Gujarat State Fertilizers ... vs Union Of India
2009 Latest Caselaw 2399 Del

*                      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                         Reserved on :26.02.2009
                                                       Pronounced on :01.07.2009

+                                     W.P.(C) 2500/1982



GUJARAT STATE FERTILIZERS PVT.LTD.                          .........Petitioner
                          Through: Mr. Dushyant Dave Sr. Advocate with
                          Ms. Hemantika Wahi, Ms. Pinky and Mr. Aniruddh, Advocates

                                      Versus

UNION OF INDIA                                                       .....Respondent

Through: Mr. Sanjay Katyal, Advocate

CORAM:

HON'BLE MR. JUSTICE S. RAVINDRA BHAT


1.     Whether the Reporters of local papers                         Yes
       may be allowed to see the judgment?
2.     To be referred to Reporter or not?                            Yes
3.     Whether the judgment should be
       reported in the Digest?                                       Yes

Hon'ble Mr. Justice S. Ravindra Bhat:
%

1. The writ petitioner challenges an order of the Central Government, made in

revisional proceedings, which confirmed the order of the Collector of Central Excise. The

Central Government's impugned order was made on 26.06.1982, which held that Oleum

was used by the petitioners for the manufacture of Caprolactum and not for fertilizers and

therefore, not entitled to the exemption notification of 1966 issued under the provisions of

the Central Excise and Salt Act, 1944 (hereinafter called "the Excise Act").

2. The brief facts necessary for deciding the case are that the Schedule to the Excise, by

Item 14G, ("TI 14-G) classifies Acids. These include "Nitric, Hydrochloric and Sulphuric Acids

WP(C) No.2500/1982 Page 1 (including fuming acids and anhydrides thereof)". Gases on the other hand were classified

under Tariff Item 14 H. By virtue of a notification dated 30.06.1966, the Central

Government exempted sulphuric acid, falling in TI 14G of the First Schedule to the Excise

Act, intended for use in the manufacture of fertilizers from the whole of the duty of excise.

This was subject to the condition that the Assistant Collector of Central Excise was satisfied

that such sulphuric acid was so used and in respect of such use elsewhere than in the

factory of production, of sulphuric acid, the procedure set out in Chapter X of the Central

Excise Rules was followed.

3. The petitioner, a public sector agency of the State of Gujarat primarily

manufacturers fertilizers. In 1974 it set up a plant for manufacture of Caprolactum in the

premises where fertilizers were manufactured by it. The petitioner mentions having a plant

for manufacture of sulphuric acid including Oleum. According to the petitioner, Oleum is

classifiable as a sulphuric acid and is known as "fuming sulphuric acid". The process of

manufacture of Caprolactum by the petitioner was known as the "Inventa Process" which

used benzene as raw material. Additionally the process involved use of Ammonia, Synthesis

Gas, Carbon dioxide sulphur dioxide, fuming sulphuric acid (Oleum) and Caustic Acid.

4. The petitioner described the process of Caprolactum manufacture as

desulphurization of Benzene, which is then hydrogenated into cyclohexane in vapour phase

which is in turn is converted through a series of reactions into cyclohexanone oxime.

Oleum from the Oleum Plant is transferred to the Caprolactum Complex for the specific

purpose of a particular reaction called the 'Rearrangement Reaction' in the lactum Section

of the Caprolactum Complex. The petitioner says that oleum being so introduced into the

said chamber reacts with Oxime and accelerates the said reaction. Oleum thus acts as a

WP(C) No.2500/1982 Page 2 catalyst to convert the cyclohexanone oxime into lactum-sulphate. The said lactum-sulphate

is neutralized with Ammonia in an acqueous medium which results in the production of

lactum, Ammonium Sulphate and water. The Caprolactam manufactured by the Petitioners

does not contain any element of sulphur whatever. Oleum according to the petitioner, is

only used as a catalyst and does not constitute any part of the molecular structure of

caprolactum. The entire quantity of Oleum goes into the production of Ammonium Sulphate

which is a Chemical Fertilizer.

