Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Indian Oil Corporation on 5 September, 2000
Equivalent citations: 2001(73)ECC308
ORDER P.G. Chacko, Member (J)
1. The respondents are engaged in the manufacture of petroleum products falling under Chapters 27 and 29 of the Schedule to the Central Excise Tariff Act, 1985. They have their own thermal power station which run on the fuel, Reduced Crude Oil (RCO) otherwise called 'Low Sulphur Heavy Stock' (LSHS). The electricity generated from the thermal power station of the respondents by using LSHS as fuel is partly consumed for manufacture of petroleum products in their refinery and partly supplied to agencies such as Gujarat Electricity Board (GEB), Oil & Natural Gas Commission (ONGC), State Bank of India (SBI), P&T offices, Railways etc. During the period 1.8.89 to 28.2.91, the respondents produced and removed certain quantities of LSHS for consumption in their thermal power station for generation of electricity and the same was done without payment of Central Excise duty. They did likewise during the period 1.3.91 to 31.5.91. The respondents were claiming total exemption from payment of duty on LSHS under Notification No. 75/84-CE dated 1.3.84 as amended. The Department objected to this and proposed to recover duty under Rule 9(2) of the Central Excise Rules read with Section 11A of the Central Excises and Salt Act, by way of show-cause notices alleging that the condition laid down in Column No. 4 against Sl.No. 54 of the Table annexed to Notification No. 75/84-CE ibid was not fulfilled by M/s. Indian Oil Corporation inasmuch as the fuel (LSHS) was consumed for production of electrical energy which was not intended for sale but for their own consumption or for supply to their own undertakings. On account of non-fulfilment of the condition, the Corporation was not entitled to exemption under the Notification and, therefore, the fuel was chargeable to duty under Chapter Sub-Heading 2713.30 of the Central Excise Tariff. The respondents contested the Department's allegations by submitting, in their reply to the show-cause notices, that they held valid sanction from the State Government under Section 28 of the Indian Electricity Act, 1910 for the business of supplying electrical energy and that, accordingly, they supplied electricity to GEB, ONGC, SBI, P&T Offices etc. They also paid duty under the Bombay Electricity Duty Act, 1958 as applicable to Gujarat State. For the supply of electricity to the aforesaid agencies, they charged them on a no-profit-no-loss basis. They further submitted that the classification lists in respect of LSHS filed by them claiming exemption from duty under Notification No. 75/84-CE were approved by the Department from time to time for the last so many years and that, as per the approved classification lists, they were eligible for the benefit of the Notification. The respondents also relied on CBEC's clarification on an earlier Notification, No. 102/64-C.E. According to them, the conditions for claiming exemption under the two Notifications were almost the same and, therefore, the Board's clarification in favour of the assessees in relation to Notification No. 102/64-CE should be made applicable to Notification No. 75/84-CE as well.
2. In adjudication of the show-cause notices issued for the period 1.8.89 to 28.2.91, the jurisdictional Assistant Collector confirmed the entire demand of duty amounting to Rs. 3,39,43,734.12 and ordered recovery of the amount as per order dated 30.4.91. This order was set aside by the Collector (Appeals) as per order dated 14.8.91 in the appeal filed by the party against the order of adjudication. Appeal No. E/4768/91-C before the Tribunal is against this order of learned Collector (Appeals).
3. The dispute for the period 1.3.91 to 31.5.91 was also adjudicated by the Assistant Collector who confirmed the demand of duty amounting to Rs. 45,39,051.61 and ordered recovery thereof as per order dated 30.7.91. This order was passed by the adjudicating authority in the light of its earlier order dated 30.4.91 (supra). The appeal filed by the aggrieved party against the Assistant Collector's order dated 30.7.91 was also allowed by learned Collector (Appeals) as per order dated 19.9.91 which was passed in the light of the earlier order dated 14.8.91 (supra), setting aside the order of adjudication of the Assistant Collector. This order of the lower appellate authority is under challenge in Appeal No. E/6108/92-C.
4. We have carefully examined the records of the two appeals. We have also heard Senior Advocate, Shri M. Chandrasekharan for the appellant-Revenue and LOC's Fower of Attorney holder, Shri R. Venkataraman for the respondent-assessee.
