"(1) E/2736/2012 CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Division Bench Court – I Excise Appeal No. 2736 of 2012 (Arising out of OIO No. 53/2012-C.Ex dt.29.06.2012 passed by Commissioner of Customs, Central Excise & Service Tax, Guntur) 3F Industries Ltd P.B.No.15, Tanuku Road, Tadepalligudem, West Godavari, Andhra Pradesh – 534 101 ......Appellant VERSUS Commissioner of Central Tax, Guntur P.B.No.331, CR Building, Kannavarithota, Guntur, Andhra Pradesh – 522 004 ……Respondent Appearance Shri Y. Sreenivasa Reddy, Advocate for the Appellant. Shri Pradeep Saxena & Shri M. Anukathir Surya, ARs for the Respondent. Coram: HON'BLE MR. SOMESH ARORA (JUDICIAL) HON'BLE MR. A.K. JYOTISHI, MEMBER (TECHNICAL) FINAL ORDER No. A/30336/2024 Date of Hearing: 12.06.2024 Date of Decision: 03.07.2024 [Order per: A.K. JYOTISHI] M/s 3F Industries Ltd, previously known as Foods, Fats & Fertilizers Ltd (hereinafter referred to as the Appellant) are in Appeal against the Order of the Commissioner of Customs, Central Excise & Service Tax, Guntur dt.29.06.2012 (hereinafter referred to as the impugned order). The Original Authority, in his impugned order, has confirmed the demand of Rs.56,41,187/- and has also imposed penalty of equal amount under Section 11AC of the Central Excise Act. 2. The issue, in brief, is that the Department observed that the Appellants are engaged in the manufacture of, inter alia, fatty acids, where Fatty Acid Pitch (FAP) emerges as an intermediate product, a part of which is cleared on payment of Central Excise Duty and the remaining quantity was consumed captively in the boilers wherein steam is generated. Department also noted that the Appellants were claiming exemption for the (2) E/2736/2012 FAP, which was being consumed captively, under Notification No.67/95-CE dt.16.03.1995. On going through the coverage and conditions of the said notification which, inter alia, provided for non-applicability of the notification in case the inputs are used in or in relation to the manufacture of final products which are exempt from the whole of the duty of Excise leviable thereon or are chargeable to “nil” rate of duty. The Department stated that the Appellants were manufacturing both dutiable goods viz., Refined Glycerine, Refined RB Wax, Cake Gel, Spent Nickel Catalyst, Stearic acid, Fatty acids, Vegetable Origin Margarine, as also non-dutiable goods viz., Refined Palm Oil, Refined Palmolein, Refined Sesame Oil, NB Kokum Fat, NB Sal Stearine, NB Shea Steraine, Vanaspathi, Hydrogen Technical Oil, Vegetable Origin Margarine, etc. They also stated that the steam generated by using such FAP was used for manufacture of both dutiable goods as well as exempted goods as Assessee has not specifically demarcated the boilers for manufacture of exclusively dutiable items or exclusively exempted items. Therefore, the usage of FAP in the boilers can be attributed to both dutiable goods as well as exempted goods. 3. Thereafter, examining the provisions under Rule 6(3A) of Cenvat Credit Rules, etc., Department came to the conclusion that since Assessee has also not discharged obligations prescribed under Rule 6 and therefore, are not within the ambit of the exemption otherwise available in terms of Proviso (vi) of Notification No.67/95-CE dt.16.03.1995. Therefore, they are not entitled for exemption on FAP, as an intermediate product, under Notification No.67/95-CE and therefore, liable to pay duty. 4. On adjudication, inter alia, the Commissioner has considered the replies and documents submitted by the Appellants and observed that they are producing the steam from the three boilers by utilizing the FAP, as observed during the course of Audit. Para 15 of the OIO is reproduced for ease of reference:- “15. As against the claims made by the assessee in the reply to the show cause notice and in the brief submitted at the time of personal hearing, it was observed that they are producing the steam from 3 boilers by utilizing the Fatty Acid Pitch, during the course of Audit. The officers also noted that there is no (3) E/2736/2012 demarcation as to from which boiler the steam is produced and used for the manufacture of exempted excisable goods. It is therefore stated by the Audit that in the absence of clear cut demarcation between the boilers from which steam is produced that is further used in the process of/ manufacture of dutiable or exempted excisable goods, it cannot be stated that the steam is produced and used exclusively in the processing of dutiable goods. The assessee, while letting in their defence, has brought in for the first time the element of “heat energy” in the reply submitted to the show cause notice. This was followed up by them meticulously by bringing in the presence of a thermic fluid heater, which in their view cannot be considered as a boiler under Sec. 8 of Indian Boilers Act 1923 – vide the assessee’s letter dt.26.09.2011. By this, the