5. The petitioner was clearing Oleum manufactured by it and used a catalyst in the

Caprolactum complex and thereafter as a part of the continuous reaction as Ammonia to

form ammonia sulphate without payment of duty in terms of the notification issued on

30.04.1966 as amended later by the notification dated 22.03.1975 (which retained the

essential conditions of such exemption). On 4th September, 1974, the Superintendent,

Central Excise invoked Rules 10, 173B, 173F, 173G and 173Q of the erstwhile Central Excise

Rules alleging that the petitioners had cleared 13.557 MT of Oleum which was excisable to

the extent of 23% in terms of TI 14G without correctly following the provisions of the said

Rules. The petitioner was required to respond to why penalty should not be imposed upon

it. This show cause notice was responded by the petitioner through the reply dated

07.01.1976. It was contended that RT 12 Return for the month of July 1974 had clearly

disclosed that the quantity of Oleum was cleared for internal use and utilized in the

manufacture of ammonia sulphuric fertilizers. The petitioner also claimed that classification

list furnished in February 1974 in respect of sulphuric acid and Oleum was duly approved by

the Superintendent of Central Excise on 28.02.1974; which too clearly mentioned the use of

Oleum 23% in the manufacture of fertilizers. It is contended that between the period July

WP(C) No.2500/1982 Page 3 1974 and August 1981, 66 show cause notices were issued to the petitioner in almost similar

terms as the one dated 04.09.1974 invoking the same provisions of law. On 12th August,

1976 by a show cause notice, the petitioner was required to explain why duty under Rule 9

of the Excise Rules should not have recovered, by reason of their alleged contravention of

Rule 192. This too was resisted, by the petitioner, on 16.09.1976. Ultimately on 17.05.1977

the Superintendent of Central Excise directed the petitioner to clear Oleum only on

payment of duty; this was appeal against. The Appellate Collector remanded the matter for

decision; to the Collector of Central Excise.

6. The issue was considered by the Assistant Collector before whom the petitioner

produced various materials including a note on the description regarding manufacture of

Caprolactum with a flow sheet, copy of the chemical examiner's letter; an affidavit by the

expert; detailed comments on the chemical examiner's letter and other technical

information. By the order in original dated 30th September, 1981, the Assistant Collector

confirmed the show cause notice holding that technically Oleum was different from

sulphuric acid and that the Oleum manufactured by the petitioner and used in Caprolactum

Plant was not entitled to exemption. He held that Oleum did not satisfy the criterion of

catalyst as it underwent a chemical change and during the process it lost its identity. It was

also held that the main use of the Oleum was for sulphonation reaction over Caprolactum

which was a principal product and that ammonia sulphate was only an incidental bye

product.

7. The writ petitioner apparently approached the Gujarat High Court which declined to

interfere with the order in view of an appellate remedy. Accordingly the petitioner

preferred an appeal to the Collector of Central Excise (Appeal). After granting personal

WP(C) No.2500/1982 Page 4 hearing, the Collector (Appeals) by his order dated 19.02.1982 rejected the appeal and

affirmed the findings of the Assistant Collector. The petitioner again approached the High

Court; this time at Bombay. The writ petition was again declined on the ground of

availability of an alternative remedy i.e. revision to the Central Government. The Central

Government considered the pleas in revision, granted hearing and by the impugned order

dated 26.06.1982 confirmed the findings of the Excise authorities.

8. It is firstly contended that the authorities' determination about disentitlement to the

exemption of the products in question is on unfounded premises. The petitioner argues

that the legislative description in Item 14G applies to all sulphuric acids including fuming

acid and anhydrides thereof. It is further contended that the authorities' accepted the

contention that Oleum is a fuming acid that such being the case it is a sulphuric acid

according to the technical material available on the record. It is argued that since the

expression "sulphuric acid" is used to include fuming acid in TI 15G, the said expression in

the two notifications also must have the same meaning as in the Excise Act and would

logically therefore, include fuming acid. In support of this argument reliance is placed upon

a canon of statutory interpretation that where an enactment uses the same expression in

different parts of the same statute, there is a presumption that it has the same meaning.