5. The issue before us is whether LSHS used as a fuel by the respondents in their own thermal power station for generation of electricity intended partly for consumption in their refinery and partly for supply to GEB, ONGC, SBI, Railways and such other agencies on no-profit-no-loss basis was exempt from payment of Central Excise duty under Notification No. 75/84-CE dated 1.3.84 as amended during the periods of dispute.
6. The lower appellate authority had held that the respondents were entitled to exemption from payment of duty in respect of LSHS under the Notification in terms of both Sl.No. 34 and Sl.No. 54 in the Table annexed to the Notification. Learned Collector (Appeals) observed that M/s. IOC used LSHS as fuel in their refinery and that the purpose for which the fuel should be used was not relevant. He, therefore, held that no duty was liable to be paid by the Corporation. Thus learned Collector (Appeals) held the Corporation to be entitled to the benefit of exemption in terms of Sl.No. 34 in the Table annexed to the Notification, though he did not make mention of Sl.No.34 in the impugned order. Learned Collector (Appeals), further, found that M/s. IOC sold electrical energy to various agencies, thereby satisfying the conditions laid down in Column No. 4 against Sl.No. 54 in the Table annexed to the Notification. He, therefore, held M/s. IOC to be entitled to full exemption of LSHS from payment of duty in terms of Sl.No. 54.
7. Vis-a-vis the above decision of the lower appellate authority, we would like to examine, at the outset, the scope of the entries at Sl.Nos. 34 and 54 in the Table annexed to the Notification in relation to the respondent's fuel in question. Notification No. 75/84-CE dated 1.3.84 (as amended) with the relevant entries in the Table annexed thereto reads as follows:
Exemption/Effective rates of duty for goods falling under Chapter 27.--In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods of the description specified in column (2) of the Table hereto annexed and falling under Chapter 22 or 27 or 29 of the Schedule of the Central Excise Tariff Act, 1985 (5 of 1986), from so much of the duty of excise leviable thereon under the Central Excises and Salt Act, 1944 (1 of 1944), at the rate specified in the said Schedule, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (3) of the said Table, subject to the intended use, or the conditions, if any, laid down in the corresponding entry in column (4) thereof:
Provided that where any such exemption is subject to the intended use, the exemption in such case shall be subject to the following conditions, namely:
(i) that it is proved to the satisfaction of an Officer not below the rank of an Assistant Collector of Central Excise that such goods are cleared for the intended use specified in column (5) now column (4) of the said Table; and
(ii) where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of the Central Excise Rules, 1944, is followed.
TABLE SI. Description of goods Rate of duty Intended use/Condition No. Nil Intended for use as fuel in a
34. Low Sulphur refinery.
Heavy Stock Explanation.-- "Refinery" means a refinery wherein refining of crude petroleum or shale or blending of non-duty paid petroleum products is carried on.
54. Residues of petroleum oils or Nil Intended for use as fuel for the of obtained from bituminous generation of electrical energy by minerals, including heavy electricity undertakings owned or petroleum stock, low sulphur controlled by the Central heavy stock and other residual Government or any State fuel oils falling under heading Electricity Board or any local No. 27.13 of the said authority or a person licensed Schedule. under Part-II of the Indian Electricity Act, 1910 (9 of 1910) to supply electrical energy or a person who has obtained sanction under Section 28 of the said Electricity Act, to engage in the business of supplying electrical energy, except those who produce electrical energy not for sale but produce it for their own consumption or for supply to their own undertakings.
LSHS is admittedly an excisable product under Heading No. 27.13 of the Schedule to the Central Excise Tariff Act. The dispute is with regard to the intended use of the product. The condition for claiming nil payment of duty on LSHS in terms of Sl.No. 54 in the Table annexed to the Notification has been stated in Column No. 4 of the Table. As per the condition, LSHS should be intended for use as fuel for the generation of electrical energy by electricity undertakings owned or controlled by the Central Government or any State Government any State Electricity Board or any local authority or a person licensed under Part II of the Indian Electricity Act, 1910 to supply electrical energy or a person who has obtained sanction under Section 28 of the said Electricity Act, to engage in the business of supplying electrical energy, except those who produce electrical energy not for sale but produce it for their own consumption or for supply to their own undertakings.