assessee wanted to prove that they were using the Fatty Acid Pitch as a fuel for the thermic fluid heater alone which in turn is used in the process of dutiable goods viz., Stearic Acid. It is therefore, their submission that they are rightly availing the exemption on the Fatty Acid Pitch used as a fuel for thermic fluid heater for generation of heat energy that is subsequently used in the processing of only dutiable goods. Therefore, it is their submission that the question of non compliance with the conditions specified under Rule 6(3) of CCR 2004 does not arise in their case.” 5. The Commissioner also relied on the fact that the Appellants had accepted that FAP being used captively as a fuel media is used for production of steam in the boiler. Further, what he has categorically observed is that the energy produced by using FAP, regardless of whether the thermic fluid heater is considered as a boiler or not, is used exclusively in processing of the dutiable goods is not clearly demonstrated, though so claimed. The Assessee did not specifically disclosed as to the source of steam or heat energy that is being made use of in the process of other vegetable oil products that attract “nil” rate of duty. He has also gone through the manufacturing process employed in manufacturing the vegetable oils, which is an exempted product and noted that as seen from the manufacturing process, steam was very essential in the processes like de-gumming, de-odourising and hydrogenation, etc. It was also noted that it is not clear as to the source of steam or energy for such uses, which was not (4) E/2736/2012 specific and separate but was conveyed from a common set of conduits to both dutiable and exempted goods. Therefore, he concluded that it can be postulated very reasonably that the claims of the Assessee that the FAP is used captively only in the thermic fluid heater for generation of heat energy and that alone in turn is used for manufacture/processing of fatty acids and stearic acid, etc., is hollow and far from credible. 6. Learned Advocate for the Appellant has mainly contested the impugned order on the grounds that the said order has been passed on mere assumptions and presumptions. He further submitted that the Appellant had through various letters communicated to the Department that they were using thermic fluid heater for production of steam for use in the manufacture of fatty acids and stearic acid, which was cleared for export or on payment of duty. The Department did not make any verification to know whether the claim was correct or not and the SCN has been issued based on Appellant’s own letter making bald allegations without producing or relying on any contra evidence. The burden of proof that they have used FAP for manufacture of exempted goods is on the Department and the allegations cannot be made on mere assumptions. He relied on the following case laws:- a) CCE, Kolkata Vs Sai Sulphanate Pvt Ltd [2022 (380) ELT 441 (Calcutta)] b) CCE, Vadodara Vs Gujarat State Fertilizers Company Ltd [1995 (78) ELT 447 (Tribunal)] 7. He further submitted that it was quite clear from their letter dt.26.09.2011 that three boilers used fuel other than FAP and they are connected to the manufacturing line of Vanaspathi and other exempted goods. FAP cannot be used in these boilers. Further, it was also explained that thermic fluid heater, wherein FAP was used is an equipment used in Fatty Acid distillation plant wherein dutiable goods are manufactured. He has further submitted that thermic fluid heater is not recognized as boiler and that each line of production for each product has its own boiler and thermic fluid heater for the production line meant for manufacture of Fatty acids. He has also submitted that while the Adjudicating Authority has confirmed the demand on the grounds that the Audit officers verified that (5) E/2736/2012 there was no demarcation among the three boilers and hence the Appellants could not conclusively prove that they were using FAP in the boiler used for production of dutiable products. The said verification report or Audit Memo were of the Audit officers was not part of the SCN and therefore, impugned order is illegal and invalid as held in various cases including in the case of CCE, Mumbai Vs Toyo Engineering India Ltd [2006 (201) ELT 513 (SC)]. 8. He has also contested the demand on the grounds of limitation. He has submitted that in the year 2007 itself the Appellants had intimated the Department about the usage of FAP for production of dutiable products, which were meant for export and subsequently, details of usage, manufacturing process, etc., were also submitted and at that point, no objection was raised by the Department or any enquiry was conducted. He has also submitted that the Appellants were filing returns regularly showing the details of FAP used for captive consumption and nothing barred the Department from verifying this fact. He has relied on various case laws including, inter alia, the following:- a) CCE, Jaipur Vs Pushp Enterprises [2011 (22) STR 299 (Tri-Del)] b) CCE, Kolkata Vs ITC Ltd [2013 (291) ELT 377 (Tri-Kolkata)] 9. Learned AR reiterates the impugned order in support that the Adjudicating Authority has rightly denied the benefit of exemption to the Appellants in the facts of the case and also relies on the case law in the case of Mehsana District Co-operative Milk Producers Union Ltd Vs CCE & ST, Ahmedabad-II [2019 (6) TMI 197 – CESTAT Ahmedabad]. 