Reliance is placed for this purpose on the judgment of the Supreme Court reported as Steel

Authority of India Limited Vs. Collector of Central Excise, 1997 (91) ELT 529. It is thus

contended that the principal statute i.e. the Excise Act having given an extended meaning to

the expression sulphuric acid, to include fuming acid, which in turn would comprehend

Oleum a class of fuming acid, there would be no justification in cutting down the amplitude

and effect of that expression identically used in the exemption notification which too is a

WP(C) No.2500/1982 Page 5 part of the statute. The petitioner also relies upon an extract of Kirk Othmer Encyclopaedia

of Chemical Technology, to say that Oleum is described as a fuming sulphuric acid. The

petitioner also relies upon the Harmonized system of nomenclature Form II, Section VI,

under Chapter 28, Heading 28.07 where Oleum is drescribed as "fuming and sulphuric acid

and sulphuric acid charged with an access upto 80% of sulphuric trioxide".

9. It is next urged by Mr. Dushyant Dave learned senior counsel, that the words used in

exemption notifications are to be determined in terms of heading, section and chapter

notes and cannot be construed out of context. Reliance is placed upon the judgments

reported as Hansraj Gordhandas Vs. H.H. Dave, 1969 (2) SCR 253; Gujarat State Fertilizers

Company Vs. Collector of Central Excise, 1997 (4) SCC 140, and Hindustan Platinum Pvt. Ltd.

Vs. Collector of Central Excise, 1996 (9) SCC 400. It is also contended that a settled principle

of construction of an exemption notification is that though it should be construed strictly,

once goods are found to satisfy the test by which they fall within an exemption notification,

they cannot be excluded by construing the instrument narrowly. For this purpose the

petitioner relies upon the Supreme Court judgment reported as Bombay Chemical Pvt. Ltd.

Vs. Collector Central Excise of Bombay, 1995 (77) ELT 3.

10. The petitioner contests the soundness of the findings of the Central Government and

the other adjudicating authorities that Oleum was primarily used in the manufacture of

Caprolactum and not for the purpose of ammonium sulphate. It is contended that this view

overlooks the fact that in an integrated and continuous process Oleum was used to

manufacture fertilizers which in fact did come into existence. The petitioner placed reliance

upon the Technical Assistance Agreement with Inventa AG of Switzerland dated 23.06.1970

which inter alia lists use of Caprolactum via molecular re-arrangement of cyclohexanone

WP(C) No.2500/1982 Page 6 oxime with ammonium sulphate production. The agreement expressly envisioned the

production of 258 MT of ammonium sulphate each day.

11. It is argued that the exemption notifications do not distinguish between a product

and bye product; exemption is given on the premise that sulphuric acid should be used. The

petitioner contends that the Inventa manufacturing process is a continuous process

whereby Caprolactum and ammonium sulphate are produced together. The latter is

undisputedly a chemical fertilizer. The petitioner submits that the interpretation favoured

by the respondent authorities restricts the scope of the notification and defeats the

legislative intent which was to make fertilizer cheaper as it is an essential commodity used

by farmers in agriculture production. It is lastly contended that the petitioner had

undisputedly filed a classification list disclosing Oleum as a classifiable under TI 14G and

claimed benefit of the notifications. The lists were finally approved by the quasi judicial

orders which were not set aside. The authorities, therefore have approved recovery of dues

without following the procedure established by law.

12. The respondent argues that though TI 14G talks about Nitric, Hydrochloric and Sulphuric

Acids (including fuming acids and anhydrides thereof) of all sorts, significantly the exemption

notification restricts itself only to the uses of Sulphuric Acid. The second limb of the

exemption notification, say the respondents, makes its mandatory that the Assistant

Collector should be satisfied that the Sulphuric Acid has been so used i.e. it has been used

for manufacturing Chemical Fertilizers. The respondent submits that the petitioner has been

clearing the Oleum (and not Sulphuric Acid) without payment of duty under the Exemption

Notification for use in the manufacture of Caprolactum (which is not a chemical fertilizers)

WP(C) No.2500/1982 Page 7 where, during this process of manufacturing Caprolactum, a bye-product, i.e a fertilizer

namely Ammonium Sulphate is obtained.

