2026-VIL-29-SC-CE
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CENTRAL EXCISE Supreme Court Cases

Central Excise – Benefit of Exemption Notification under notification Nos. 75/84-CE dated 01.03.1984 and 4/97-CE dated 01.03.1997 on purchase of Naphtha - "Intended Use" vs. "Actual Use" – Appellant procured Naphtha at nil rate of duty for manufacture of fertilizer - Whether the benefit of exemption is available when Naphtha and natural gas are used simultaneously in a common boiler to generate steam, part of which is used for non-fertilizer purposes – HELD - The eligibility for exemption hinges on the expression "intended use" specified in the notifications. Once an assessee is held to be eligible for exemption, the notification must be liberally construed. In the present case, the appellant, a public sector undertaking, procured Naphtha with the clear intention of using it as fuel for the production of ammonia and fertilizer - The fact that Naphtha and natural gas were fed into a common boiler making it impossible to ascertain the exact quantity of each fuel used for specific outputs does not negate the "intended use." Merely because the final destination of the steam could not be conclusively determined, the benefit cannot be denied, especially when the total Naphtha procured was insufficient even to meet the full requirement of the fertilizer plant alone. The "intended use" purpose is satisfied if the goods are procured for the declared objective. Therefore, the demand for duty based on proportionate arithmetical calculations of diversion is unsustainable - Appeals allowed - Limitation - Extended Period - Suppression of Facts - Revenue Neutrality - Whether the revenue was justified in invoking the extended period of limitation and imposing penalties under Section 11AC of the Central Excise Act, 1944 – HELD - The invocation of the extended period of limitation is unwarranted. Suppression must be deliberate and with a positive intent to evade duty - In this case, the appellant is a public sector undertaking receiving Government subsidies, and any duty paid would be reimbursed, rendering the exercise revenue-neutral. There is no evidence of a mala fide intent to evade payment of duty as the appellant would derive no gain from such evasion. Furthermore, the Department continued to issue CT-2 certificates despite being aware of the manufacturing process, indicating that facts were within their knowledge. Since no deliberate suppression or intention to evade has been established, the proviso to Section 11A(1) is not attracted and the demand is barred by limitation.
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