10. Heard both sides and perused the records. 11. The short question for decision is whether in the facts of the case and evidence on record, the Appellants were entitled for benefit of Notification 67/95-CE dt.16.03.1995 in respect of FAP emerging as an intermediate product but otherwise excisable in the factory of the Appellants. As per the Department this FAP was used as fuel in generation of steam, which was used both in the manufacture of dutiable and exempted products and therefore not entitled for the benefit of the notification. According to the Appellants, they have used this only in their thermic fluid heater, which in turn was used in the manufacture of either dutiable goods or for export. (6) E/2736/2012 12. In the SCN, the Department has not raised any factual evidence as regards the utilization of FAP in production of non-dutiable goods except that the Appellant has not specifically demarcated the three boilers for the manufacture of dutiable items or exempted items exclusively. The SCN relies on the observations made by the Audit party during their visit to factory and where, inter alia, they observed that there is no specific demarcation of the boilers for manufacture of dutiable items and exempted items. However, from the perusal of SCN, it is not clear whether the SCN is based and relied on the facts of the Audit report as evidence or is based on mere presumptions as regards the factual position prevailing in the factory. The Audit report has not been relied upon in the SCN as such and instead letters dt.26.07.2010 and 09.05.2011 from the Appellants themselves have been relied upon. Letter dt.26.07.2010 is letter addressed to Superintended of Central Excise by the Appellants wherein, inter alia, they have with respect to Para 1 of the Audit Report inferred that they were manufacturing dutiable final products and have been using dutiable FAP as fuel within their factory premises for said purpose. They have, categorically stated that they were manufacturing Fatty acids, Stearic acid, and in the manufacturing of the said dutiable products they are using FAP as fuel. According to the Appellants, FAP is used as fuel for the purpose of generating heat energy which is required for the purpose of splitting and distillation of Fatty acids and further for production of Stearic acid. Therefore, since both distilled Fatty acids as well as Stearic acid being dutiable in respect of which FAP has been used as fuel, it would be entitled for benefit under Notification 67/95- CE. 13. In letter dt.09.05.2011, responding to the letter dt.26.04.2011 from the Department, the Appellants informed that the heat energy generated by using FAP as fuel within the factory was exclusively for the purpose of manufacturing dutiable goods viz., Fatty acids & Stearic acid and are sold in domestic market on payment of Central Excise duty and not for export. 14. We further find that there has been lot of correspondences between the Appellants and the Department starting with letter dt.22.01.2007 when the Appellants informed that they would be captively consuming FAP as fuel for the purpose of generation of steam to be used within their factory in relation to manufacture of dutiable goods and goods for export and this was (7) E/2736/2012 as per the exemption notification 67/95-CE, as amended and covered by General Exemption No. 9 (captive consumption of goods used within the factory for production). Vide letter dt.31.01.2011 they inferred, inter alia, that FAP was used as fuel under VTA-20 thermic fluid heater along with husk for generating heat energy of thermic fuel to get high temperature of 250- 260oC in (a) continuous Fatty Acid distillation plant (b) Fatty Acid plant for the purpose of manufacture of fatty acid. They categorically stated that heat energy so generated was used exclusively for manufacture of dutiable goods viz., Stearic acid and Fatty acid. Subsequently, they also furnished various details sought by the Department vide letter dt.22.07.2011. The Appellants furnished all the details including flow diagram, etc., and making a very categorical assertion that they were not captively consuming FAP in the manufacture of exempted goods viz., NB Kokum Fat, NB Sal Stearine, NB Shear Steraine, NB Mango Stearine, NB Mango Olein, Refined Sesame Oil, etc. Again vide their letter dt.26.09.2011, they informed the