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Informist, Tuesday, Mar. 24, 2026

 

NEW DELHI – The Supreme Court Tuesday quashed a bunch of excise duty demands against Rashtriya Chemicals and Fertilizers Ltd. on procurement of naphtha from 1996 to 2005. Allowing excise duty exemption to Rashtriya Chemicals, the top court said that the company had procured naphtha from Hindustan Petroleum Corp. Ltd. for "intended use" only in the manufacture of fertiliser.

 

It is immaterial that a fraction of such procured naphtha had to be used by Rashtriya Chemicals for generation of electricity which was also mostly used in the manufacture of fertiliser and ammonia, said the court. "If that be the position, appellant would be entitled to avail the benefit of concessional rate of duty in terms of the exemption notifications..." said the court.

 

The top court rejected the excise department's move to invoke extended period of limitation for demanding excise duty from Rashtriya Chemicals. The department had invoked extended period of limitation of five years alleging fraud, collusion, wilful misstatement and suppression of facts against Rashtriya Chemicals in the excise demand. When the availing of exemption is dependent on interpretation of a statutory notification, it cannot be said that Rashtriya Chemicals had any intention to evade payment of excise duty, the court said, rejecting the excise department's argument on extended period of limitation. 

 

The case has its genesis from Rashtriya Chemicals procuring naphtha at nil rate of excise duty from HPCL by claiming benefit of a government exemption. If the procurement of naphtha was for "intended use" in the manufacture of fertiliser, then the same was exempted from excise duty. However, the excise department alleged that naphtha procured by Rashtriya Chemical was used not only in the manufacture of fertiliser but also in the manufacture of other chemicals; thus rendering the company ineligible for nil rate of duty.

 

Rashtriya Chemicals said that naphtha was used along with natural gas as fuel to generate steam, which, in turn, is used in the manufacture of ammonia and fertiliser. Naphtha and natural gas were primarily used for the manufacture of fertiliser and for production of electricity which, in turn, was used in the fertiliser plant, said the company.

 

The excise department said that Rashtriya Chemicals was burning naphtha in the steam generation plant to generate steam which, in turn, was consumed by various plants such as urea plant, ammonia plant, turbo generators, chemical group plant and heavy water plant. Rashtriya Chemicals had claimed exemption incorrectly to the extent of steam generated by burning naphtha and consumed in turbo generators for generating electricity consumed in the chemical group plant for manufacturing organic chemicals and also for use in the heavy water plant, said the department.

 

Tuesday, the shares of Rashtriya Chemicals and Fertilizers closed 3.6% higher at INR 113.98 on the National Stock Exchange.  End

 

Reported by Surya Tripathi

Edited by Deepshikha Bhardwaj

 

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