Customs, Excise and Gold Tribunal - Tamil Nadu
Madras Refineries Ltd., Chennai ... vs Commissioner Of Central Excise on 7 January, 2005
Equivalent citations: 2005(100)ECC317, 2005(187)ELT34(TRI-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. M/s Chennai Petroleum Corporation Ltd. (formerly known as Madras Refineries Ltd.), the appellants in these appeals, are engaged in the manufacture of various petroleum products by refining of crude petroleum (crude oil).
2. The appellants use what they call "Refinery Fuel Oil" (RFO, for short) --the bottom residue (vacuum residue) left after distillation of Bombay High Crude oil -- as fuel for generation of high pressure steam, which is used for generation of electricity in their co-generation plant, wherein the high pressure steam turns a turbine which generates electricity. In this mechanism, the pressure of steam gets reduced and the resulting low pressure steam is used for distillation of crude oil which yields various petroleum products viz. Motor Spirit, Kerosene, Diesel Oils, Furnace Oil and so on. A part of the electricity so generated is supplied to Tamil Nadu Electricity Board (TNEB, for short) and the remainder capatively consumed. According to MRL, 0.28 MT of RFO was used for generating one mega watt of electricity during the period 12/1993 to 7/98. On this basis the Department estimated the quantity of RFO [LSHS -- LOW SULPHUR HEAVY STOCK -- in Department's parlance] which must have been used, during the said period, for generating the known quantity of electricity supplied to TNEB, and raised demand of duty on MRL on this quantity of RFO/LSHS, invoking the extended period of limitation under the proviso to Section 11A (1) of the Central Excise Act, 1944 on the ground of suppression of facts. This demand was confirmed by the Commissioner of Central Excise, who also imposed a penalty on MRL under Section 11AC of the Central Excise Act for the period 28.9.1996 to 31.7.1998. Hence, MRL's Appeal No. E/364/2000. A similar demand was confirmed against MRL for the period February to December, 1999 by the Asst. Commissioner and sustained by the Commissioner (Appeals). Hence, the Appeal E/787/2001.
3. The order impugned in Appeal No. E/786/2001 sustained a demand of duty on Fuel Oil held to have been used for the manufacture of raw naphtha which was cleared without payment of duty by CPCL during 1/1998-7/99 in terms of Notification No. 67/95-CE dated 16.3.1995 (as amended). The order impugned in Appeal No. E/1234/2001 sustained a demand of duty on Fuel Oil held to have been used for the manufacture of Sulphur (a by-product chargeable to 'nil' rate of duty) cleared during the same period without payment of duty in terms of the same Notification. The order challenged to in Appeal No. E/1235/2001 sustained demand of duty on Fuel Oil held to have been used for the manufacture of both raw naphtha and sulphur cleared likewise during 8/1999-3/2000.
4. We have examined the records and heard both sides. Shri V. Sridharan, Ld. Counsel for the appellants argued that the vacuum residvie left after refining of crude petroleum, which was used under the name RFO for generating steam which was, in turn, used for refining of crude petroleum was to be treated as an intermediary product emerging in the course of continuous process of refining of crude petroleum in the refinery and that no duty of excise was leviable on such intermediary product was the refinery had been declared by the Central Government to be a warehouse for the purposes of Rule 140 (1) of the Central Excise Rule, 1944. Once the refinery was so declared, it was a "deemed warehouse" and the warehousing provisions contained in Chapter VII of the Central Excise Rules, 1944 were applicable to it. Ld. Counsel proceeded to argue that, on account of applicability of Chapter VII provisions to the goods processed or manufactured in the refinery, duty was liable to be paid only on those petroleum products which were cleared out of the refinery for home consumption in terms of Rule 157. Within the self-contained scheme of Chapter VII, there was no duty liability in respect of any intermediary product emerging during the course of refining of crude petroleum and consumed captively for the manufacture of such petroleum products. Ld. Counsel sought to draw support to this argument from Circular No. 18/19/66-CX. III. dated 27.4.1967 and Circular No. 8/27/66-CX.III dated 1.9.1967 of Ministry of Finance (DR&I) as also from departmental instructions on "liability to duty on intermediate petroleum products" (para 91 of "Supplement to the Manual of Departmental Instructions on Excisable Manufactured Products" corrected upto 31.1.1985). Relying on these circulars and instructions, Ld. Counsel argued that the legislative intent underlying Rule 140(2) and Rule 143A of the Central Excise Rules, 1944 was to exempt from payment of duty all intermediaries, even though marketable, emerging in the process of manufacture of petroleum products from crude petroleum, where such intermediaries were captively consumed for the manufacture of such petroleum products. Ld. Counsel pointed out that this legal position was recognized by this Tribunal in the case of IOC Ltd. v. CCE, Calcutta II, 2002 (144) ELT 209 (Tri.