Custom, Excise & Service Tax Tribunal
Ms Indian Oil Corporation Ltd vs Sonepat(Delhi-Iii) on 6 March, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHANDIGARH
REGIONAL BENCH - COURT NO. I
Excise Appeal No. 60455 of 2017
[Arising out of Order-in-Appeal/Original No. DLI-EXCUS-SNP-COM-034-2016-2017
dated - passed by the Commissioner of Central Excise, Sonepat, Haryana]
M/s Indian Oil Corporation Ltd. ......Appellant
Village Baholi, Panipat Refinery, Panipat,
Haryana-132140
VERSUS
Commissioner of Central Excise, ......Respondent
Sonepat (Delhi-III)
1st & 2nd Floor, 51 Milestone Building,
NH-1, Murthal Sonepat,
Haryana-131001
WITH
2. Excise Appeal No. 60148 of 2018
[Arising out of Order-in-Original No.07/CE/Commr./PKL/2017-18 dated
27.10.2017 passed by the Commissioner of CGST, Panchkula]
3. Excise Appeal No. 60116 of 2019
[Arising out of Order-in-Original No.03/CE/Commr/PKL/R.S./2018-19 dated
24.10.2018 passed by the Commissioner of CGST, Panchkula]
4. Excise Appeal No. 60120 of 2021
[Arising out of Order-in-Appeal No.APPL/PKL/COMMR/53/2020-21 dated
12.11.2020 passed by the Commissioner of CGST, Panchkula, Haryana]
APPEARANCE:
Shri B.L. Narasimhan and Ms. Krati Singh, Advocates for the Appellant
Shri Siddharth Jaiswal and Shri Aneesh Dewan, Authorized
Representatives for the Respondent
CORAM: HON'BLE MR. S. S. GARG, MEMBER (JUDICIAL)
HON'BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL)
FINAL ORDER NO. 60368-60371/2025
DATE OF HEARING: 24.02.2025
DATE OF DECISION: 06.03.2025
2 E/60455/2017 & 03 others
PER: P. ANJANI KUMAR
M/s Indian Oil Corporation Ltd. (IOCL), the appellants,
are engaged in the manufacture of petroleum products such as
Motor Spirit (MS), High Speed Diesel Oil (HSD), Superior Kerosene
Oil (SKO), Naphta, Furnace Oil, LPG, Aviation Turbine Fuel (ATF),
Propylene; the appellants avail CENVAT credit on various items; the
appellants reversed proportionate credit availed on common inputs
under Rule 6(3A) of CENVAT Credit Rules, 2004. In the process of
pumping of petroleum products through pipeline from Gujarat to
Sanganer, the appellants use SKO, MS, HSD in a sequence to clean
the pipes before another product is pumped; the mixture is known
as Interface; the Interface received at Sanganer is pumped to
refinery at Panipat to be refined along with the crude; the appellants
avail CENVAT credit on this interface; by a Trade Notice No. 2-
CE/2008 dated 12.08.2008, Commissioner of Central Excise clarified
that the Interface is to be treated as input under Rule 16 of the
Central Excise Rules and that the lowest duty of the contents of the
Interface will be accepted as credit subject to maintenance of
records and certification. During the conduct of audit of the
appellants, Revenue was of the view that the CENVAT credit availed
on Interface should also be included while calculating the
proportionate credit to be reversed as per Rule 6(3A) of CENVAT
Credit Rules, 2004. Accordingly, show cause notices dated
30.05.2016, 26.04.2017, 26.04.2018 & 23.04.2019 were issued to
the appellants, covering the period April 2012 to June 2017,
demanding amount of Rs.6,45,94,620/-; Rs.3,65,40,409/-;
3 E/60455/2017 & 03 others
Rs.2,60,98,650/- & Rs. 58,71,773/- respectively. The show cause
notices were confirmed along with interest and equal penalty vide
Orders-in-Original dated 28.02.2017, 27.10.2017, 24.10.2018 and
12.11.2020. Hence, these appeals E/60455/2017, E/60148/2018,
E/60116/2019 & E/60120/2021.
