IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT

JODHPUR

JUDGMENT

CENTR.EXCISE APPEAL No. 83 of 2006

UNION OF INDIA
V/S
M/S HINDUSTAN ZINC LIMITED & ANR

Date of Judgment : 27.8.2008

PRESENT
HON'BLE SHRI N P GUPTA,J.
HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J.

Mr.Rishabh Sancheti for Mr.V.K.Mathur, for the appellant

Mr.Dinesh Mehta, for the respondent

BY THE COURT : (PER HON'BLE GUPTA,J.)

This appeal is by the Revenue against the judgment of the Tribunal dated
28.10.2004, accepting the appeal of the assessee, and holding, that the assessee is entitled to
the exemption under notification No.81 of 1975 dated 22.3.1975, as clarified vide
clarification dated 12.12.1986. The appeal was admitted by framing the following substantial
question of law, vide order dated 9.1.2007:-

“Whether the benefit of Notification No.81/75 dated 22.03.1975 was available to the assessee
who had used Sulpheric acid captively in the manufacture of phosphoric acid which was later
on cleared on payment of duty to M/s IFFCO. Keeping in view the Clarification Circular
dated 12.12.1986 issued by the Board, for the period in question.”

The factual aspect of the matter, which is not in dispute is, that the assessee is
a manufacturer of sulphuric acid, and it was used subsequently in manufacture of phosphoric
acid, which phosphoric acid was cleared on payment of duty to M/s. IFFCO. On these facts
different show cause notices were issued to the assessee, for different periods, alleging inter-
alia, that during course of examination of records, it was observed, that the assessee is using
sulphuric acid manufactured by it in the manufacture of phosphoric acid without payment of
central excise duty leviable thereon, since February 1979. Sulphuric acid was alleged to be
assessable to central excise duty @ 10% adval under Central Excise Tariff Item No.14G,
which rate was subsequently enhanced, and subsequently special excise duty was also levied,
which was withdrawn later on. Since no specific notification exempting leviability of excise
duty on sulphuric acid used in manufacture of phosphoric acid was available, the assessee
was called upon to show cause and explain, as to why central excise duty leviable on
sulphuric acid, used in manufacture of phosphoric acid, may not be recovered from the
assessee from February 1979 onwards.

The notice was contested, and it was contended, that under a contract, they were supplying
the total quantity of phosphoric acid to IFFCO, who in turn was using it in the manufacture of
fertilizers, and as such, they are entitled to exemption of duty on sulphuric acid, used in the
manufacture of phosphoric acid, which was ultimately used by IFFCO, under Notification
No.81/75, which exempts “Sulphuric Acid intended for use into manufacture of fertilizers”. It
was also contended, that the notification does not specifically provide, that the factory which
produces sulphuric acid, and intends to use it in the manufacture of fertilizers, should himself
produce the fertilizers also, rather the 2nd proviso to the said Notification provides, that the
factory of production of sulphuric acid and that of fertilizers can be different, and that they
may not be denied the benefit of the above said Notification, merely on the ground, that they
do not use sulphuric acid in the manufacture of fertilizers themselves, but sell phosphoric
acid in which they have used sulphuric acid. Various other grounds were also taken.

The learned Assistant Collector, vide order in original dated 31.12.1980,

confirmed the demands of all the 16 notices, and also confirmed the special excise duty,
leviable on the sulphuric acid, manufactured and used in manufacture of phosphoric acid,
during the period February 1979 to November 1980, and also directed the assessee to file
revised classification list in respect of sulphuric acid, and to start paying central excise duty
thereon at the appropriate rate forthwith, before it is cleared for the use in the manufacture of
phosphoric acid.

The assessee filed appeal against this order, which was dismissed. The
appellate authority also examined the clarification dated 12.12.1986, and observed, that what
has been clarified therein is, that even if the sulphuric acid is not used in manufacture of
fertilizers, the benefit of the said notification cannot be denied, so long as it can be
established that sulphuric acid is ultimately used in the manufacture of fertilizers, and held,
that the Board's instructions dated 12.12.1986 are entirely on different issue i.e. that even in
case of phosphoric acid coming into existence as an intermediate product, sulphuric acid
would be entitled to the benefit of notification No.81/75 so long as it is established, that the
sulphuric acid has been used in the manufacture of fertilizers, but these clarifications do not
cover the issue of the case in hand, being as to whether the sulphuric acid which is used in the
manufacture of phosphoric acid is entitled to exemption under Notification No.81/75, when
the phosphoric acid has been cleared as final product on payment of duty, and then sold out to
3rd party, claiming, or even proving, that the 3rd party has used the phosphoric acid, for the
manufacture of fertilizers, and it was held that the answer to this is clearly in negative, as
what has been cleared is phosphoric acid, to which Notification No.81/75 is not applicable,
and secondly at the stage when sulphuric acid was used by the assessee for manufacturing of
phosphoric acid, no exemption was available to sulphuric acid, since at that stage, it could not
be established, that the phosphoric acid, which would be cleared on the payment of duty, and
sold to 3rd party, would ultimately be used in the manufacture of fertilizers. With these
findings, the appeal was dismissed.

The learned Tribunal in appeal found, that the Notification No.81/75 provides
exemption to Sulphuric Acid, which is intended for use in the manufacture of fertilizer, and
since the assessee is manufacturing sulphuric acid, which was later on converted into
phosphoric acid, and same was cleared for manufacture of fertilizer, the entire quantity of
sulphuric acid, received from the assessee, is used in manufacture of fertilizer, which factual
aspect is not in dispute, the clarification, read with the Notification, clearly entitles the
assessee to exemption.

We have again gone through the Notification No.81/75, and the clarification
dated 12.12.1986, and considering the fact, that the factual aspect about the sulphuric acid,
being manufactured by the assessee, being intended to be used in manufacture of fertilizer,
rather it having actually been so used, by intermediary conversion into phosphoric acid, and
then being sold to IFFCO, which ultimately used it in manufacture of fertilizer, is not a
disputed fact, the assessee in our view, has already been found to be entitled to exemption.

Thus, the question as framed is answered in favour of the assessee, and against
the Revenue. The appeal thus, has no force and is dismissed.

(KISHAN SWAROOP CHAUDHARI),J. (N P GUPTA),J.

/tarun/