-Kolkata). Counsel profusely read out from the Tribunal's order in the cited case, in his endeavour to establish that no duty was payable on vacuum residue/RFO/LSHS, which, according to him, were intermediate products captively used for manufacturing the finished petroleum products. It was contended that the subject goods viz. vacuum residue/RFO/LSHS, which was used for generating steam required for the refining of crude petroleum should be considered as having been used for "conducting such further manufacturing processes" referred to under Rule 143A. Contextually, Ld. Counsel referred to para 15 of the Tribunal's order in Hindustan Petroleum Corporation Ltd, v. CCE, Bombay, 1985 (21) ELT 490, wherein the term "further manufacturing processes" was held to have a wider meaning and it was held to the effect that the entire process carried out by the assessee in converting the raw material to a finished product would fall within the scope of the said expression. It was held, in that case, that the washing of filters in the dewaxing unit was an integral part of the process of manufacture of the final products. Again, with reference to Rule 140(2), Ld. Counsel pointed out that fuel oil was one of the items specified in the Central Government's declaration under the said provision and, therefore, exemption from payment of duty was available to it.
5. Ld. Senior Advocate Shri M. Chandrasekharan representing the Revenue pointed out that the above contentions had not been raised before the lower authorities. He argued that the assessee was not entitled to claim exemption from payment of duty on any cap tively consumed intermediary, on the strength of Rule 157 inasmuch as the expression "clearance for home consumption" used in Rule 157 included clearances for captive consumption also as held by the Tribunal in the case of Rainbow Industries Pvt. Ltd. v. CCE, Baroda, 1984 (16) ELT 458. It was also pointed out that this legal position was recognized by the Supreme Court in the case of J.K. Spinning and Weaving Mills Ltd. and Anr. v. UOI and Ors., 1987 (14) ECC 239 (SC) : 1987 (32) ELT 234 (SC). Ld. Senior Counsel further submitted that it was not correct to exclude the applicability of Rules 9 and 49 of the Central Excise Rules, 1944 in respect of goods manufactured in declared refineries. According to these Rules, as amended by Notification No. 20/82-CE dated 20.2.1982 (to which retrospective effect was given by Section 51 of the Finance Act of 1982), duty of excise was leviable on goods manufactured and captively consumed. These provisions were applicable to intermediaries captively used in the refineries of MRL, whether or not declared under Rule 140 (2) to be deemed warehouses, as nothing contained in Chapter VII of the Central Excise Rules expressly excluded such applicability. Thus, Ld. Senior Advocate challenged Shri Sridharan's argument that Chapter VII was a self-contained code for all goods including intermediaries manufactured in declared refineries and the same overrided the general provisions including Rules 9 and 49. It was also submitted that the circulars and instruction relied on by the appellants' Counsel had been issued long before Rules 9 and 49 were amended to provide for levy of duty of excise on intermediate products cleared for captive consumption. According to Ld. Senior Advocate, those circulars and instructions were redundant after the amendments to Rules 9 and 49 and the applicability of Rule 157 in Chapter VII was subject to these rules as amended. He further expressed the view that the Tribunal's decision in IOC case relied on by the appellants was per incuriam inasmuch as it was contrary to the Apex Court's ruling in J.K. Spinning & Weaving Mills case. It was also pointed out that the Rule 139 Notification produced by the appellants' Counsel permitted only removal (without payment of duty) from one warehouse to another warehouse and was not applicable to goods captively consumed. The appellants had failed to produce appropriate Notification issued under Rule 139, to claim coverage of the subject goods (fuel oil/LSHS) under the provisions of Chapter VII. Referring to procedure under Rule 143A, Ld. Senior Advocate submitted that the goods manufactured in a refinery declared under Rule 140(2) could be removed only in such manner as directed by the Commissioner. In this case, there was no evidence of the assessee having obtained directions from the Commissioner for deemed removal of fuel oil/LSHS. The relevant Notification under Rule 143A was also not available in this case. Ld. Counsel referred to Notification No. 19/90-CE dated 20.3.1990, which had exempted petroleum products including the subject goods from payment of duty, and submitted that the said Notification was rescinded by Notification No. 64/94-CE dated 1.3.1994, prior to the periods of dispute in these cases. He argued that, on account of this revocation of exemption, the subject goods were dutiable during the periods of dispute.
