Custom, Excise & Service Tax Tribunal
Indian Oil Corporation Ltd vs Vadodara-I on 31 August, 2018
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
West Zonal Bench AHMEDABAD
COURT NO. I
Appeal No. E/13694/2013, E/13632/2014, E/11642/2015, E/11191/2017-DB
[Arising out of Order-in-Original No OIO-31/CEX/DEMAND/IOCL/COMMR-I/2013
dated 08.08.2013, OIO-VAD-EXCUS-001-COM-14-14-15 dated 22.08.2014, OIO-
VAD-EXCUS-001-COM-006-15-16 dated 18.06.2015 and OIO-VAD-EXCUS-001-
COM-57-16-17 dated 28.02.2017 passed by Commissioner of Central Excise & ST,
Vadodara]
M/s. Indian Oil Corporation Limited : Appellant
vs.
Commissioner of Central Excise & ST, Vadodara : Respondent
Appearance:
Shri Chandan Kumar, DGM for the Appellant Shri Sameer Chitkara, Additional Commissioner (AR) for the Respondent CORAM:
Hon'ble Mr. Ramesh Nair, Member (Judicial) Hon'ble Mr. Raju, Member (Technical) Date of Hearing : 16.08.2018 Date of Decision : 31.08.2018 Final Order No. A/11838-11841 / 2018 Per : Ramesh Nair Brief facts of the case are that the appellant are engaged in the manufacture of various petroleum products falling under Chapter 27 and 29 of the schedule to the Central Excise Tariff Act, 1985. During scrutiny of the record, department noticed that the appellant determined the interface quantity of Superior Kerosene Oil (SKO for short) which was supplied through pipeline with Motor Spirit (MS for short) and High Speed Diesel (HSD for short). The appellant paid duty on such interface quantity of 2 Appeal No. E/13694/2013, E/13632/2014, E/11642/2015, E/11191/2017-DB adopting assessable value of SKO (non Public Distribution System (PDS) at the prevalent rate. The case of the department is that the appellant, instead of paying excise duty on the interface quantity of SKO as per rate prevalent for SKO, they should have paid excise duty higher of the two duties, after determining the duty payable on SKO and duty payable on MS/HSD. The contention of the department is solely based on CBEC Circular No. 636/27/2002-CX dated 22.04.2002 which is issued under F. No. 261/27/5/2002-CX-8, clarifying that in the event of intermixing of SKO with MS/HSD during movement of these petroleum products through pipeline, the higher of two duties i.e. duty payable on SKO not used for intended purpose and duty payable on surge/gain of MS or HSD shall be payable for intermixed/ interfaced quantity. Accordingly, the duty of intermixed part of SKO and MS/HSD as the case may be, should be quantified and higher of the two is payable. The Adjudicating Authority in the adjudication confirmed the demand of differential Central Excise duty with interest and also imposed penalties. Therefore, the present appeals.
2. Shri Chandan Kumar, Deputy General Manager (Finance) of the appellant Company appeared and submits that the entire demand was confirmed on the basis of Board Circular. He submits that the Board Circular is not supported by any statute, therefore, the same is not binding on the assessee. He submits that the excise duty was paid on the actual quantity of SKO cleared from the factory. Therefore, subsequent 3 Appeal No. E/13694/2013, E/13632/2014, E/11642/2015, E/11191/2017-DB intermixing of HSD/MS, the nature of the goods cleared from the factory does not change as it was at the time of removal of the goods. Therefore, duty on SKO was correctly paid on the quantity and as per nature of the goods. He further submits that the Adjudicating Authority has held that the intermixing of SKO with MS/HSD amounts to manufacture in terms of Section 2(f) (iii) of Central Excise Act, 1944. In this regard, he submits that there is no charge in the show cause notice that there is any activity after removal of the goods which amount to manufacture, therefore, findings regarding manufacture of goods is beyond the scope of show cause notice. Moreover, the Adjudicating Authority relied upon clause (iii) of Section 2(f), the said clause is applicable only in respect of goods which are specified under Third schedule, whereas the product in question do not fall under Third schedule. Therefore, the demand on the basis of clause (iii) of Section 2(f) is without authority of law.
3. Shri Sameer Chitkara, ld. Additional Commissioner (AR) appearing for the Revenue/respondent reiterates the findings of the impugned order.
4. We have carefully considered the submissions made by both the sides and perused the record. We find that the fact is not in dispute that while clearing the goods, the appellant have cleared from the factory quantities of MS, HSD and SKO separately. Since all the three goods are supplied through a pipeline, the SKO get mixed with either MS or HSD. As per the 4 Appeal No. E/13694/2013, E/13632/2014, E/11642/2015, E/11191/2017-DB provisions of Section 4, the excise duty is payable on the transaction value at the time of removal of the goods from the factory. In the present case, the goods cleared from the factory is MS/HSD and SKO. Accordingly, the duty on these products is payable as per price of the respective product prevailing at the time of removal of the goods. As regards MS and HSD, the duty was paid on the transaction value. As regards SKO, since the same was not sold, the duty was paid on the prevailing price of SKO on the basis of sale price prevailing for SKO naturally which is higher than the price of SKO sold under Public Distribution System, therefore, the correct price was adopted by the appellant while clearing the interface quantity of SKO. The sole reliance of the Adjudicating Authority is on the Board Circular dated 22.02.2002, which is reproduced below:-
"Petroleum products movement through pipeline -- Rate of duty on intermixed quantity -- Clarifications Circular No. 636/27/2002-CX., Dated 22-4-2002 F. No. 261/27/5/2002-CX-8 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs, New Delhi Subject : Movement of petroleum products through pipeline -- Determination of duty on interface quantity.
