Customs, Excise and Gold Tribunal - Calcutta
Indian Oil Corporation Ltd. vs Commissioner Of C. Ex., Calcutta-Ii on 10 April, 2002
Equivalent citations: 2002ECR836(TRI.KOLKATA), 2002(144)ELT209(TRI-KOLKATA)
JUDGMENT G.R. Sharma, Member (T)
1. These are two appeals filed by M/s. Indian Oil Corporation Ltd. Appeal No. ER-593/2000 was listed for disposal of the Stay Petition, whereas A. No. ER-434/2000 was listed for regular hearing. Since the issue in both the appeals was the same, after dispensing with the pre-deposit in A. No. ER-593/2000, it was decided to dispose of the two appeals together.
2. Detailed arguments were submitted by both the sides. Shri V. Sreedharan, learned Advocate represented the assessee in A. No. ER-434/2000 and Shri A.K. Kundu, Manager (Excise & Customs) in A. No. ER-593/2000, whereas S/Shri N.C. Roychowdhury and D.K. Bhattacharjee, learned Counsels appeared for the Revenue in A. No. ER-434/2000 and Shri A.K. Pandit learned D.R. in A. No. ER-593/2000. The issue for determination in these two appeals is whether in a refinery, the goods that come into existence in the process of blending, mixing, reprocessing and manufacturing, are required to pay duty in terms of their captive use or they are required to pay duty only when they are finally cleared for home-consumption.
3. The facts of the case briefly stated are that M/s. Indian Oil Corporation Ltd. manufactured Slack Wax, JBO(C), JBO(P), TOFS and used other items for the manufacture of furnace oil. In the other case, RCO and SKO were used for the manufacture of furnace oil. Furnace oil is cleared from the refinery premises without payment of duty in terms of Notification No. 75/84-C.E., 8/96-C.E., 4/97-C.E. and 5/98-C.E. for use in various fertilizer units. It was alleged by the Department that the appellants in the course of manufacture of the final product which is furnace oil manufactured the above-referred intermediate products and used the same in the manufacture of furnace oil which is the end-product in this case; that the intermediate products were liable to duty in terms of the Notification No. 65/95, dated 16-3-95. Accordingly, the demand of Rs. 1,82,63,249.00 was confirmed in respect of Appeal No. ER-434/2000 and the demand of Rs. 1,26,67,701.00 was confirmed in Appeal No. ER-593/2000. In addition, the adjudicating authority imposed a penalty of an equivalent amount on the assessee.
4. We have heard the contentions of both sides. The main argument of the Counsel for the assessee was that Ministry of Finance in their letter F. No. 18/19/66-CX. III, dated 27-4-1967 clarified the position as follows :-
".....From the very beginning, it has been intended and held that such intermediate products used for further manufacturing processes as well as quantities of mineral oil products used for blending, re-processing operations etc. within the refinery licensed premises should not attract any duty liability. However, to put the matter beyond doubt, the Govt. of India have been empowered to declare any premises or group of premises to be a refinery for the purposes of bonded petroleum products falling under different Central Excise Tariff Items, being allowed, to be processed or blended or treated or manufactured into goods attracting Central Excise duty under a different Tariff Item. The Govt. of India are taking separate action to issue the necessary declaration.
2. A copy of notification No. 62/67-Central Excises, dated 22-4-1967 (at page 75) introducing in the Central Excise Rules, 1944 the new Rules 140(2) and 143A."
5. Further, the position was clarified by the Ministry of Finance in their letter F. No. 8/27/66-CX. III, dated 1-9-1967 as follows :-
"Reference this Ministry's letter/endorsement of even number dated the 11th October, 1965. The question with regard to the duty liability of marketable category of intermediaries has been further examined in the light of the newly introduced Rule 143A of the Central Excise Rules, 1944 and the instructions contained in the Ministry's letter F. No. 18/19/66-CX. III, dated 27th April, 1967. As already clarified, though Rule 143A of the Central Excise Rules, 1944 takes effect prospectively only, the intention all along had been to enforce recovery of Central Excise duty on only such products as are cleared out of the refinery and not to recover any duty on the intermediary products (whether marketable or otherwise) not cleared out of the refinery but utilised within the refinery premises for the production/manufacture of other petroleum products.
2. It has, therefore, been decided that, as in the case of non-marketable intermediaries, even marketable category of intermediaries, so long as they are not cleared outside the refinery premises, should not be charged to Central Excise duty, and that demands for duty raised, if any, in respect of past clearances of such intermediaries should be withdrawn."
