Central Excise, Mumbai Vs. M/S. National Organic Chemical Industrialist Ltd
 INSC 1878 (6 November 2008)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.1130 OF 2003 Commissioner
of Central Excise, Mumbai ... Appellant Versus M/s National Organic Chemical
Industries Limited ...Respondent
Dalveer Bhandari, J.
appeal is directed against the judgment and order dated 20th May, 2002 passed
by the Customs Excise & Gold (Control) Appellate Tribunal, West Zonal Bench
at Mumbai vide Order No.CII/1570/WZB/2002 in Appeal No.E-2354/96 Bombay.
short question for consideration in this appeal is whether ethylene and
propylene manufactured by the respondent assessee and used in its factory in
the further manufacture of the same goods would be entitled to the benefit of
exemption contained in notification no.217/86.
respondent assessee M/s National Organic Chemical Industries Limited
manufactured ethylene and propylene by cracking raw naphtha in a naphtha
cracker. Ethylene and propylene fall under chapter 29 of the Central Excise
Tariff Act, 1985 (hereinafter referred to as "the Tariff Act").
During the process of cracking raw naphtha, gases such as methane and ethane
automatically emerge as by-products and is an inevitable consequence of
cracking of raw naphtha. Methane and the ethane fall under chapter 27 of the
is the common case of the parties that a part of the ethylene and propylene
manufactured by the aforesaid process is captively consumed by using the same
as a refrigerant in the process of separation and to provide external 3
treatment to keep some of the products at low-temperature to prevent their
polymerization. The remaining quantity of ethylene and propylene is sold as the
case of the appellant as set out in appeal is as follows:
assessee holds Central Excise Registration for manufacture of excisable goods
falling under chapter Nos. 27, 28, 29, 32, 38, 39 and 40 of the Schedule to the
respondent manufactures petro chemicals falling under chapters 27 and 29 from
raw naptha. Raw Naptha is cracked in cracker containing number of burners and
heated upto 800 degree centigrade. After the process of cracking, Ethylene and
Propylene gases are produced in the factory. These gases are also captively
consumed as a refrigerant for cooling since they have the property of reducing
temperatures upto 100 degree c. and 30 degree c. respectively.
captively consumed ethylene and propylene are further used in refrigeration to
manufacture products falling under chapters 27 and 29. The methane and ethane
manufactured in this process fall under chapter 27. Ethylene and propylene fall
under chapter 29. The manufacture of the products falling under chapter 27 has
never been informed to the authorities through the classification list filed by
is the further case of the appellant that as per Exemption Notification
No.217/86 CE dated 2.4.1986, the inputs ethylene and propylene (falling under
chapter 29) captively consumed in the manufacture of finished goods falling
under chapter 29 are exempted from excise duty. As per the said notification
such exemption will not be available to ethylene and propylene used in the
manufacture of goods falling under chapter 27, namely methane and ethane. In
other words, excise duty will have to be paid by the respondent assessee for
such of the quantity of ethylene and 5 propylene (inputs) captively consumed
and used in the manufacture of products falling under chapter 27 namely methane
the circumstances, five show-cause notices were issued to the respondent
assessee demanding central excise duty for the inputs ethylene and propylene
used in the manufacture of finished products falling under chapter 27. The
extended period of limitation was also invoked. Penalty was also proposed.
five show-cause notices were issued to the respondent.
S. No. Date Period 1
03.02.1993 July 1992 to December, 1992 2 04.06.1993 May 1988 to June 1992 3
02.08.1993 January 1993 to May 1993 4 28.12.1993 June 1993 to November 1993 5
29.06.1994 December 1993 to February 1994
order in original dated 12.7.1996, the Commissioner Central Excise, Mumbai-III
confirmed the duty demands, imposed penalty and ordered interest for delayed
payment of 6 duty but did not order confiscation of land, building, plant,
machinery, etc. of the assessee.
appeal filed by the assessee before the Tribunal was allowed by setting aside
the order of the Commissioner through the impugned order dated 20.5.2002.