8. Learned Senior Advocate referred to the sanction order obtained by IOC from the State Government under Section 28 of the Electricity Act, 1910 and submitted that the sale of electricity effected by M/s. IOC to GEB, ONGC, Railways etc. was outside the purview of the sanction order. He sought to elaborate the point by drawing out attention to Sub-section (1) of Section 28 of the Indian Electricity Act, which reads as follows:
28. Sanction required by non-licensees in certain cases--[(1)] No person, other than a licensee, shall engage in the business of supplying energy to the public except with the previous sanction of the State Government and in accordance with such conditions as the State Government may fix in this behalf, and any agreement to the contrary shall be void.
The above provision of law, argued learned Senior Advocate, empowered the State Government to grant sanction to any person to engage himself in the business of supplying energy to the public. In the instant case, according to learned Counsel, the sanction order of the State Government did not permit M/s IOC to supply electricity to the public. On the other, it was a sanction to meet the requirements of electrical energy on no-profit-no-loss basis from the Corporation's Thermal Power Station for 3 specific purposes as stated in the Sanction Notification of the State Government. The Notification reads as under:
Industries, Mines & Power Deptt.
Govt, of Gujarat, Sachivalaya, Ahmedabad Dated: 14 December, 1966 NOTIFICATION NO.CU-98/MSC-1066/4741/K:- In exercise of the Power conferred under Section 28 of the Indian Electricity Act, 1910, Govt. of Gujarat hereby accords sanction until further order to the Indian Oil Corporation Limited, Gujarat Refinery, Baroda to meet the requirements of electrical energy on no profit no loss from the Refinery Power Station for:
(i) All industrial lighting and power for the Refinery and its associated auxiliaries;
(ii) Refinery Railway siding and Marshalling yard;
(iii) Colonies for staff connected with the Refinery including shop keepers.
By order and in the name of the Governor of Gujarat Sd/-
(A.S. BUKHART) Under Secretary to the Govt. of Gujarat Industries, Mines and Power Department It was argued by learned Counsel that the above sanction order only permitted M/s. IOC to use the electrical energy generated from their Thermal Power Station for meeting the requirements (i) all industrial lighting and power for the refinery and its associated auxiliaries, (ii) refinery railway siding and marshalling yard and (iii) colonies for staff connected with the refinery including shopkeepers. Any sale of such electrical energy by the respondents to outside agencies was beyond the purview of the sanction order inasmuch as the said order did not permit any sale of electricity to outside agencies or to the public at large.
9. Referring to the condition stated in Col. 4 against Sl.No. 54 of the table to the Notification, learned senior Counsel submitted that the exemption for LSHS was available in terms of Sl.No. 54 only to a person was had obtained sanction under Section 28 of the Indian Electricity Act to engage in the business of supplying electrical energy. But the respondents never engaged themselves in the "business" of supplying electricity to anybody. In this connection; learned Counsel referred to the meaning of "business" as given in various judicial dictionaries/law lexicons and pointed out that "business was a commercial activity carried out with intent to make profit. But the respondents activity of supplying electrical energy was admittedly on no-profit-no-loss basis.
10. Learned Senior Advocate further invited our attention to the exclusionary clause contained in the aforesaid Column 4 against Sl.No. 54. According to the said clause, those who produced electrical energy not for sale but produced it for their own consumption or for supply to their own undertakings were not entitled to the exemption in terms of Sl.No. 54 ibid. In other words, only those who produced electrical energy for sale would be eligible for the exemption. The respondents did not sell the electricity generated from their thermal power station by using LSHS as fuel. A major chunk so generated was admittedly consumed in their own refinery plants for manufacture of petroleum products and the balance supplied to GEB, ONGC and other agencies on no-profit-no-loss basis. Even if it be assumed that the respondents supplied electricity to such outside agencies as a part of the "business of supplying electrical energy", the quantum so supplied to such agencies during the periods of dispute was too negligible when compared to their own consumption. In other words, electricity was generated by the respondents, by and large, for their own consumption and therefore they could hardly be considered to have engaged in the business of supplying electricity. Respondents failed to fulfil the aforesaid condition laid down in Column 4 and therefore they were not eligible for the exemption under the Notificaion in terms of Sl.No. 54 thereof.