2. Shri B. L. Narsimhan, learned Counsel for the appellants,
submits that credit on Interface is availed in terms of Rule 16 of the
Central Excise Rules and thus, Rule 6 of CENVAT Credit Rules is not
applicable; Rule 16 is a special Rule which caters to a particular
contingency by a deeming fiction; the applicability of Rule 16 is only
to the extent of permitting availment of goods brought to the factory
for re-conditioning, refining etc; the deeming fiction does not extend
to other CENVAT Credit Rules; the Rule cannot be extended beyond
the purposes for which the deeming fiction has been created. He
submits that it is a settled law that a deeming fiction should be
interpreted to the extent of its logical conclusion as held by Hon'ble
Supreme Court in the case of Mancheri Puthusseri Ahmed Vs
Kuthirivattam Estate Receiver - (1996) 6 SCC 185. He also relies on
the following cases:
M/s. Sports & Leisure Apparel Ltd. Versus
Commissioner of Central Excise, Noida 2016
(338) E.L.T. 3 (SC)
Harish Tandon v Addl District Magistrate,
Allahabad (1995) 1 SCC 537
Imagic Creative Pvt. Ltd. Versus Commissioner of
Commercial Taxes 2008 (9) S.T.R. 337 (S.C.)
Sant Lal Gupta Versus Modern Co-Operative
Group Housing Society Ltd.-2010 (262) E.L.Τ. 6
(S.C.)
M/S Sonia Textiles Ltd. Versus C.C.E., Delhi-IV
2016 SCC Online CESTAT 8996
4 E/60455/2017 & 03 others
M/s Sai Wardha Power Ltd. Versus Commissioner
of Central Excise, Nagpur 2016 (332) E.L.T. 529
(Tri. - LB)
M/s Finlay Mills Versus Commissioner of Excise
Mumbai-l Excise Appeal No. 1588 of 2006 in
order dated 07.11.2019
M/s Cades Digitech Pvt Ltd Versus Commissioner
of Central Tax, Bangalore North 2022 (63) G. S.
T. L. 232 (Tri. Bang.)
M/s Maruti Udyog Ltd. Versus Commissioner of
Central Excise, Delhi-lll, Gurgaon 2016 (332)
E.L.T. 879 (Tri. - Del.)
3. Learned Counsel for the appellants submits that the appellant
is not liable to reverse CENVAT credit availed on "Interface" as the
same does not qualify to be an input as per Rule 2(k) of CENVAT
Credit Rules; Rule 3 of CENVAT Credit Rules allows an assessee to
avail credit of the duties specified under sub-Rule 1 paid on the
inputs received in the factory; further, Rule 6 of the CENVAT Credit
Rules states that CENVAT credit shall not be allowed on such
quantity of input; as "Interface" does not qualify to be an input, Rule
6 is also not invited. Learned Counsel submits that as per the Trade
Notice, the appellant has availed CENVAT credit of the lowest of the
duty on the contents of the Interface which amounts to 19.15%;
Revenue requires that the appellant reversed 10.15% under Rule
6(3) which is less than the reversal made by the appellant; the
appellant has taken less credit than it is required to reverse and
hence, there is no revenue loss. Learned Counsel further submits
that Commissioner issued the Trade Notice after personally visiting
Sanganer and on examining the records and test reports maintained
by the appellants; Department failed to adduce evidence of any
5 E/60455/2017 & 03 others
positive act of the appellant with intent to evade tax; therefore, the
extended period cannot be invoked; Revenue was aware of the
activities of the appellants and the show cause notice for the period
2012-15 was issued invoking extended period. Extended period was
also invoked in the subsequent show cause notices which are not
permissible; moreover, the appellant is a Public Sector Undertaking
and as held in their own case, extended period cannot be invoked.
He relies on the following cases:
International Merchandising Company, LIC Vs.
Commissioner of Service Tax, New Delhi 2022
(67) G.S.T.L. 129 (S.C.)
Delhi Airport Metro Express Pvt. Ltd. versus
Commissioner of Central Excise & Customs Final
Order No. 50031/2024 dated 11.01.2024
Maruti Suzuki India Ltd. Versus Commissioner Of
Central Goods & Service Tax, Gurugram in Final
Order No. 60414-60415/2024 dated 01.04.2024
The Commissioner, Central Excise and Customs
and Another vs. M/S Reliance Industries Ltd. And
Commissioner of Central Excise and Service Tax
Vs. M/S Reliance Industries Ltd. [2023-TIOL-94-
SC-CX]
Principal Commissioner Of CGST, Delhi North Vs.