by the impugned order rendered by the Tribunal, the Revenue is in appeal before
to the appellant, the assessee is not entitled to get the benefit of the
exemption notification if the inputs manufactured in the factory are captively
used for the manufacture of final products not specified in column 3 of the
Table annexed to the notification. Chapter heading 27 is not available in
column 3 of the Table. The methane and ethane, the finished products
manufactured by using ethylene and propylene as refrigerant fall under chapter
27. Hence, as per the notification the ethylene and propylene (inputs) used
for 7 the manufacture of goods falling under chapter 27 are not entitled to
get exemption from duty as per the notification.
the order in original there is specific finding that ethylene and propylene are
used in the manufacture of goods falling under chapter 27.
was contended by the respondent that ethylene and propylene were used as
refrigerant to cool hydrocarbon gases, which result from the cracking of
naphtha. It is as a result of this cracking that ethylene, propylene along with
ethane, methane and other substances emerge. The emergence of ethane and
methane is inevitable. Since it only emerges in the manufacture of other
substances, which are specified in column no.3 of the table, their emergence
(ethane and methane) should not by itself justify denial of the benefit.
respondent has submitted a chart indicating the process of manufacturing of
ethylene and propylene. The chart also reveals how ethane and methane emerge as
by- products. The chart is reproduced as under:
process of manufacture indicated in the chart indicates that some gases
automatically emerge in the process of cracking of naphtha, including ethane
and methane. The respondent further submitted that part of ethylene and
propylene manufactured by it is captively consumed or used in or in relation to
the manufacture of the same goods. The emergence of ethane and methane,
therefore, by itself is not a ground for denying the exemption contained in the
respondent assessee submitted that there was no way by which the respondent
could have manufactured ethylene and propylene without producing ethane and
methane. It is not as if by using a smaller quantity of raw material or other
goods involved in the process, the respondent could have averted the emergence
of ethane and methane. In other words, in the technology utilized for the
manufacture of ethylene and propylene, the emergence of ethane and methane was
inevitable. Hence, while it is no doubt correct to say that the ethylene and
propylene have 11 been used in or in relation to the manufacture of ethane and
methane, the identical quantity of the same goods has simultaneously been used
in the manufacture of ethylene and propylene. The emergence of ethane and
methane is, therefore, by itself is not a ground to deny the benefit of the
K. Radhakrishnan, learned senior advocate appearing for the appellant in
support of his submission placed reliance on the case of Novopan India Ltd.,
Hyderabad v. Collector of Central Excise and Customs, Hyderabad 1994 Supp (3)
SCC 606 and submitted that in case of ambiguity the benefit of doubt must go
the Revenue. As far as this proposition of law is concerned there is no
quarrel, but it has no application to the facts of this case.
has also been placed by Mr. Radhakrishnan on the case of Commissioner of
Central Excise, Chandigarh-I v. Mahaan Diaries (2004) 11 SCC 798. In this case,
the Court held that in order to claim benefit of a notification, a 12 party
must strictly comply with the terms of the notification.
If on wording of the
notification the benefit is not available then by stretching the words of the
notification or by adding words to the notification benefit cannot be
was also placed on the case of Commissioner of Central Excise, Trichy v.
Rukmani Pakkwell Traders (2004) 11 SCC 801. The same principle has been
reiterated in this case and the court held that exemption notifications have to
be strictly construed. They must be interpreted on their own wording. To be
entitled to the benefits of a notification, a person has to strictly comply
with the conditions of that notification. If on a plain reading of the
notification the benefit is not available then merely on the basis of principles
applied in infringement cases benefit cannot be claimed.
D.B. Shroff, learned senior counsel appearing for the respondent submitted that
he is not questioning the well- settled proposition of law, but the respondent
assessee in this case is entitled to the benefits of the notification on a
plain reading of the notification.
Shroff further placed reliance on the following decisions:
In Union of India
& Others v. Tata Iron & Steel Company Limited, 1977 (1) ELT 61, a
four-Judge bench of this Court held as under:
"The High Court
rightly said that the Notification does not say that exemption is granted only
when duty paid pig iron is used and that the exemption would not be available
if duty-paid pig iron is mixed with other non-duty paid materials. If the
intention of the Government were to exclude the exemption to duty-paid pig iron
when mixed with other materials then the notification would have used the
expression "only" or "exclusively" or "entirely"
in regard to duty-paid pig iron. The object of the notification was to grant
relief by exempting the duty-paid pig iron."
