in particular. Under the circumstances, of severe power shortages/restriction there was no production of Ammonia on many days. However, considering the safety of the equipments and life of refractory furnaces and catalysts of the plant, naphtha had to be consumed on those days, when there was no production of Ammonia. Naphtha consumed for the gases vented out during those days when there was no production of Ammonia, was essential for keeping the naphtha reforming plant in operational fitness and safe condition so that the plant could not be lined up for production of Ammonia and fertiliser at any time in the subsequent period depending on power availability".
(3.) The matter first came before the Tribunal in relation to an order passed by the Collector of Central Excise (Appeals), Calcutta, on 17th September, 1987. The Tribunal then placed reliance upon Rule 196(1) of the Central Excise Rules, which stated. "If any excisable goods obtained under rule 192 are not duly accounted for as having been used for the purpose and in the manner stated in the application...........the applicant shall, on demand by the proper officer, immediately pay the duty leviable on such goods". An exception was made in the said Rule in the case of excisable goods which were shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or unavoidable accident during transport. The Tribunal noted that it was not the case of SAIL that the concerned quantity of raw naphtha had been lost or destroyed. It had, in fact, been burnt in the naphtha reforming plant of SAIL for keeping it continuously running so that the ammonia plant could be switched on immediately upon resumption of power supply. The gas produced by burning the concerned raw naphtha did not reach the ammonia plant as the reformed gas was vented into the atmosphere. This quantity of raw naphtha could not in the Tribunal's view, be said to have been used for the manufacture of fertiliser. The provisions of Rule 196 of the Central Excise Rules require that excise duty at full rate should be paid on demand in respect of such raw naphtha as was found not to have been actually used in the manufacture of fertiliser. The quantity of raw naphtha in dispute did not satisfy both the conditions prescribed in the exemption notification and, as such, the concessional rate of excise duty was not available to it. The order of the Collector dated 17th September, 1967, was, therefore, upheld.;