6. In his rejoinder, the appellants Counsel claimed that nothing contained in Notification No. 19/90-CE was applicable to petroleum products specified in Notification No. 21/86-CE dated 10.2.1986 (as amended) issued under Rule 139. It was argued that the term "refinery" used in Notification No. 19/90-CE could not be construed so as to include within its scope any refinery declared under Rule 140 (2) to be deemed warehouse. Ld. Counsel relied on the following materials to argue that it is open to the Tribunal to ignore any superfluous provisions so as to give effect to the legislative intent underlying Rule 143A:
(i) The Lav/ and Practice of Income Tax by Kanga, Palkhivala and Vyas, 9th Edn. Vol. 1.
(ii) Principles and Statutory Interpretation by G.P. Singh 8th Edn.
Counsel has also relied on the Supreme Court's judgment in National Insurance Co. Ltd. v. Baljit Kaur and Ors., (2004) 2 SCC 1. He once again referred to the Ministry's Circulars of 1967 and submitted that these circulars were binding on the Revenue as per the Supreme Court's ruling in the case of CCE v. Usha Martin Industries, 2002 (84) ECC 795 (SC): 1997 (94) ELT 460 (SC).
7. Both sides have also advanced arguments on other issues, which will be dealt with later in this order, as and when necessary.
8. The appellant's Counsel has submitted that the provisions of Chapter VII of the Central Excise Rules, 1944 were made applicable to fuel oil/LSHS by Notification issued by Central Government under Rule 139. He has placed on record the text of Notification No. 21/86-CE dated 10.2.86 as amended by Notfn. No. 303/86-CE dt. 15.5.86 and the same reads as under:
"[8] In pursuance of Rule 139 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 and Insurance) No. 265/67-Central Excises, dated the 28th November, 1967, the Central Government hereby directs that the provisions of Chapter VII of the said rules, shall extend to each of the excisable goods falling under Heading Nos. 27.07, 27.10, 27.11, 27.12 and 27.13 (except Sub-heading No. 2713.12), 27.14, 27.15 and the goods of the following description, namely, benzene, toluene and xylene, falling within Chapter 29 in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986).