11. Learned senior Counsel has, therefore, prayed for setting aside the orders of the Collector (Appeals).
12. Shri R. Venkataraman, arguing the respondents' case, submitted that the Company was not hit by the exclusionary clause in Column 4 ibid inasmuch as they were selling electrical energy to various agencies and were billing them, which activity, according to him, amounted to "business" and "sale". He has reiterated the oft-repeated contention of the respondents that they were holding sanction order of the Gujarat State Government under Section 28 of the Indian Electricity Act for the purpose of supply of electrical energy and that the said order enabled the company to use the electricity from their thermal power station for meeting the energy requirements of not only the refinery but also its associated auxiliaries. According to him, all those agencies such as ONGC, SBI etc. which operated in the refinery premises stood included in the expression "associated auxiliaries" and therefore the supply of electricity to such agencies did not overstep the sanction order of the State Government. He further submitted that the sanction order also specifically mentioned "railway siding and marshalling yard" and therefore the supply of electricity to the railways was also contemplated under the sanction order. The particular mention of "colonies for staff connected with the refinery including shopkeepers" in the sanction order was also referred to by the respondents' representative. He contended that the company was engaging themselves in the business of supplying electricity to the various categories of consumers in terms of the Sanction Order of the State Government and that such business, albeit on no-profit-no-loss basis, involved "sale of electrical energy" for purposes of Sl.No. 54 of the Table annexed to Notification No. 75/84-CE. He therefore urged the Bench to hold that the respondents fulfilled the condition for exemption in terms of Sl.No. 54. Shri Venkataraman also relied on the decision of a 3 Member Bench of this Tribunal in the case of Indian Oil Corporation, Barauni v. CCE, Rima .
13. Ld. representative of the respondents also joined issue with the appellants' counsel on whether the respondents were authorised under the Sanction Order to sell electricity to the public or not. He referred to Sub-section (2) of Section 28 of the Indian Electricity Act, 1910 and submitted that the appellants could not raise such a question at this stage inasmuch as they had chosen not to raise the dispute before State Government under the said sub-section.
14. In the last leg of his arguments, Shri Venkataraman pleaded that, in the event of any exemption not being held to be available to the company in terms of Sl.No. 54, the respondents were definitely entitled to exemption for LSHS in terms of Sl.No. 34 in the Table annexed to the Notification. Learned Senior Counsel, in his rejoinder, objected to the alternative plea of the respondents and pointed out that such plea was not taken at any time before. Learned Counsel also pointed out that no cross-objections were filed in the present appeals.
15. We have carefully considered the rival submissions. It is an admitted fact that the respondents produced LSHS during the course of refining of petroleum and removed the said product for consumption as fuel in their thermal power station for generation of electricity. It is also not in dispute that a major quantity of electricity so generated was consumed by the respondents in their refinery plants and the remaining quantity was supplied to various agencies viz. GEB, ONGC, SBI, P&T, Railways etc. who were operating within the refinery township. It is the respondents' case that the supply of electricity to these agencies, which they claimed to have effected on a no-profit-no-loss basis, amounted to "sale" of, or engaging in the "business" of supplying, electricity and that such sale/ business ipso facto qualified them for the benefit of exemption under Notification No. 75/84-CE in terms of Sl.No. 54 in the Table annexed thereto. According to them, the fact that a part of the electricity generated in their thermal power station was consumed in the refinery itself was immaterial for purposes of fulfilling the condition of Sl.No. 54 ibid and even the sale of a part of the electricity so generated was sufficient fulfilment of such condition. In other words, they were not hit by the exclusionary clause in Col. No. 4 against Sl.No. 54 ibid. On a careful examination of the Notification, we are unable to accept this plea of the respondents.