13. It is submitted that the petition averments show that the manufacturing process

undertaken in this case results in 5.1 tonnes of Ammonium Sulphate as a bye-product per

ton of Caprolactum. The literature annexed with the petition, according to the respondents,

shows a marked distinction between the properties of Oleum and Sulphuric Acid. This is

important as according to the respondent Oleum cannot be equated or be treated as a

substitute of Sulphuric Acid. In this regard reliance is placed upon the Encyclopaedia of

Chemical Technology by Kirk-Othmer which explains that that the physical properties of

Oleum are quite different from those of Sulphuric Acid; similarly, "The Encyclopaedia of

Chemical Processing and Design" by John. J. Meketta is relied on, which under the sub-

heading "Caprolactum" states that Caprolactum economics are penalized by Ammonium

Sulphate co-production, which clearly corroborates its (the respondent's) argument.

14. It is argued that the impugned order upholds quasi judicial orders made after

following principles of natural justice. It concurrently determined that the petitioner's

product caprolactum, was the main product due to the process adopted by it, and that

ammonium Sulphate is only a bye product. The determination by such quasi judicial

authorities should not be interfered, as it is neither erroneous in law, or outside the bounds

of their jurisdiction.

15. The respondents contend that the Collector of Central Excise, by the appellate order

held inter-alia that

"-Even in the market, a person who places indent for Oleum will not be supplied mere Sulphuric Acid and vice-versa. I understand that these are being advertised for sale

WP(C) No.2500/1982 Page 8 separately. Thus, in my opinion technically and commercially Sulphuric Acid and Oleum are two different products and the exemption granted to Sulphuric Acid cannot be automatically extended to Oleum unless it is specifically so mentioned as has been done in the Tariff description.

This order of the Collector was upheld by the Revisional Authority which held interalia that

the exemption notification does not refer to the words "all sorts" which appear in Item

No.14G of the Tariff description. The Authority, it is contended also noticed that the Indian

Standards Institution made a specific distinction between Oleum and Sulphuric Acid by

publishing two separate standards for both of them. Similarly, the process description relied

on by the petitioner establishes that the product is caprolactum, and the secondary or bye

product is Ammonium Sulphate. Other documents are pointed out, such as the petitioner's

training manual, and the collaboration agreement, with the foreign company, to say that the

object of establishing the plant was caprolactum production, and not of fertilizer.

16. It is further submitted that any exemption notification has to be construed strictly. In

this regard reliance is placed on State of Jharkhand & ors. v. Ambay cement & Anr. (JT 2004

10 SC 93); Novopan India Ltd. v. Collector of Central Excise (1994 73 ELT 769 SC) and M/S

Healthway Dairy Products v. The Union of India (1978 ELT J 457). The respondents also cite

Manglam Cement v. Asstt. Collector (47 1992 DLT 313 DB) and Dhampur Sugar v. State of

Uttaranchal & ors. (2007 8 SCC 418).

17. Before embarking on the merits of the rival contentions it would be necessary to

extract the two exemption notifications i.e. 1966 and 1975, they are as follows:

"NOTIFICATION

14 G : (8) Under Government of India, Ministry of Finance (Department of Revenue and Insurance), Notification No.74/66 - Central Excise, dated the 30th April, 1966, the Central Government hereby exempts sulphuric acid falling under this item used in the manufacture of Chemical Fertilizers from the whole of the duty of excise leviable thereon.

WP(C) No.2500/1982 Page 9 Provided that in respect of such use elsewhere than in the factory of production of sulphuric acid the procedure set out in Chapter X of the Central Excise Rules, 1944 shall be followed."

The 1975 notification reads as follows:

"In supersession of the notification No.74/66-C.E. dated 30.4.1966, the Central Government has exempted sulphuric acid falling under Item No. 14G of the First Schedule to the Central Excises and Salt Act, 1944 (1 to 1944) intended for use in the manufacture of Fertilizers, from the whole of the duty of excise leviable thereon;

Provided that:-

(i) The Assistant Collector of Central Excise is satisfied that the said sulphuric acid, has been so used; and

(ii) Respect of such use is elsewhere than in the factory of production of sulphuric acid, the procedure set out in Chapter X of the said rules shall be followed.