M/S Oriental Insurance Company Ltd Final Order
Nos. 55567-55568/2024 in ST 50020 of 2018
dated 18.04.2024
Nizam Sugar Factory Versus Collector Of Central
Excise, AP 2006 (197) E.L.T. 465 (S.C.)
Indian Oil Corporation Ltd. Versus Commissioner
Of C. Ex., Delhi-ll 2017 (4) G.S.T.L. 190 (Tri. -
Del.)
Indian Oil Corporation Ltd. Versus Commissioner
Of C. Ex., Ahmedabad 2013 (291) E.L.T. 449 (Tri.
- Ahmd.)
4. Shri Siddharth Jaiswal, learned Authorized Representative for
the Revenue reiterates the findings of the impugned order.
6 E/60455/2017 & 03 others
5. Heard both sides and perused the records of the case. The
appellants have availed credit of "Interface" in terms of the Rule 16
of CENVAT Credit Rules and the Trade Notice issued by the
Commissionerate. Rule 16 of the CENVAT Credit Rules reads as
follows:
RULE 16. Credit of duty on goods brought to
the factory. - (1) Where any goods on which
duty has been paid at the time of removal
thereof are brought to any factory for being
re-made, refined, re-conditioned for any
other reason, the assessee shall state the
particulars of such receipt in his records and
shall be entitled take CENVAT credit of the
duty paid as if such goods are received as
inputs under the CENVAT Credit Rules, 2002
and utilise this credit according to the said
rules.
6. Learned Counsel for the appellants submits that a special
provision has been made under Rule 16 to enable the assessees to
avail CENVAT credit of goods which are received in the factory and
which are not essentially inputs. He submits that these goods should
not be equated with inputs as defined under Rule 3 of the CENVAT
Credit Rules and the rigors of Rule 6 should not be made applicable
to the same. He submits that Rule 16 has been specially made for
utilization of credit on goods which are brought in to the factory for
whatever reason; a deeming fiction has been created to treat these
goods as inputs to the extent of enabling the availment of CENVAT
credit; a deeming fiction created for a specific purpose should be
strictly constructed and cannot be extended to encompass
everything in the Rules. We find force in the argument of the
7 E/60455/2017 & 03 others
learned Counsel. We find that Hon'ble Supreme Court held in the
case of Mancheri Puthusseri Ahmed & Others (supra) that:
7. ------
In interpreting a provision creating a legal
fiction the court is to ascertain for what
purpose the fiction is created, and after
ascertaining this, the court is to assume all
those facts and consequences which are
incidental or inevitable corollaries to the
giving effect to the fiction. But in so
construing the fiction it is not to be extended
beyond the purpose for which it is created, or
beyond the language of the section by which
it is created. It cannot also be extended by
importing another fiction.
----
The question here is one of interpretation only and that interpretation must be based on the terms of the section. The fiction enacted by the legislature must be restricted by the plain terms of the statute. "
---
"The fiction is an indivisible one. It cannot be enlarged by importing another fiction..."
7. We also find that Hon'ble Supreme Court has held in the case of Imagic Creative Pvt. Ltd. (supra) that:
26. We have noticed hereinbefore that a legal fiction is created by reason of the said provision. Such a legal fiction, as is well known, should be applied only to the extent for which it was enacted. It, although must be given its full effect but the same would not mean that it should be applied beyond a point which was not contemplated by the legislature or which would lead to an anomaly or absurdity.
8. We further find that Hon'ble Apex Court in the case of Sant Lal Gupta (supra) held that:
8 E/60455/2017 & 03 others
14. The Legislature in its wisdom has not enacted any deeming provision providing that in case the resolution is not considered and finally decided by the Registrar within a period of six months, the resolution shall become effective and operative. It is the exclusive prerogative of the Legislature to create a legal fiction meaning thereby to enact a deeming provision for the purpose of assuming the existence of a fact which does not really exist. Even if a legal fiction is created by the Legislature, the court has to ascertain for what purpose the fiction is created, and it must be limited to the purpose indicated by the context and cannot be given a larger effect. More so, what can be deemed to exist under a legal fiction are merely facts and no legal consequences which do not flow from the law as it stands.
It is a settled legal proposition that in absence of any statutory provision, the provision cannot be construed as to provide for a fiction in such an eventuality. More so, creating a fiction by judicial interpretation may amount to legislation, a field exclusively within the domain of the legislature. (Vide; Ajaib Singh v. Sirhind Coop. Marketing-cum- processing Service Society Ltd. & Ors., (1999) 6 SCC 82).