16. Admittedly, the respondents engaged themselves in the supply of electrical energy to the aforementioned agencies under an order of sanction from the State Government under Section 28 of the Indian Electricity Act. A sanction order under Section 28 must enable the beneficiary to supply electrical energy to the public. In the instant case, the respondents did not supply electrical energy to the public. What they actually did was to supply electrical energy to agencies viz. GEB, ONGC etc. which operated within the refinery premises, for purposes incidental or ancillary to the effective functioning of the refinery. This was apparently the very purport of the Notification dated 14.12.1966 issued by the Gujarat State Government to the respondents under Section 28 of the Indian Electricity Act. The sanction Notification did not contemplate sale of electricity to the public on agencies operating outside the refinery township. The purposes mentioned in Clauses (i), (ii) and (iii) in the said Notification were all domestic purposes of the respondent company. For this reason only, it appears to us, the respondents themselves referred to GEB, ONGC and other agencies (operating in their own township) as their 'auxiliaries' and 'associates' and the supply to such agencies was admitted to have been made on no-profit-no-loss basis. Therefore, it is hardly possible to accept the respondents' contention that the State Government's sanction order issued under Section 28 authorised them to "sell" electrical energy to any outside agency, let alone to the public.
17. The respondents' case is, in our view, certainly hit by the exclusionary clause contained in Col. No. 4 against Sl.No. 54 of the Table annexed to the Notification. This clause clearly lays down that only those who produce electrical energy for sale and do not produce it for their own consumption or for supply to their own undertakings would be eligible for the exemption under the Notification. Since the respondents generated electricity in their thermal power station and consumed it for their own domestic purposes including operation of refinery plants and associate auxiliary purposes in their township and did not conduct any sale of electricity, they stood covered by the exclusionary clause in Col. No.4 against the Sl.No. 54 and were therefore not eligible for the exemption under Sl.No. 54.
18. We shall now address the more fundamental question viz. the question whether the respondents had obtained sanction under Section 28 of the Indian Electricity Act, 1910 to engage in the business of supplying electrical energy in terms of the said Section for the periods of dispute. We think, we need not, for this purposes, examine the meaning of "business". What Section 28(1) of the Act, contemplates is a sanction for engaging in the business of supplying energy to the public. The Sanction Notification dated 14.12.1966 of the State Government did not authorise the respondents to engage in the business of supplying energy to the public, the respondents could use the sanction only to meet the energy requirements of themselves and their associated auxiliaries. The expression "sanction under Section 28 of the Electricity Act to engage in the business of supplying electrical energy "occurring in Column 4 against Sl.No. 54 of the Central Excise Notification can only be read and understood as a sanction to engage in the business of supplying electricity to the public. To treat it as a sanction for meeting the domestic energy requirements of oneself and one's associated auxiliaries would be repugnant to the provisions of Section 28(1) ibid. A condition laid down for availment of duty exemption under a Central Excise Notification, where such condition has an operational relation to certain provision of another statute, should be interpreted only in a manner harmonious to such statutory provision and not in any manner repugnant to, or inconsistent with, the provision. The respondents have not been able to show that they were holding the State Government's sanction for engaging in the business of supplying electricity to the public in terms of Section 28(1) of the Indian Electricity Act for the periods of dispute and were actually supplying electricity by way of sale or other commercial activity to the public during such periods. The respondents therefore did not qualify for the exemption under Sl.No. 54 of Notification No. 75/84-CE (as amended) for want of sanction from the State Government in terms of Section 28(1) of the Indian Electricity Act, 1910.
19. As regards the alternative plea raised by Shri Venkataraman, we not that LSHS mentioned at Sl.No. 34 of the Table annexed to the Notification attracts nil' rate of duty subject to the condition that the product should be intended for use as fuel in a refinery. We also note that the word "refinery" has been explained in Col. No. 4 against Sl.No. 34. Accordingly, "refinery" means a refinery wherein refining of crude petroleum of shale or blending of non-duty paid petroleum products is carried on. Obviously, the thermal power station of the respondents, wherein LSHS was consumed for generation of electricity is not covered by the meaning of the word "refinery" as per the explanation. Therefore, Sl.No. 34 is not attracted by the respondent's case and consequently they are not entitled to any exemption in terms of Sl.No. 34. The decision to the contrary as contained in the orders of the Collector (Appeals) is not sustainable. Moreover, as rightly pointed out by learned Senior Advocate, the respondents never raised the plea of entitlement to exemption under the Notification in terms of Sl.No. 34 thereof before the lower authorities.