(Vide M.F. (D.R.I.) Notification No.81/75-C.E. dated 22.3.1975)"

18. Tariff Entry 14G of the Schedule to the Excise Act, reads as follows :

Item No. 14C - ACIDS

Item No. Tariff Description Rate of Duty 14G. Nitric, Hydrochloric and Sulphuric Acids 10% ad valorem (including fuming acids and anhydrides thereof) all sorts

19. The first question to be decided is whether the authorities' decision that Oleum is

not covered by the exemption notifications is correct. This finding is premised on two

hypotheses i.e. the first on the interpretation placed upon the two exemption notifications

and second on the characteristics of Oleum. A reading of TI 14G would show that it seeks to

tax acids. However, the tariff description specifies Nitric, Hydrochloric and sulphuric acid as

the particular substances which would fall within the broad heading. The tariff item further

clarifies that sulphuric acids would include fuming acid and anhydrides of all sorts. It is well

WP(C) No.2500/1982 Page 10 established that in interpreting taxing statute statutes, there is no room for intendment and

the Court should give due regard to the clear meaning of the terms in question. (Refer

Hansraj case (supra)). A rule of interpretation applicable to taxing statutes is that

exemptions which serve as an exception and instruments or notifications containing such

exemptions should be interpreted strictly and in their own terms. (See Union of India Vs.

Wood Papers Limited 1990 (4) SCC 256; Bombay Chemical Pvt. Ltd. (supra); Sarabhai M

Chemicals Vs. Collector of Central Excise, 2005 (2) SCC 168; State of Jharkhand Vs. Tata

Cummins Limited 2006 (4) SCC 57).

20. In the present case the revenue's contention is that the exemption notifications only

refer to sulphuric acid but do not make any further reference to the different classes of

sulphuric acid. Consequently Oleum, which falls within the inclusive or extended definition

of sulphuric acid under TI 14-G would not qualify for exemption. The writ petitioner on the

other hand contends that the specific term "falling under this item" in relation to sulphuric

acid, necessarily comprehends all such acids classifiable under TI 14G.

21. The judgment of the Supreme Court in Gujarat State Fertilizers (supra) a three Judge

Bench decision is an authority for the proposition that where there is express reference in

an exemption notification covering the goods amongst others to those referred in the

Chapter which in turn includes a class of goods such fertilizers, no other test need to be

adopted so long as the specific products or goods fall within the tariff item, to qualify for

exemption. More specifically, in Steel Authority of India's case (supra) cited by the

petitioners, the product in question, tar, was excisable and the concerned entry described

the product as "Tar distilled from coal or lignite and other mineral tars, including partially

distilled tars and blends of pith with creosote oils or with other coal tar distillation products".

WP(C) No.2500/1982 Page 11 The notification in question exempted tar falling under Item 11. The revenue's contention

that assesse's product, pitch creosote mixture did not qualify for exemption was rejected. It

was held that generic expression "tar" comprehended everything included in the extended

definition.

22. In this case, what is important is the exemption notifications, which specifically

mention sulphuric acid. The question whether Oleum is a sulphuric acid and whether it

does or does not therefore, qualify for exemption is to be independently addressed. In the

Bombay Chemicals decision, it was ruled that:

".........................Where entries are descriptive of category of goods they have certain characteristics. Therefore, when a question arises whether a particular goods is covered in any category or not, it has to be examined if it satisfies the characteristic which go to make it a goods of that category. And whether in trade circle it is understood as such and if it is a goods of technical nature, then whether technically it falls in the one or the other category. Once it is found that a particular goods satisfies the test, then issue which arises for consideration is whether it should be construed broadly or narrowly. One of the settled principles of construction of an exemption notification is that it should be construed strictly, but once a goods is found to satisfy the test by which it falls in the exemption notification then it cannot be excluded from it by resorting to applying or construing such notification narrowly. Item 18 is an exemption notification. As stated earlier, it mentions broad categories of goods which are entitled to exemption. Once a goods is found to fall even narrowly in any of these categories, there appears no justification to exclude it. The test of strict construction of exemption notification applies at the entry, that is, whether a particular good is capable of falling in one or the other category but once it falls then the exemption notification has to be construed broadly and widely. Each of the words insecticides, pesticides, fungicides or weedicides are understood both in the technical and common parlance as having broad meaning. Therefore, if any goods or items satisfy the test of being covered in either of the expression, then it is entitled to exemption..........."