The problem of accountal of petroleum products resulting from intermingling of different products pumped through pipelines has been engaging the attention of the Board for quite some time. In a recent case, one of the oil companies has represented against the differential duty demanded by the Department on account of shortage of Superior Kerosene Oil (SKO) imported under concessional rate of duty. It has been contented that the movement of petroleum products through pipelines is carried out by product to product method of pumping and in such an event, co-mingling of one product with another is inevitable. The case of the oil company is that shortage of SKO 5 Appeal No. E/13694/2013, E/13632/2014, E/11642/2015, E/11191/2017-DB imported under concessional rate of duty is accounted for in terms of the interface quantity i.e. the gain in Motor Spirit (MS)/High Speed Diesel (HSD) and the duty paid by them on this interface quantity is more than the duty foregone on SKO on account of concessional rate of duty. Therefore, as per the assessee, the question of additional duty liability does not arise.
The Board has examined the issue from the twin objectives 2. of safeguarding revenue as well as avoiding unnecessary litigation. The existing instructions vide Board's letter F. No. 21/13/66-CX. III, dated 20-3-67 and F. No. 11A/9/70-CX.9, dated 27-3-1973 accept the off-setting of gain observed in one product against loss observed in another product. Though in the scheme of accountal of one product for the other, the duty payable on the interface SKO (co- mingled products) taken as MS or HSD is presently more than the duty liability on the shortage of imported SKO, however, the situation can be reverse also. Furthermore, it is a fact that the SKO imported under concessional duty is not fully utilised for the intended purpose and in such case, the concessional duty cannot be extended. The Board is therefore, of the view that in the event of inter mixing of the products, the higher of the two duties i.e. duty payable on SKO not used for intended purpose and duty payable on surge/gain in MS or HSD shall be payable for the intermixed/interface quantity. In other words, the duty of inter mixed part of SKO and MS/HSD as the case may be, may be quantified and higher of the two values may be accepted. The existing instructions on the subject stand modified to the above extent. "
On careful reading of the above Circular, we find that the Circular suggests that even on clearance of SKO, the price of HSD/MS should be applied. However, this proposal of the Board Circular does not flow from any statutory provision. As discussed above, the appellant have correctly applied the price of respective goods cleared from the factory at the time of removal. Therefore, we do not find any support of any statutory provisions in the Board Circular. The Hon'ble Supreme Court time and again held that the board Circular cannot vitiate the law or the Board Circular cannot be 6 Appeal No. E/13694/2013, E/13632/2014, E/11642/2015, E/11191/2017-DB issued contrary to the statutory provisions. We refer some of the judgments on this issue:-
(a) 2008 (229) ELT 641 (SC) - Sindur Micro Circuits Limited vs. CCE Belgaum
(b) 2009 (235) ELT 385 (SC) - Atul Commodities Pvt. Limited vs. CC, Cochin
(c) 2003 (156) ELT 819 (Bom) - Narendra Udeshi vs. UOI
(d) 2015 (326) ELT 26 (SC) - DGFT vs. Kanak Exports
4. In view of the above judgments, it is clear that the Board can only clarify the existing law but cannot create law by itself. Therefore, the above Board Circular dated 22.04.2002 having without support of any Act or Rule, is not binding on the assessee.
5. As regards the issue that after removal of goods, intermixing of SKO with MS/HSD amounts to manufacture, we find that there is no charge in the show cause notice that the activity of supplying HSD/MS with interface SKO amounts to manufacture. Therefore, on this point, the adjudication order travelled beyond the scope of show cause notice which is not permissible in the law. The adjudicating authority has relied upon clause
(iii) of Section 2(f) for holding that activity amounts to manufacture, which reads as under:-
" 2(f) "manufacture" includes any process,-
i. incidental or ancillary to the completion of a manufactured product; 7
Appeal No. E/13694/2013, E/13632/2014, E/11642/2015, E/11191/2017-DB ii. which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or iii. which, in relation to the goods specified in Third Schedule involves packing or re-packing of such goods in a unit container or labeling or re-labeling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer;"
From the reading of the above clause, it is clear that the activity specified in the said clause (iii) will amount to manufacture only in respect of the goods specified under Third schedule. It is undisputed that the products of the appellant are not specified under third schedule, therefore, whatever activity mentioned in clause (iii) shall not apply to the goods which are not specified in Third schedule. For this reason, intermixing of SKO with HSD/MS does not amount to manufacture.
6. As per our above discussion, the differential duty demand raised on interface quantity of SKO is clearly not sustainable. Hence, the impugned orders are set-aside and the appeals are allowed.
(Order pronounced in the open court on 31.08.2018)
Raju Ramesh Nair
Member (Technical) Member (Judicial)
KL