Indian Farmers Fertiliser Cooperative Limited v. Commissioner of Central
Excise, Ahmedabad, 1996 (86) ELT 177, this Court observed as under:
Exemption Notification does not require that the ammonia should be used
directly in the manufacture of fertilisers. It requires only that the ammonia
should be used in the manufacture of fertilisers. The Exemption Notification
must be so construed as to give due weight to the liberal language it uses. The
ammonia used in the water 14 treatment, steam generation and inert gas
generation plants, which are a necessary part of the process of manufacturing
urea, must, therefore, be held to be used in the manufacture of ammonia and the
raw naphtha used for the manufacture thereof is entitled to the duty
Shroff also placed reliance on Indian Petrochemicals Corporation Ltd. V.
Collector of Central Excise, Vadodara 1997 (92) ELT 294. In this case, this
Court observed as under:
"19. Under this
notification pyrolysis gasolene which falls under chapter 27 is produced in the
appellant's factory and it is utilised for the manufacture of goods. As such it
would be exempt from the whole of the duty of excise leviable thereon assuming
that any duty of excise is leviable on it.
Therefore, we fail to
see how any duty of excise can be levied on any part of pyrolysis gasolene
manufactured in the factory of the appellant.
Gasolene being an intermediate product which is produced in the factory of the
appellant, and it being utilised for the manufacture of other goods, it would
be totally exempt from payment of excise duty under the second exemption
National Organic Chemical Industries Ltd. V. Collector of Central Excise,
Bombay 1997 (89) ELT 643, this Court observed as under:
petroleum is refined to produce raw naphtha. Raw naphtha is further refined, or
cracked, to produce the said products. This is not controverted. It seems to us
to make no difference that the appellants buy the raw naphtha from others. The
question is to be judged regardless of this, and the question is whether the
intervention of the raw naphtha would justify the finding that the said
products are not "derived from refining of crude petroleum". The
refining of crude petroleum produces various products at different stages. Raw
naphtha is one such state. The further refining, or cracking, of raw naphtha
results in the said products. The source of the said products is crude
petroleum. The said products must, therefore, be held to have been derived from
Doypack Systems (Pvt.) Ltd. v. Union of India 1988 (36) ELT 201, this Court had
an occasion to examine the expressions "pertaining to", "in
relation to" and "arising out of" and observed as under:
"46. .... The
expressions "pertaining to", "in relation to" and
"arising out of", used in the deeming provision, are used in the
expansive sense, as per decisions of courts, meanings found in standard dictionaries,
and the principles of broad and liberal interpretation in consonance with
Article 39(b) and (c) of the Constitution."
Shroff further placed reliance on Commissioner of Central Excise, Coimbatore v.
Jawahar Mills Ltd. 2001 (132) ELT 3 wherein this Court whilst interpreting the
words "used in the factory of manufacture" used in clause (c) of the
Explanation to Rule 57 Q (1) held that the goods need not be used for producing
the final product or used in the process of any goods for the manufacture of
final product or used for bringing about any change in any substance for the
manufacture of final product and the only requirement is that the same should
be used in the factory of the manufacturer.
Thus, it can be seen
that the language used in the explanation is very liberal.
have heard the learned counsel for the parties at length and perused the
judgments cited at the Bar. The Tribunal's finding that the ethylene and
propylene used as refrigerant has been used in or in relation to the manufacture
of the same goods. The inevitable and automatic emergence of ethane and
methane, therefore, by itself is no ground for 17 denying the exemption
contained in the notification. The Tribunal came to the categoric finding that
the respondent could not have manufactured ethylene and propylene without
manufacturing its by-products ethane and methane. The Tribunal held that in any
technology the emergence of ethane and methane was inevitable and hence while
it is no doubt correct to say that the ethylene and propylene have been used in
or in relation to the manufacture of ethane and methane, the identical quantity
of the same goods has simultaneously been used in the manufacture of ethylene
and propylene. The emergence of ethane and methane, therefore, cannot be a
ground to deny the benefit of exemption to the respondent.
our considered view, no interference is called for in the well-reasoned
judgment/order of the Tribunal. The appeal being devoid of any merit is
accordingly dismissed. However, in view of the facts & circumstances of the
case, the parties are directed to bear their own costs.
(Harjit Singh Bedi)
Pages: 1 2