WP(C) No.2500/1982 Page 12 In the Hindustan Platinum case (supra), the Supreme Court illustrated the application of the

above rule, stating that:

".......The short question which the authorities below were required to consider was whether the term 'silver' used in the said entry should be confined to ingots which would result in the appellants not getting the benefit of the exemption notification in respect of the various items of silver manufactured by them. The Tribunal took the view that the entry contemplates only the metal and not any other article made out of silver. It rejected the appellant's contention that the term 'silver' includes silver in all forms and not merely silver as a metal pure and simple."

XXXXXXX XXXXXXX XXXXXXX XXXXXXX"

".........We do not see any reason why the expression 'silver' in Tariff Item 24 should be given a narrow meaning as has been done by the Tribunal. We are, therefore, inclined to think that the expression 'silver' in Tariff Item 24 should be given a wider meaning so as to include all articles of silver in the sense in which those who are dealing with commodities in question generally understand them. In other words, if the articles in question are generally understood in the commercial world by those who deal in them as silver they would attract duty under Tariff Item 24 but if they are not so known by those dealing with the articles in question they would fall outside the broad spectrum of the expression 'silver' in Tariff Item 24 and would then perhaps fall within the residuary clause unless attracted by any other specific tariff item."

The Gujarat State Fertilizers decision had explained and reiterated the true principle to be

applied, for construing exemption notifications, in such cases, as follows:

".........to understand the language used by an exemption notification, one should keep in mind two important aspects: (a) the object and purposes of the exemption and (b) the nature of the actual process involved in the manufacture of the commodity in relation to which exemption was granted. It must be kept in view that the object and purpose of the exemption has to be culled out from the express language of the notification. If the express language of the notification does not include a contrary intention conveyed by the wide words employed by the notification, full effect has to be given to the wide terminology employed by the notification otherwise the result would be that in trying to search for the supposed intention underlying the notification, the intention flowing from the express language of the notification would get stultified or truncated.........."

WP(C) No.2500/1982 Page 13

23. Having regard to the terms of the notification and on an application of the principles

enunciated by the Supreme Court in Hansraj Gordhandas case (supra), The Steel Authority

of India's case (supra), the Hindustan Platinum case (supra) and the Gujarat State Fertilizers

Case (supra), it is held that the sulphuric acid referred to in the two notifications is not

confined only to sulphuric acid per se but includes the entire range of sulphuric acids that

fall within tariff item, because of the specific reference to the tariff item itself, on account of

the words "falling under this item". If the revenue's contention is accepted, two anomalies

would emerge i.e. the Court would be left without guidance as to which class of sulphuric

acid really qualifies for exemption thus enabling the authorities to pick and choose as

between one and the other kind of sulphuric acid; and two, the specific reference to tariff

item 14G, which includes all kinds of description of acids falling within the broad generic

term "sulphuric acid", would be rendered meaningless. The Court's finding is also

supported by the fact that not all products described in TI 14G qualify for exemption and

Nitric, Hydrochloric Acids do not enjoy the same benefit.

24. The second limb of the question is whether Oleum is a sulphuric acid. Here the

authorities' appear to have relied upon the Condensed Chemical Dictionary, 9th edition by

Gessner G. Hawley and Materials Hand Book, to conclude that sulphuric acid and Oleum

were distinct and separate from each other. It was held that as against the description of

sulphuric acid, as an oily, highly corrosive liquid of the composition H2SO4, with specific

gravity of 1.834 and boiling point 338 degree C, Oleum was described as a mixture of

sulphuric trioxide in sulphuric acid which forms fuming sulphuric acid or pyro-sulphuric

acid, H2S2O7. The observations in this regard by the Appellate Collector of Central Excise in

the order dated 16.02.1982 are as follows :

