Indirect supply exemption for naval fuel supported interim stay where pipeline delivery to the Indian Navy was traceable and correlated.

Indirect supplies of HSD oil to the Indian Navy through a pipeline operated by another oil company were examined for eligibility under Notification No. 64/95-C.E. The Tribunal noted that a coordinate Bench had previously extended the exemption in a similar naval-supply arrangement, and that the Board's circular supported exemption where the original supply could be correlated with the goods received on board. It distinguished the contrary Revenue authority because that case involved supply through shipbuilders, unlike the present continuous pipeline arrangement with no direct handling by the intermediary. On that factual and legal basis, the Tribunal granted waiver of pre-deposit and stay of recovery, subject to bonds securing the duty liability.

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Issues: Whether waiver of pre-deposit and stay of recovery should be granted in respect of duty demands and penalties where HSD oil was supplied to the Indian Navy through a pipeline system operated by another oil company, and whether such indirect supply could claim the benefit of exemption Notification No. 64/95-C.E. dated 16-3-1995.

Analysis: The Tribunal noted that a coordinate Bench had earlier extended the exemption benefit in a similar arrangement involving supply of HSD oil for use on board naval vessels, and the Board's circular on indirect supplies to the Indian Navy and Coast Guard also supported exemption subject to proof of correlation between the original supply and the goods received on board. It distinguished the contrary authority relied upon by the Revenue on the ground that, there, the goods were supplied through shipbuilders, whereas here the supply was made through a continuous pipeline system for logistical reasons, with no direct handling by the intermediary oil company. Although the exemption notification had to be strictly construed, the factual matrix and the supporting circular and precedent weighed in favour of interim relief.

Conclusion: Waiver of pre-deposit and stay of recovery were granted, subject to the appellants executing bonds covering the entire duty liability within the stipulated time.

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