Custom, Excise & Service Tax Tribunal
M/S. Bharat Petroleum Corporation Ltd vs Cce & St, Coimbatore on 24 November, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT CHENNAI E/486/2011 (Arising out of Order-in-Original No. 4/2011 (Commr.) dated 16.08.2011, passed by the Commissioner of Customs, Central Excise and Service Tax, Coimbatore). M/s. Bharat Petroleum Corporation Ltd. : Appellant Vs. CCE & ST, Coimbatore : Respondent
Appearance Shri S. Muthuvenkataraman, Adv., For the applicant Shri K.P. Muralidharan, AC (AR) For the respondent CORAM Honble Shri R. PERIASAMI, Technical Member Honble Shri P.K. CHOUDHARY, Judicial Member Date of Hearing/Decision: 24.11.2015 FINAL ORDER No. 41676 / 2015 Per: R. Periasami The present appeal is filed against the order dated 16.08.2011 passed by the Commissioner of Customs, Central Excise and Service Tax, Coimbatore.
2. The brief facts of the case are that the appellant is a PSU having warehouse for storage of petroleum products like Motor Sprit (MS), High Speed Diesel Oil (HSD) adn Superior Kerosene Oil (SKO) falling under Chapter 27 of the CETA, 1985. They have received non-duty paid petroleum products and discharged duty from warehouse as per Rule 20 of the CRR, 2002. The petroleum products are received through pipelines. They transfer the products through pipeline in a specific sequence ie SKO-MS-SKO-HSD-SKO-MS and they are pumped through the pipeline from one product to another. While changing of products, there is always mix-up of products either MS-SKO or HSD-SKO. After testing the interface quantity, the same was either upgraded or downgraded and accordingly, cleared the same on payment of duty. The appellants have cleared the intermingled quantity of SKO MS as downgraded as HSD. The adjudicating authority issued a SCN dated 6.11.2007 demanded differential duty of Rs. 79,35,959/- as duty by classifying the intermingled product as MS. The adjudicating authority in the impugned order confirmed the demand and also imposed equivalent penalty with interest. Hence the present appeal.
3. The Ld. Advocate reiterated the grounds of appeal and submits that the product is intermingled and interface quality and he drew our attention to para-4 of the OIO and submits that the main allegation is on the quantity of 886.65 kiloliters of 50% MS and 50% SKO down graded to HSD. He drew the attention to para-14 and submits that the adjudicating authority relied on the Boards Circular No. 636/27/2002-Cx dated 22.07.2002 and submits that the Boards circular was issued in respect of interface quantity of SKO/MS and not applicable to excisable goods cleared from the warehouse. He further submits that the adjudicating authority by relying the Boards circular concluded that the product of interface quantity upgraded to MS. Further, he drew attention to OIO dated 25.01.2004 passed by the Addl. Commissioner of Central Excise, Tiruchirapalli in their own case on identical issue, dropped the proceedings and the said order was not appealed. He drew attention to para 14 to 17 of the said order. He further submits that during adjudication proceedings, the Commissioner has not considered the Addl. Commissioners order. Further, he submits that duty is payable on the excisable goods only on removal. Therefore, at the time of removal, whatever applicable rate of duty on the value has to be paid only on removal. Therefore, the rate of duty for assessing the goods is only at the time of removal from the warehouse. He also submitted a copy of the test reports of interface quantity tested in their BPCL laboratory. Only after the receipt of the test reports, they either down graded or upgraded the intermingled products. Since, the test report confirms HSD specification, the said quantities of intermix was downgraded and cleared on payment of duty. Further, he submits that in petroleum industry in case of mixture of petroleum products, the product is down graded and cleared as HSD as per BIS standards. He drew attention to page 42 para d & e. He also submits that by down grading the product, they are at a loss and submits that duty has been correctly paid after down grading the interface quantity to HSD and pleads to set aside the impugned order and allow their appeal.
4. On the other hand, the Ld. AR reiterated the findings of the OIO at paras 2,5,17 & 18. He submits that the Boards Circular dated 22.07.2002 clarified that inter mixing of two products, higher of the two values be accepted. The adjudicating authority has rightly confirmed the demand.
5. After hearing both sides and on perusal of the records, we find that the short issue involved in this appeal relates to demand of duty on the quantity of 886.65 kiloliters of intermingled/ interface quantity of MS & SKO and downgraded to HSD. We find that the appellants are discharging duty from the warehouse on petroleum products as per the practice followed during the relevant period. They received non-duty paid goods through pipelines and stored it in the storage tanks at the warehouse. It is seen from the records that when the petroleum products sent through the pipelines from Kochin, Coimbatore, Karur pipelines, in specific sequence of SKO, MS, SKO, HSD, SKO, MS and the product is changed in the pipeline at regular interval and there will be intermix of two products. In the present case it is SKO & MS. We also find from the order of the adjudicating authority in respect of two of the intermingled/ interfaced quantity, the appellants have already upgraded it. Whereas, in the case of 886.65 kiloliters of interfaced quantity, wherein 50% of MS and 50% of SKO are intermixed, either down graded or upgraded by the appellants based on the test report of the samples drawn from the intermingled products. It is tested in their own laboratory. On receipt of the test reports, the intermixed product is transferred to the respective main tank containing HSD or MS oil. We also find that the interface quantity is received separately and stored in slop tanks only after the testing and depending upon the report, these goods are transferred to the respective main tank and thereafter cleared on payment of excise duty. On perusal of test reports submitted by the appellant dated 23.01.2004, 24.01.2004, 8.02.2004 and 6/2/2004, the said reports confirm to HSD Oil as per the standards prescribed under BIS.
6. As regards the adjudicating authority relying on the Boards Circular dated 22.04.2000, we find that the said circular has not laid down any criteria/guidelines on how to determine/classify the intermingled products. The said circular relates to imports of petroleum products where one product is chargeable to concessional rate of duty and the Board has classified that in the case of mixing of two products, higher the value is accepted. It does not say that the products should be downgraded or upgraded. The said Boards Circular does not apply to the facts of the present case. We also find that in the appellants own case, the Addl. Commissioner in his order dated 21.05.2004 discussed the issue in detail and dropped the proceedings. We find that the both the authorities have discussed the Boards Circular. It is pertinent to state that there is no dispute on the fact that the interface/intermingle quantity has to be cleared as HSD or MS or SKO. Therefore, higher products MS & SKO once it is intermixed it loses its originality and therefore it cannot be cleared to a consumer as MS or SKO, if it doesnt meet specification. Therefore, as per the BIS standards and as per the test report, the product if it is higher quality, it is upgraded and if it is lower quality, it is down graded. It is the general practice followed for all the petroleum products cleared through pipeline where the intermingled/interface quantity emerges and stored separately and subsequently upgraded or downgraded. Therefore, we find force in the submissions of the Ld. Advocate and also we find that in the appllants own case, in the Addl. Commissioners order dated 21.05.2004, the reasons explained by him appears to be valid. In view of the aforesaid reasons and discussions, we find that the appellants have correctly discharged the duty on the interface/ inter mingled quantity by down grading as HSD Oil. Accordingly, demand of differential duty does not arise and consequently, penalty also does not arise. Hence, the impugned order is set aside and the appeal is allowed.
(Dictated and pronounced in open court)
(P.K. CHOUDHARY) (R. PERIASAMI)
JUDICIAL MEMBER TECHNICAL MEMBER
BB
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