WP(C) No.2500/1982 Page 14 "According to 'Condensed Chemical Dictionary', 9th Edition by 'Gessner G. Hawley', oleum is a solution of sulphur trioxide in sulphuric acid. Sulphuric acid is represented by H2SO4 whereas oleum by H2SO4SO3. Materials Hand Book, which is described as "an Encyclopaedia for Managers technical Professional Purchasing and production Managers Technicians, Supervisors and Foremen", authorised by 'Brady & Clauser', describes sulphuric acid and oleum separately and distinctively. According to it, sulphuric acid is a oily, highly corrosive liquid of the composition H2SO4, having a specific gravity of 1.834, and boiling at 3380 Centigrade. As against this, oleum has been described as a mixture of sulphur trioxide in sulphuric acid, which forms fuming sulphuric acid or pyro-sulphuric acid, H2S2O7, Merck Index, 9th Edition also assigns different indices, namely, 8769 and 8770 to sulphuric acid and sulphuric acid fuming, respectively. In fact, it states that H2SO4 with free SO3 is designated in Commerce as Oleum (emphasis provided). Thus, it is wrong to say that Sulphuric acid and oleum are synonyms and identical. Even in the market, a person who places indent for oleum will not be supplied mere sulphuric acid and the vice-versa. I understand that these are being advertised for sale separately. Thus, in my opinion, technically and commercially sulphuric acid and oleum are two different products and the exemption granted to sulphuric acid cannot automatically be extended to the Oleum unless it is specifically so mentioned as has been done in the tariff description."

25. As is evident, reliance had been placed upon the Condensed Chemical Dictionary

Gessner G. Hawley, it would be interesting to notice at this stage that the very same issue

arose for consideration before the Customs Excise and Gold Control Appellate Tribunal

(CGAT), a three Member decision in its judgment reported as Andhra Sugar Limited Vs.

Collector of Central Excise, 1989 (42) ELT 613 rejected assesse's contention that Oleum was

not sulphuric acid and therefore not covered by TI 14G. It was held that Oleum in that case

in the sulphuric trioxide gas form was in anhydride form and classifiable under TI 14G. The

show cause notice issued to the assesse in that case, which was finally upheld, described

Oleum as sulphuric acid. Similarly, later in another decision of the Tribunal i.e. Dhanbad

Chemical Pvt. Ltd. Vs. Commissioner of Central Excise, 1999 (105) ELT 80, it was held that

"fuming sulphuric acid, broadly speaking well covered the description Oleum" also. It was

also observed that merely because

"Oleum has been broadly mentioned in tariff heading 287.00 it does not mean that it is not a variety of sulphuric acid known by the trade name "fuming sulphuric acid"",

WP(C) No.2500/1982 Page 15 it would be worthwhile mentioning here that in the Central Excise Tariff Act, 1985 Oleum

was explicitly mentioned along with sulphuric acid in tariff heading 2807.

26. The above decisions particularly in Andhra Sugar Limited, the 10th revised edition of

Condensed Chemical Dictionary by Hawley, was relied upon; in this case the authorities'

relied upon older edition of the same work. In view of the above findings by the Appellate

Tribunal in the two cases, this Court is inclined to accept the petitioner's contention that

Oleum is "fuming sulphuric acid" answering to such description and classifiable under TI

14G.

27. The second question to be decided is the correctness of the revenue's contention -

upheld concurrently by the authorities that since the main product emerging from the

manufacturing process is Caprolactum by the use of Oleum, the benefit of exemption is not

available. To decide this issue, it would be necessary to extract the Chemical Examiner's

letter, which was a part of the record, the same is as follows :

"Contents of Chemical Examiner, Central Excise, Regional Laboratory, Baroda's letter dated 15.7.1976

1. In connection with the manufacturing process of caprolactam it is stated (Ref. Page 298 & 2999 of "Plastic Materials") by J.A. Brydson that the Cyclohexanone Oxime is treated with sulphuric acid containing free sulphur Trioxide at an elevated temperature which leads to caprolactam through reactions which include a Backman re-arrangement.

2. In one of the process, he explained, the resulting solution is continuously withdrawn and cooled rapidly to below 750C to prevent hydrolysis and then further cooled before it is neutralized with ammonia. In the above process 5.1 tons of ammonium Sulphate are produced as bye- product per ton of Caprolactam.

3. Attention is invited to kirk Othmer Encyclopedia of Chemical technology Vol. 16. Page 29 wherein it is mentioned that cyclo-hexanone oxime is converted to caprolactam by backman rearrangement, This is done by heating Oxime with week Oleum under anhydrous condition. This reaction

WP(C) No.2500/1982 Page 16 mixture is then cooled, diluted with water and neutralized with ammonia which finally gives the crude caprolactam on extraction with Benzene.