2. This Notification shall come into force on the 28th day of February, 1986."
It has also been shown to us that LSHS and other residual fuel oils stood placed under Sub-Heading 2713.30 of the Central Excise Tariff during the material period. Thus, it appears to us that there was a Notification by Central Government under Rule 139 in respect of fuel oil/LSHS and, therefore, the provisions of Chapter VII of the Central Excise Rules, 1944 were applicable to these goods. An order dated 3.6.1969 issued by Central Government under Sub-rule (2) of Rule 140 declaring the premises of M/s MRL at Manali-Sathangadu of Saidapet Taluk, Chingleput District as a "refinery" in relation to excisable goods falling under Tariff Item Nos. 6-11A (both inclusive) of the First Schedule to the Central Excises and Salt Act, 1944 is also available on record. It has also been shown that LSHS/Fuel Oil was classified under T.I.No. 11A of the old Tariff. Naphtha fell under T.I.No. 6 of the Tariff. Therefore, it appears to us that MRL's premises were a declared refinery and, for that matter, a "deemed warehouse". Rule 143A enables the owner of a declared refinery to "blend or treat or make such alterations or conduct svich further manufacturing processes in the aforesaid goods in such manner and subject to such conditions as the Central Government may, by Notification in the Official Gazette, specify". It has been contended by Ld. Advocate for the appellants that the use of fuel oil/LSHS as fuel for generating steam required for the purpose of refining of crude petroleum is covered by the expression "conduct such further manufacturing processes". In this connection, it has been pointed out by Ld. Senior Advocate that any such manufacturing processes could be conducted only in such manner and subject to such conditions as the Central Government may by Notification in the Official Gazette specify, but no such Notification of the Central Government has been brought on record. The appellants' Counsel has conceded that no such Notification has been issued by the Central Government. He has, however, pointed out that there is an advice by the Ministry of Law (as extracted in the Ministry of Finance Circular No. 11 A/30/70;Cx8 dated 12.2.1971) as under:
"Under Rule 143-A where the Central Government specified in manner and conditions of blending etc. or conducting further processing by notification in the Official Gazette, it would be necessary for the manufacturer to comply with those conditions. When a notification of the sort does not exist, the blending etc, done by the manufacturer with the sanction of the proper officer and in accordance with the instructions as the Collector may give from time to time, has to be accepted." (Emphasis added) Ld. Counsel has claimed that the appellants have been undertaking their manufacturing processes in their declared refineries with the sanction of the proper officer and in accordance with the instructions of the Commissioner and, therefore, they are entitled to exemption from payment of duty on intermediary products like Fuel Oil/LSHS captively consumed.
9. We have carefully considered the submissions. The warehouse provisions contained in Chapter VII, undisputely, constituted a scheme for warehoused goods. Rule 143A is a part of this scheme, which reads:
"Rule 143A. Special provisions with respect to goods processed and manufactured in refineries. -- With the sanction of the proper officer and in accordance with such instructions as the Commissioner may, from time to time, issue in writing in this behalf, the owner of the goods processed or manufactured in a refinery, declared under Sub-rule (2) of Rule 140, may blend or treat or make such alterations or conduct such further manufacturing processes in the aforesaid goods in such manner and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify."
It provided for a Notification by Central Government but admittedly such Notification was never issued. The Central Government themselves acknowledged this vide Ministry of Finance Circular dated 12.2.1971 (Supra). According to Ld. Sr. Advocate, the appellants cannot avail the benefit of the special provisions as long as there is no such Notification. We shall examine this aspect first. The Law Ministry had advised the Finance Ministry that, when Rule 143A Notification did not exist, the processes (mentioned in the Rule) undertaken in the refinery with the sanction of the proper officer and in accordance with the instructions of the Collector of Central Excise should be accepted as having been undertaken in accordance with the Rule. The Finance Ministry, accordingly, issued Circular dt. 12.2.1971 (Supra). In our view, the instruction contained in this Circular validly governed the refinery processes during the absence of Rule 143A Notification. It was held by the Supreme Curt in the case of Bishamber v. State of U.P. AIR 1982 SC 32 that the powers of the State Government (Executive) were co-extensive with those of the State Legislature and, therefore, the State Government could exercise their executive power by issuing administrative instructions so long as the Legislature did not make any law on the subject. The above Circular must be seen as an appropriate executive action of the Central Government to ensure that the object of Rule 143A was carried into effect and was not defeated by any legislative delay, i.e., delay in issuance of Notification under the Rule. We are, therefore, of the view that the claim of the assessee under Rule 143A cannot be resisted on the ground that there is no Notification of the Central Government under the said Rule. Having found that the provisions of Chapter VII were made applicable (through Rule 139 Notification) to the goods in question and that the refinery was declared [under Sub-rule (2) of Rule 140] to be a warehouse for all purpose of Sub-rule (1) of Rule 140 and further that the appellants were allowed, under Rule 143A, to conduct such processes as mentioned in the rule, we think they are entitled to the benefit of the Tribunal's decision in IOCL case 2002 (144) ELT 209, with which we are in full agreement. The relevant part of the Tribunal's order in the said case is extracted below:
"9. We have carefully considered the above submissions of both sides. We note that for warehoused goods, there are specific provisions. It is a self-contained code dealing with various situations. We note that in terms of Ministry of Finance Circular dated 27.4.67, Rule 140(2) was introduced in the statute to provide for declaring any premises to be a refinery and to be deemed to be a warehouse. Further, Rule 143A was introduced making the special provisions with respect to goods processed and manufactured in a refinery, ft was provided in this Rule that the owner of the. goods processed or manufactured in a refinery, declared under the Sub-rule (2) of Rule 140, may blend or treat for making such alterations or conduct such further manufacturing processes in the aforesaid goods in such manner and subject to such conditions as the Central Government may by notification in the Official Gazette specify. We note that there is a set of Rules covering the goods warehoused in a refinery, Rule 144 provides that goods cannot be taken out of the warehouse except as provided by these Rules. Rule 145 provides for which period, goods may remain warehoused. Rule 145A provided about the clearance of the goods from a private warehouse on cancellation of the registration certificate. Rule 146 provides for the mode of calculating quantity of goods warehoused. Rule 147 gives power to remit duty on warehoused goods lost or destroyed. Rule 148 talks of responsibility of warehouse-keeper. Rule 149 provides for dealing with unsuitable material, waste and other refuse. Rule 150 provides that excisable goods may be lodged in Customs Bonded Warehouse under certain conditions. Rule 151 talks of offences with respect to warehousing. Rule 152 sets out the method of removal of goods from one warehouse to another. Rules 156 and 156A are also specific. Rule 156B provides for consequential if the triplicate application is not presented. Rule 157 provides for clearance of goods for home consumption. This Rule 157 is important in the present context. This Rule specifically says that any owner of goods warehoused may, at any time, [within the period during which such goods can be left or are permitted to remain in a warehouse under Rule 145] clear that goods for home consumption by paying duty and other charges. Thus, we note that there is a self-contained code for dealing with goods stored in a warehouse in a refinery. We note that the appellants' unit is a refinery and is a deemed warehouse and therefore, the warehousing provisions in the Rules which are self-contained codes, shall prevail over all other provisions in the Rules.
10. The Counsels for the Revenue emphasised that whatever is produced, which is identifiable and marketable, is dutiable. This appears to be a very attractive proposition outwardly, but if we look into the facts of the present case we find that the position is very clear. In terms of Rule 157 of the Central Excise Rules, duty becomes payable only when the goods are removed for home-consumption. By no stretch of imagination, we can hold that use of intermediate products for the manufacture of the end-product, is removal for home-consumption. Thus, we are of the view that the deemed removal in terms of Rule 9 of Central Excise Rules, 1944, is not applicable to the facts of the present case, inasmuch as 9(1) of the Central Excise Rules, 1944 reads that for the purpose of this Rule, excisbale goods produced, cured or manufactured in any place, and consumed or utilised as such, after subjection of any process or processes or for the manufacture of any other commodity whether in a continuous process or otherwise, in such a place or any premises appurtenant thereto, specified by the Collector under Rule (1), shall be deemed to have been removed from such place or premises, immediately before such consumption or utilisation. We note that Rule 9 provides for time and manner of payment of duty. Rule 9(1) lays emphasis on 'removal' and for purpose of Rule 9, the explanation is applicable. In the instant case, for the purpose of removal, Rule 157, a relevant Rule which lays d own that any owner of the goods warehoused may at any time, clear that goods for home-consumption. Thus, the contention of the Revenue that the present goods is covered by Sub-rule (1) of Rule 9 does not appeal to us, inasmuch as for removal from the warehouses, the relevant Rule is Rule "157 and not Rule 9(1) or Rule 9(2). Thus, the deeming provisions under Rule 9(1), is not applicable to removals of intermediate goods warehoused in a refinery used in the manufacture of end-product.
