Judgment:
1. The issue involved in the appeal filed by M/s. Heavy Water Board is whether the benefit of Notification No. 200/86 in respect of Potassium Metal produced by them and which is used in the manufacture of heavy water is available.
2. Briefly stated the facts are, that M/s. Heavy Water Plant, Department of Atomic Energy, Baroda manufacture Potassium Metal which was used by them to manufacture heavy water. They did not declare the activity of manufacture and removal of Potassium metal as the same was consumed in plants owned by Government of India and benefit of Notification No. 200/86 was available to them. The Potassium metal was also removed to other heavy water plants at Talchar, Tuticorin and Thai; that the Collector, Central Excise, in the impugned order, dated 30-5-1991, confirmed a demand of Excise duty amounting to Rs. 18,32,297.20 in respect of Potassium metal cleared during the period from 1-3-1986 to 30-9-1987 holding that the impugned product was cleared to Rashtriya Chemical and Fertiliser Ltd. (RCF) Heavy Water Plant at Thai and since RCF was not a department of Central Government, the exemption under Notification No. 200/86, dated 21-3-1986 was not available, that M/s. RCF were the actual manufacturers of the heavy water in terms of Section 2(f) of the Central Excise Act; that the duty is also chargeable on the impugned product used captively in the manufacture of heavy water as benefit of Notification No. 217/86 was not available, heavy water being exempted from payment of duty under Notification No. 197/87.
3. Shri P.N. Mishra, ld. Counsel submitted that the heavy water plant at Thai was owned by the Department of Atomic Energy (DAE) and not by RCF. Ltd.; that all the finances for running of the Heavy Water Plant at Thai would be provided by the DAE; that the land on which the Plant was erected was paid for the DAE as was evident from the statement, dated 14-10-1987 of D.M. Thakre, Dy. General Manager; that the maintenance and operation of plant at Thai was given to RCF under an Agreement entered into in August, 1984; that it is apparent from the Agreement that the DAE had decided to set up a Heavy Water Plant at Thai and the Plant was to be constructed, commissioned, operated and maintained by RCF on behalf of DAE; that clause 2.1 of the Agreement clearly reads as "DAE shall be the owner of the PLANT". He further submitted that the Agreement contained the clause to the effect that DAE would arrange necessary funds for all procurement, construction and commissioning of the Plant and housing colony from its budgetary resources and provide the same to RCF; that it was the responsibility of the DAE under the Agreement to obtain all necessary approvals, sanctions and clearances from the Government of India including industrial licences, foreign exchange sanctions, import licences, DGTD clearances, etc. The ld. Advocate contended that the Potassium metal was used by the Department of the Atomic Energy by sending the same to RCF, Thai for use in the manufacture of heavy water and accordingly the benefit of Notification No. 200/86 was available to them. He also mentioned that the Central Government under Order No. 616/94-CX, dated 4-7-1994 exempted Potassium Metal from payment of duty during the period from 1-9-1987 to 15-8-1989 and by Notification No. 168/89, dated 16-8-1989 exempted Potassium Metal from payment of duty if consumed within the factory of production at Baroda for the manufacture of Potassium amide or supplied to a Heavy Water Plant at Tuticorin, Talchar, Thai or Hazaria for manufacture of Potassium amide.
4. Countering the arguments, Shri H.K. Jain, ld. SDR submitted that the Potassium Metal manufactured by Heavy Water Plant at Baroda was removed to RCF at Thai and it was used by RCF which was not a Department of Central Government; that accordingly the condition specified in Notification No. 200/86 was not satisfied and as such the benefit of exemption from payment of duty was not available to the appellants. He further, submitted that the Collector has given clear finding in the impugned order that RCF, Thai were the actual manufacturer; that the classification list was filed by M/s. RCF and therefore Collector has rightly denied the benefit of Notification No. 200/86.
5. We have gone through the submissions of both sides. Notification No.200/86, dated 31-3-1986 reads as under : "In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 185/86-Central Excises, dated the 1st March, 1986, the Central Government hereby exempts goods falling under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), and which were falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) as it existed immediately before the commencement of the Central Excise Tariff Act, 1985 (5 of 1986), from the whole of the duty of excise leviable thereon which is specified in the first mentioned Schedule: (i) such goods are manufactured by the factories belonging to the Central Government and are intended for use by the Departments of the said Government; or (ii) such goods are manufactured by a factory belonging to any State Government for purposes declared by Parliament by law to be incidental to the ordinary functions of that Government; or (iii) such goods are products of a village industry and the Khadi and Village Industries Commission certifies that the said products are the genuine products of a village industry, specified, or deemed to be specified, in the Schedule to the Khadi and Village Industries Commission Act, 1956 (61 of 1956) and are marketed in accordance with the provisions of the said Act; or Explanation. - For the purposes of this notification, the expression 'prison' means any jail or place used permanently or temporarily under the general or special orders of a State Government for the detention of prisoners and includes- (i) any place which has been declared by the State Government by general or special order to be a subsidiary jail; and (ii) any reformatory, Borstal institution or other institution of a like nature.
2. This notification shall remain in force upto and inclusive of the 31st day of August, 1986." 6. The exemption under the said Notification is available if the (i) goods are manufactured by the factories belonging to the Central Government, and (ii) goods are intended for use by the Departments of the Central Government. It is not in dispute that the impugned goods were manufactured by the Factory belonging to the Central Government.
The exemption has been denied by the Department on the ground that the impugned product was used by M/s. RCF which was a public sector undertaking and not a department of the Central Government. We observe from the Agreement entered into between Department of Atomic Energy and M/s. Rashtriya Chemicals & Fertilisers Ltd. that in pursuance of the decision to set up a Heavy Water Plant based on Ammonia Hydrogen exchange process and the fact that M/s. RCF had commenced construction of two contiguously placed Ammonia Plants at Thai -Vaishet in Maharashtra, the DAE decided to get their Heavy Water Plant constructed, commissioned, operated and maintained by RCF on their behalf. The ld. Advocate has rightly pointed out the clause 2.1. in the Agreement which clearly provides that the Department of Atomic Energy shall be the owner of the Plant. From the various terms and conditions of the Agreement it is obvious that the Heavy Water Plant at Thai belonged to DAE and was only operated and maintained by RCF. As such it remains to be a department of Central Government. Merely because the operation and maintenance of the Plant has been entrusted to M/s. RCF its characteristics of being a department of Central Government cannot be wiped out. Accordingly the condition of the notification that the goods are intended for use by the Department of the Central Government is satisfied in the present matter and the appellants are eligible to avail the exemption from payment of duty in respect of Potassium Metal supplied to Heavy Water Plant, Thai. As far as quantity of Potassium Metal used captively is concerned, it is exempted under the Order No.616/94-CX, dated 4-7-1994 issued by the Central Government under Section 5A(2) of the Central Excise Act. In view of these facts and circumstances, the appeal is allowed.