4. It has been observed by Chemical Examiner in the caprolactam process flow chart produced by M/s. G.S.T.C. in the rearrangement reactor-22, that the Cyclohexanone Oxime is reacted with Oleum. The reaction mixture is later on reacted with ammonia. Thus the process of manufacture used by M/s. G.S.F.C. is the same as described above.

5. In this connection he also expressed the views, that in the above reaction of Oleum and Oxime, Oleum has undergone chemical change and lost its identity to form an intermediate reactive compound containing 'SO 3 '. This intermediate compound later on reacts with ammonia forming the caprolactam and ammonium sulphate as a bye product. Moreover, during the entire series of reactions nowhere oleum is recovered.

6. He also contended that the very concept of catalyst means any substance of which a fractionally small percentage strongly effects the rate of chemical reaction. Though the catalyst under goes on chemical change, it is often altered physically by chemically absorbed molecules of the reactants. He is of opinion that no reference is available in technical literature where is mentioned that ammonium sulphate fertilizer is manufactured by using oleum a comparatively costlier raw material as a source of supplying SO4 radical in the final product."

28. The revenue's contention is essentially that the only object of using Oleum is to

produce Caprolactum, by employing the Backman Re-arrangement reaction. It is contended

that even though in this process - 5.1 tonnes of ammonia sulphate is produced per every

ton of Caprolactum nevertheless the basic or primarily object of this method is the

production of Caprolactum. The latter i.e. Caprolactum is the lactum form of e-amino

caproic acid a commonly used monomer for a polyamide nylon 6. It is used in fibre and

plastics.

29. The revenue's contention is premised on its understanding that the normal or known

method of manufacturing ammonium sulphate does not result in production of

Caprolactum and that the process in which the petitioner engages itself results in

ammonium sulphate as a merely a bye-product.

WP(C) No.2500/1982 Page 17

30. The crucial terms here are sulphuric acid "intended for use in the manufacture of

fertilizers". There are no restrictive terms cutting down the width of the phrase "intended

for use". Applying the canon of construction mentioned earlier, i.e. that such exemption

notifications are to be considered in their own terms, the Court holds that the express terms

here do not make a distinction between "primary" and "secondary" product or "main

product" and "bye-product". As far back as in Hansraj's case, it was ruled that:

"It is well-established that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority." (emphasis supplied)

In this case the notification does not prohibit the use of diverse technologies that may

enable a manufacture to produce two kinds of goods, simultaneously, in the same process.

It is not denied that for each ton of Caprolactum produced 5.1 tonnes of ammonium

sulphate is produced. If indeed this is deemed a bye-product it appears to be a case of the

proverbial tail wagging the dog. The Court cannot be unmindful, here of the object of the

notification which was to make fertilizers less expensive, and more widely accessible. The

innovative use of a relatively less known technology to achieve production of ammonium

sulphate concededly a fertilizer, cannot be denied the benefit of the exemption notification,

which contains no support for the distinction between "main product" and "bye-product"

relied upon by the revenue. Consequently, this question too has to be answered against the

revenue.

31. In this case, the revenue had relied on two judgments - The State of Jharkhand and

Novopan (supra). The Court has already relied on the former decision, while holding that

WP(C) No.2500/1982 Page 18 exemption notifications are to be construed strictly. As far as Novopan is concerned, the

Supreme Court ruled in that case that tariff entries in taxing statutes are to be construed in

their normal or commercial parlance. This Court has found that Oleum is described as

fuming sulphuric acid, and found to be such in two ruling of the Excise Tribunal. It is not as if

it has leaned in favour of the assessee out of two possible interpretations, in which case

such course would be impermissible.

32. As a result of the above discussion, it is held that Oleum is classifiable under TI 14 G;

the petitioner's use of that product leading to manufacture of ammonium sulphate entitles

it to the benefit of the two exemption notifications. A direction is accordingly issued,

quashing the impugned assessment orders, as well as appellate and revisional orders;

consequently, the petitioner shall be refunded the amounts paid as duty; the same shall be

calculated and paid back, within three months from today. The petitioner shall also be

entitled to interest @ 7% per annum from 01.01.1983, on the amounts paid; these too shall

be paid within three months. Rule made absolute in the above terms.

                                                                              S. RAVINDRA BHAT
                                                                                   (JUDGE)
July 01, 2009




WP(C) No.2500/1982                                                                       Page 19