11. We, further, note that the learned Counsel for the assessee has supported his contention by the decision of this Tribunal in the case of Hindustan Petroleum Corporation Ltd. In paras 14 and 15, this Tribunal clarified the position. For the sake of clarity, these two paragraphs are reproduced below:
"14. We are of the view that the appellants are entitled to the benefit of Rule 143A as it is a special provision intended for the Refinery. The object of the rule is to enable the Refinery to utilise the intermediate products for further manufacturing processes. The words 'manufacturing in a refinery' cannot be given a restricted interpretation suggesting that the blending, treating or other alterations should take place in the identical refinery. Though Lube Refinery and ESRC are two different legal entities and have been declared as two separate refineries in the absence of any words in Rule 143A holding that the further manufacturing processes should be carried out in the same refinery, the appellants must be given the benefit of Rule 143A. The object of this provision is to afford the benefit of the rule if any product is used in the integrated refining system. If the product is so used, the end product alone should be excisable.
15. We are also not inclined to agree that the term 'further manufacturing processes' should be given a restricted meaning. As pointed out in the earlier paragraph, the washing of filters in the Dewaxing Unit must be held to be towards the manufacture of the final product because the entire process carried out by the assessee in converting the raw material to a finished product should be taken into consideration. As the process of washing the filters forms an integral or indispensable part leading to the ultimate production of the goods, we must hold that such a process would come within the ambit of the term 'further manufacturing process.' The write-up given by the appellants in regard to the use of wash oil shows that such a operation is part and parcel of the manufacturing scheme in the Lube Refinery. The Collector of Central Excise (Appeals) has given a restricted meaning to the words 'in the manufacture of goods' and the words 'aforesaid goods'. In view of the materials now placed before us we are of the view that the use of wash oil for the purpose of filtration in the Dewaxing Unit would also be eligible for the benefit of Rule 143A."
12. This decision of the Tribunal has been approved by the Apex Court inasmuch as the appeal filed by the Revenue against the decision of the Tribunal has been dismissed.
13. We further note that, in Cochin Refineries case, this Tribunal had taken a specific view holding that -- under Rule 140 (2), KRL is a refinery and "thus a warehouse under Rule 140(1). Therefore, even if Isobutane is emerging in pure form and comes into existence at any stage, no duty payment liability would arise so long as it remains in the refinery. Duty would be liable to be recovered only on the entity removed from the refinery in the form in which it is being removed in the form of mixture as in para c above. It is a mixture of compounds that is required to be classified and not the compound which would be stripped off by the buyer from such a mixture. The classification of the mixture and gases applying the cannons of Classification would not be under Chapter Heading 29.........." Thus, we find that our views are in complete agreement with the findings of the Tribunal in this case.
14. Having regard to the above discussions, we hold that in the circumstances of the case and in respect of refineries declared to be a deemed warehouse, no duty will be payable on intermediate products, if the same are used in processing, blending, mixing or manufacturing of the end-product. Accordingly, the two appeals are allowed. Consequential benefits, if any, shall be admissible to the appellants in accordance with law."
The question whether Rule 9 of the Central Excise Rules, 1944 had any overriding effect on Rule 157 was also examined by the Bench and answered in the negative in IOCL's case, in which the Bench also rejected the argument that captive removal of goods in a declared refinery should be held to be removal for home consumption. Thus, all the substantive issues raised before us are already covered by the above decision of the Tribunal. The Revenue has, apparently, accepted the Tribunal's view taken in IOCL's case. We do not share Ld. Sr. Advocate's view that the Tribunal's decision in IOCL's case is per incuriam inasmuch as, in J.K. Spinning & Weaving Mills case contextually referred to by him, durability of intermediate products captlvely consumed in premises warehoused under the provisions of Chapter VII was not an issue.
10. Following the decision in IOCL's case, we hold that no duty was leviable on any quantity of fuel oil/LSHS used for generating steam required for the refining of crude petroleum (yielding petroleum products) in the appellants' refinery during the period of dispute, as we have found that such use of fuel oil/LSHS was covered by the expression "conduct such further manufacturing processes" under Rule 143A. Naphtha is, admittedly, one of the petroleum products resulting from the refining of crude petroleum. No duty could be levied on fuel oil used for generating steam required for the manufacture of this product. Insofar as sulphur is concerned, it is admittedly a by-product generated in the course of manufacture of petroleum products. The assessee's case is that they did not burn any fuel oil with intent to manufacture sulphur. They used fuel oil to generate steam and steam was used for the manufacture of petroleum products. As these products must not contain sulphur beyond certain limit, the excess sulphur was extracted. This fact pleaded by CPCL has not been rebutted by the Revenue. If that be so, the extraction of sulphur was only a part of, or incidental to, the manufacture of petroleum products. Therefore, no duty of excise could be demanded on any quantity of fuel oil on the ground that it was used for manufacture of Sulphur. In the result, the demands of duty on fuel oil, against CPCL, will not be sustained and, accordingly, Appeal Nos. 786, 1234 and 12 35/2001 are allowed.
