Case: Commissioner of Central Excise, Mumbai Vs. M/s. National Organic Chemical Industries Limited

The 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 Tariffis 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 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 finalcase of the appellant as set out in appeal is as follows:The respondent 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 Tariffrespondent 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.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 theis 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 propylene (inputs) captively consumed and used in the manufacture of products falling under chapter 27 namely methane andthe 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 alsofive show-cause notices were issued to the respondent.S.No. - Date - Period1. 03.02.1993 - July 1992 to December, 19922. 04.06.1993 - May 1988 to June 19923. 02.08.1993 - January 1993 to May 19934. 28.12.1993 - June 1993 to November 19935. 29.06.1994 - December 1993 to Februaryorder 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 duty but did not order confiscation of land, building, plant, machinery, etc. of theappeal filed by the assessee before the Tribunal was allowed by setting aside the order of the Commissioner through the impugned order datedby the impugned order rendered by the Tribunal, the Revenue is in appeal before this Court.

Court's reasoning:
We have heard the learned counsel for the parties at length and perused the judgments cited at the Bar. The Tribunals 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 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 theour considered view, no interference is called for in the well-reasoned judgment/order of the Tribunal.