20. The reliance placed by learned Representative of the respondents on the decision of the Tribunal also does not appear to be of any assistance to the respondents. In that case, the dispute was about the use of residual fuel oil in the IOC's refinery at Barauni. The residual fuel oil was used, first, in the production of steam and electricity. The steam and electricity so produced were then used in the manufacture of petroleum products. IOC claimed exemption under Notification Nos. 74/73 and 352/77. Department objected. Under Notification No. 74/73, intermediate petroleum products produced in the refinery, falling under Item No. 11A of the Old Central Excise Tariff, if used as fuel within the refinery for the production or manufacture of other finished petroleum products, were exempt from the whole of the duty of excise leviable thereon. Under Notification No. 352/77, petroleum products falling under Item Nos. 6 to 11A produced in the refinery and utilised as fuel within the same premises for the production or manufacture of finished petroleum products were exempted from the whole of the duty of excise leviable thereon. The dispute was whether the party was entitled to the benefit of the Notifications. Department wanted to deny the exemption on the ground that steam and electricity were themselves liable to excise duty and could not be said to be products of petroleum refinery. The Tribunal held that, since the Notification did not specify as to how a petroleum product was to be utilised for the purpose except as a fuel, giving exemption to these goods did not do violence to the law but would be well within the scope and compass of the aforesaid Notifications. The case at hand is clearly distinguishable on facts from the case cited. In the cited case, it was not specified as to how residual fuel oil was to be utilised, whereas, in the instant case, the use of LSHS was clearly specified under Notification No. 75/84-CE. LSHS should have been used as fuel for generation of electricity and such electricity should have been sold to the public. It was further specified that those who produced electricity not for sale but produced it for their own consumption or for supply to their own undertakings were not eligible for the exemption in terms of SI.No. 54 under the Notification. Therefore, we are not able to accept the decision cited on behalf of the respondents as supportive of their case.
21. It was submitted on behalf of the respondents before us that the Department had not raised any dispute as to whether the respondents were, or were not, engaging in the business of supplying energy to the public within the meaning of Sub-section (1) of Section 28 of the Indian Electricity Act. Our attention was drawn to Sub-section (2) of Section 28 of the Indian Electricity Act, which reads as follows:
(2) Where any difference or dispute arises as to whether any person is or is not engaging or about to engage, in the business of supplying energy [to the public] within the meaning of Sub-section (1), the matter shall be referred to the State Government, and the decision of the State Government thereon shall be final.
We have considered this plea also carefully. Sub-section (2) refers to a dispute arising during the course of proceedings before the State Government on an application for sanction under Sub-section (1) of Section 28 of the Act. It has not application to any proceedings under the Central Excise Act, nor is the Department a party to the proceedings under Section 28(1) of the Act. The plea raised against the Revenue on behalf of the respondents only requires to be rejected outright.
22. In view of our findings already recorded, the impugned orders of the lower appellate authority have to be set aside and we do accordingly. The Revenue's appeals are allowed.
23. We shall, however, make it clear that this order is not to be taken as an affirmation of the finding recorded by the adjudicating authority to the effect that M/s. Indian Oil Corporation had to use electricity generated by making use of LSHS as fuel in their thermal power station, for their own consumption or for supply to their own undertakings so as to be eligible for the exemption under the Notification. This finding of the Assistant Collector was totally misconceived, as rightly observed by the lower appellate authority. The Assistant Collector ought to have correctly understood the condition laid down in Column 4 against Sl.No. 54 of Notification No. 75/84-CE and to have recorded a finding to the effect that the assessees had to use the electricity not for their own consumption or for supply to their own undertakings but for sale, so as to be eligible for the exemption in terms of Sl.No. 54 under the Notification. Subject to this modification the orders of the Assistant Collector confirming the demands of duty are upheld.