In Brief
M/s Rashtriya Chemicals and Fertilizers Ltd., a public fertilizer manufacturer, procured Naphtha at nil excise duty for use in making fertilizer and ammonia, complying with required CT-2 certificates. Revenue authorities alleged the Naphtha was diverted to non-fertilizer uses (chemicals, power generation) and demanded duty of ₹28+ crores plus penalties, invoking extended limitation periods. The Supreme Court held that because "intended use" in exemption notifications means procurement intent, not actual final destination, the appellant qualified for exemption. Using Naphtha as fuel in a common steam-generation plant with natural gas, where precise allocation to individual end-uses was impossible, did not negate exemption entitlement when compliance with procedures was established. The Court rejected the revenue's speculative allocation of fuel usage and found no deliberate suppression justifying extended limitation or penalties. The Court allowed the appeal and set aside all duty and penalty demands.
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