11. The challenge in Appeal No. E/364/2000 is directed against a demand of duty on a quantity of RFO/LSHS held to have been vised for generating electricity supplied to TNEB. The challenge in Appeal No. E/787/2001 in similar. Ld. Counsel for MRL/CPCL has argued that the fuel was used for generating steam required for refining of crude petroleum and, therefore, it should be considered as having been used for the manufacture of petroleum products. It is contended that generation of electricity was only incidental to the refining of petroleum. We are unable to accept this argument as, even according to the appellant, high pressure steam required for generating electricity was not required for the refining of petroleum. Only low pressure steam was required for the latter purpose. It is also not in dispute that, for generating high pressure steam, a higher quantity of fuel than that required for generating low-pressure steam was to be used. There is, again, no dispute of the fact that high pressure steam was necessary for running the turbine which generated electricity. What the appellants did was to use RFO/LSHS to generate high pressure steam, which was required for generating electricity. When high pressure steam runs the turbine, its pressure gets reduced and the resulting low pressure steam enters into the process of refining of crude petroleum. Only that quantity of RFO/LSHS which was required for generating low pressure steam, which was used for refining of crude petroleum, could be said to have been used for the manufacture of petroleum products. The extra quantity of fuel should be held to have been used for generating electricity, a part of which was supplied to TNEB. That part of the extra quantity of fuel which is relatable to the electricity captively consumed for the refining of crude petroleum should be held to have been used for the manufacture of petroleum products. Conversely, that quantity of the fuel which was relatable to the electricity supplied to TNEB did not fall within the scope of Chapter VII was fell for levy of duty under the general provisions. Ld. Senior Advocate's arguments with reference to the amended provisions of Rules 9 and 49 are acceptable as regards this quantity of fuel. It appears from the Commissioner's order that the demand of duty is on this quantity of RFO/LSHS only.
12. The demand has been challenged on the ground of limitation also. There is evidence of suppression of facts on the part of MRL. MRL did not disclose to the Department the above mechanism of use of RFO/LSHS in their refinery. The material fact that, for refining crude petroleum, they required only low pressure steam and did not require high pressure steam, which was required for the generation of electricity, was not revealed to the Department, though they knew that the extra quantity of RFO/LSHS used for generating electricity to be supplied to TNEB was not used for any such manufacturing process as mentioned in Rule 143A. It has been contended by the appellants that the department was aware of the relevant fact since at least 1975, in which year the Collector (Appeals) recorded, in Order-in-Appeal No. 6767/75 dt 7.4.1975, finding that MRL did not need any extra fuel for producing electricity for supply to TNEB. Apparently, this finding of the Collector (Appeals) attained finality for want of challenge thereto by the Department. But that was a finding for an old period and the same did not also operate as res judicata for the impugned proceedings albeit against the same assessee, the principle of res judicata not being applicable to quasi-judicial proceedings in Revenue matters vide Karnataka High Court's judgment in West Coast Paper Mills v. Supdt. of Central Excise 1984 (16) ELT 91 (Kar.), The Commissioner's finding of suppression of fact is based on investigative results pertaining to a later period and the same has to be upheld for the reason we have already noted.
13. Ld. Commissioner imposed on the appellants penalty equal to duty, under Section 11AC, for the period from 28.9.96. We find that the facts and circumstances of the case do not warrant the maximum penalty. The quantum of penalty is reduced from Rs. 4.4 Crores to Rs. fifty lakhs.
Appeal No. E/364/2000 is dismissed, with the above modification of penalty amount. Appeal No. E/787/2001, wherein there is no limitation or penalty issue, is also dismissed, as the demand of duty challenged therein is sustainable for the reasons recorded.