6. Pursuant to the above clarifications, Central Excise Rules were amended. Rule 140(2) was introduced to authorise the Central Government to declare any premises as a refinery, which was clarified to be deemed as a warehouse. It was submitted that Rule 143A was introduced to authorise the owner of the goods to blend, to treat, or to make such alteration or to conduct such further manufacturing processes in the goods processed and manufactured in a refinery in such manner and subject to such condition as the Central Government may by notification in the official gazette, specify. The Counsel for the assessee submitted that thus, in addition to declaring the premises of M/s. IOC Ltd. as a refinery, they were declared as a warehouse and were permitted to undertake the processes stated above. It was contended further that certain modifications in the process set out were undertaken by the budget circulars issued in 1989 and 1994. By budget Circular of 1989, the Government restricted the declaration of premises as refinery, but the appellants in the present case, were allowed to continue to be a refinery as also, a warehouse by issuing of budget Circular in 1994 and declaring that the warehousing provisions as applicable to petroleum products, were allowed to continue as such. It was submitted that this will show that the provisions of warehousing applicable to the premises of the appellants' refinery created a specific concession. It was contended by the appellants that a specific code in the statute was set out for warehouses in a refinery and since it was a specific code which was self-contained, it prevailed over the normal procedure.
7. The contention of the Revenue was that the Act and the Rules are to be read together. It was submitted for the Revenue that Section 3 of the Central Excise Act, 1944 provided that anything that is manufactured or produced in a factory, was dutiable. It was submitted that the admitted position was that Slack Wax, JBO(C), JBO(P) and TOFS in one case of RCO and SKO in the other are manufactured intermediate products and since they were identifiable manufactured products and were marketable, therefore, if they are used in mixing, blending, processing or manufacturing furnace oil, they should have paid duty, inasmuch as their use in the factory amounts to removal for purpose of Rules 9 and 49. Revenue, therefore, contended that duty should have been paid on these intermediate products before being used in the manufacture of furnace oil. In reply to this contention, it was argued for the assessee that self-contained code has been created for goods kept in the warehouse of a refinery. It was argued for the assessee that since there was a specific code which was self-contained, therefore, there was no necessity of examining the similar provisions in other Rules or Act. It was argued for the assessee that for purpose of carrying out the provisions of Section 3 of Central Excise Act, 1944, Central Excise Rules, 1944 have been framed. Further, it was submitted by the Counsel that deemed removal in terms of Rule 9 was applicable to removals under Rule 9 and was not applicable in other cases, especially in cases where the goods are warehoused. The learned Counsel for the assessee also contended that Rule 157 provides for clearance of goods for home-consumption. He submits that this Rule covers the removals from warehouse. It has been specifically provided that this removal shall be for home-consumption. He submits that the use of intermediate goods in the manufacture of final product or the end-product, is not removal for home-consumption. He, therefore, submits that since the use of intermediate products in the process of final product is not a removal for home-consumption, therefore, the duty on intermediate goods is not payable. It will become payable only when the intermediate products as such, are cleared for home-consumption.
8. In regard to the special provisions, learned Counsel for the appellants refers to the judgment of this Tribunal in the case of Hindustan Petroleum Corporation Ltd. v. Collector of Central Excise, Bombay reported in - 1985 (21) E.L.T. 490 and submitted that in paras 14 and 15, the implications have been clearly brought out. Learned Counsel for the appellants also submitted that this decision of the Tribunal has been finally approved by the Hon'ble Supreme Court as reported in 1989 (44) E.L.T. A127. Learned Counsel for the appellants also referred to the decision of this Tribunal in the case of Cochin Refineries Ltd. v. Collector of Central Excise, Cochin reported in 2001 (132) E.L.T. 619 in which the Tribunal held that refinery is a warehouse under Rule 140(2) of the Central Excise Rules, 1944 and Isobutane emerging in pure form at any stage is not liable to duty so long as it remains in refinery and that duty would be liable on this item if removed from the factory. Learned Counsel, therefore, contended that in their case, no doubt, the above-quoted intermediate products had come into existence, but the fact remains that they are used in the manufacture of furnace oil and are not removal as such of intermediate products and therefore, in terms of this decision of the Tribunal, they are not liable to pay duty. Duty, if any, shall be payable only if they are removed as such for home-consumption from the factory.
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. It 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 consequentials 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 the 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 any 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, excisable 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 down that any owner of the goods warehoused may at any time, clear the 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.