Department that FAP was being used as fuel in VTA-20 Thermic Fluid heater along with Husk and generating heat energy which was used in continuous Fatty Acid distillation plant and the Fatty Acids are used in the manufacture of Stearic Acid, which is a dutiable item. Therefore, they were entitled for exemption under Notification 67/95-CE. 15. On going through the impugned order, it is obvious that the Adjudicating Authority has made certain conclusions based on the purported observations made by the Audit team as regards the factual position of presence of boilers and there having no clear cut demarcation for its use in the manufacture of dutiable and exempted products. The SCN, is referring to some observations of Audit team without referring to any Audit memo or report based on any factual verification done by the Audit team or subsequently by the Department and is merely relying upon two letters from the Appellants themselves. The Adjudicating Authority has presumed that the Appellants have not been able to bring any evidence to the effect as to from where they were getting steam for the manufacture of exempted goods and because of that, it was “reasonably postulated” by him that FAP was used as fuel in one of the boilers, which in turn produces steam and which in turn was used in the manufacture of certain exempted final goods. The Appellants have been consistently stating and informing the Department that the said FAP was being used only in a particular generator of heat (8) E/2736/2012 source, which is not considered as boiler and the said heat source was used only in the Fatty Acid distillation plant for manufacture of Fatty acids, as also its further consumption in the manufacture of Stearic Acid, both being dutiable products. What is to be noted is that despite the Appellants making repeated claims about the FAP not being used for any exempted goods and furnishing all the relevant details to the Department, no further enquiry or investigations were carried out to crosscheck as to whether Appellant’s assertions were correct or otherwise. In fact, they have gone a step further by invoking the extended period also, even though there is no evidence on record to establish that the FAP has been used for manufacture of exempted product and that it was done deliberately and intentionally to evade payment of duty. In fact, the Appellants themselves have informed the Department about their intended use way back in 2007 itself and till the issue of SCN in 2012 no verification was carried out to prove to the contrary by the Department. 16. Therefore, it is obvious that there is no cogent verifiable evidence on the record to suggest that FAP was used in the manufacture of exempted products also and therefore, liable to duty by denying the benefit of Notification 67/95-CE. On the contrary, as the Appellants have demonstrated through their flow diagram that no steam generated from the boilers was being used in manufacture of Fatty acids or Stearic acid, where according to them, the heat source generated through VTA thermic fluid heater was used for de-gumming, de-odourising, etc. In the absence of any categorical evidence from the Department to the effect that steam generated by FAP through the boiler was used in the manufacture of any of the exempted products, the conclusions drawn by the Adjudicating Authority in the impugned order is not legally tenable. Merely because they could not adduce evidence as to where they got steam for exempted product, it cannot lead to conclusion that FAP was used in boiler and steam so generated was used for manufacture of such products. In the absence of any detailed inquiry/investigation rebutting the factual assertions of the Appellant, Department could not have relied inherently on letters sent by Appellant themselves and some vague observations of Audit team, Report of which has not been even relied upon in SCN. (9) E/2736/2012 17. Therefore on merit, the impugned order is not sustainable. On the grounds of limitation also, we find that there is sufficient evidence on record that Appellants have not tried to hide anything from the Department and in fact were furnishing all the relevant information as required by the Department from time to time and in fact making categorical assertions about not having used FAP in manufacturing of exempted products. There is nothing on record to suggest that any of these assertions were found to be wrong on inquiry or investigation by the Department. Therefore, in the facts of the case, invocation of extended period is also bad in law. 18. Therefore, both on account of merits as well as on limitation, the impugned order is not sustainable and accordingly, we set aside the same and allow the Appeal with consequential benefits, if any, as per law. 19. Appeal allowed. (Pronounced in the Open Court on 03.07.2024) (SOMESH ARORA) MEMBER (JUDICIAL) (A.K. JYOTISHI) MEMBER (TECHNICAL) Veda "