9. Tribunal in the case of Cades Digitech Pvt. Ltd. (supra) held that:
6. Having gone through the rival contentions, we find that the issue is no longer res integra going by the judgments cited by the Learned Counsel and the ratio thereof, we find that the amounts incurred by the head office towards the salaries etc. of the employees working in their branches can by no stretch of imagination be equated to any service rendered to them by the respective branches. We find that in the case of Kusum Healthcare Pvt. Ltd. (supra), it was 9 E/60455/2017 & 03 others held that the legal fiction created in proviso to Section 66A for consideration of branch as a separate establishment is certainly not for the purposes of demanding service tax on the services alleged to have been rendered by the branch to the head office. In fact, going through the records of the case, we find that the payments made by the appellants are none other than the recurring expenses like salary, travelling allowance, rent, telephone charge etc. It has not been brought on record if any other payments for any other service alleged to have been rendered were made----
-
10. The unmissable proposition of the above cases cited is that a deeming fiction should be understood and constructed for the purposes it is intended. We find that if Rule 16 of the CENVAT Credit Rules 2004 provides for availing credit on goods brought into the factory for whatever purpose, it should be interpreted in a constricting manner without expanding the purposes for which a deeming fiction has been brought in. We find that wherever legislature intended to make the deeming fiction applicable to the entirety of Rules, the same is provided by the Rule itself. We are in agreement with the submissions of the learned Counsel for the appellants that such an inclusive deeming fiction has been incorporated under Section 66A of the Finance Act, 1994. We find that Rule 66A (1) provides for deeming provisions separately which are applicable for the purposes of the Section therein and which are not applicable for the purpose of that Section as can be seen below:
66A. (1) Where any service specified in clause (105) of section 65 is-
10 E/60455/2017 & 03 others
(a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and
(b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be the taxable service, and such tax-
able service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply:
Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply:
Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided.
(2) Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section.
11. We find that in the impugned case, Rule 16 does not provide such applicability to the other Rules of CENVAT Credit Rules. It can be seen that Rule 16 brings in one such deeming fiction to cater the exigencies of the manufacturers who are likely to receive back final 11 E/60455/2017 & 03 others products for repair, re-conditioning etc. As the duty on the same has been discharged, legislature in their wisdom has permitted availment of CENVAT credit on the same. For this reason, the goods cannot be equated to be inputs for the purpose of Rule 3 of CENVAT Credit Rules as they were never been inputs. We also find that Rule 6 (3A) speaks of payment of the amount of CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, either proportionately or as per a formula. As Rule 16 does not deem the impugned goods "Interface" as inputs for the purpose of Rule 3 of CENVAT Credit Rules, the value of the same need not be considered for the purpose of calculation of the amount envisaged under Rule 6(3A). Therefore, we find that the findings of the impugned order are not sustainable on this count. We find that the appellant has correctly not included the amount of CENVAT credit in the value of inputs for the purpose of reversal of CENVAT credit in terms of Rule 6(3A) in respect of exempted and dutiable goods manufactured by them.
12. We also find that series of show cause notices have been issued invoking extended period and proposing to levy equal penalty. Looking into the facts of the case wherein no evidence, whatsoever, has been brought forth by the Revenue to allege suppression of facts etc. with intent to evade payment of duty on the part of the appellant, we are of the considered opinion that Department has not made out any case for invocation of extended period. Moreover, it is seen that extended period have been invoked in the subsequent show cause notices also in contravention of the 12 E/60455/2017 & 03 others Hon'ble Supreme Court's decision in the case of Nizam Sugar Factory Ltd. (supra), we find that extended period cannot be invoked in the subsequent show cause notices. Further, as the appellants being subjected to audits from time to time and keeping in view that the appellants are a Public Sector Undertaking, we find that invocation of extended period is neither warranted not substantiated. In the result, we find that the impugned orders cannot be sustained both on merits and limitation. Therefore, they are liable to be set aside.
13. In view of the above, all the appeals are allowed.
(Order pronounced in the open court on 06/03/2025) (S. S. GARG) MEMBER (JUDICIAL) (P. ANJANI KUMAR) MEMBER (TECHNICAL) PK