2013 (12) TMI 512 - AT - Central Excise

Tribunal rules in favor of HPCL: Not liable for excise duty on duty-free Naphtha supply.

M/s HINDUSTAN PETROLEUM CORPORATION LTD Versus COMMISSIONER OF CENTRAL EXCISE

M/s HINDUSTAN PETROLEUM CORPORATION LTD Versus COMMISSIONER OF CENTRAL EXCISE - 2013 (298) E.L.T. 294 (Tri. - Mumbai) Issues Involved:1. Whether the appellant is liable to pay excise duty for Naphtha supplied duty-free under Notification No. 6/2002-CE, which was used for purposes other than the manufacture of fertilizers by the buyer.2. Interpretation of the term 'supplied' in the relevant notification.3. Applicability of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996, and Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.Issue 1: Liability to Pay Excise DutyThe appellant, M/s. Hindustan Petroleum Corporation Ltd. (HPCL), supplied Naphtha to M/s. Rashtriya Chemicals & Fertilizers Ltd. (RCF) duty-free under Notification No. 6/2002-CE, which exempts goods supplied against International Competitive Bidding for the manufacture of fertilizers. However, it was found that part of the Naphtha was used for generating steam, which was then used in various plants for purposes other than manufacturing fertilizers. The Revenue argued that since the Naphtha was not entirely used for fertilizer production, HPCL should pay the excise duty.The appellant contended that the duty should be demanded from RCF, as they used the Naphtha for purposes other than manufacturing fertilizers. The Tribunal agreed with the appellant, stating that the actual use of the goods is a post-clearance condition, and the supplier (HPCL) cannot enforce this condition once the goods are out of their control. The Tribunal cited the case of Maruti Udyog Ltd. Vs. Collector of Central Excise, where it was held that the duty cannot be demanded from the manufacturer if the end-use condition is not met by the buyer.Issue 2: Interpretation of 'Supplied'The Revenue emphasized the term 'supplied' in the notification, arguing that it implies the supplier's responsibility to ensure the intended use of the goods. The Tribunal, however, did not find this argument convincing. It stated that in any transaction, the supplier cannot be expected to ensure the precise use of the goods by the buyer after clearance. The Tribunal noted that substantial quantities of Naphtha were used for manufacturing fertilizers, and only a part was used otherwise, which does not justify demanding duty from the supplier.Issue 3: Applicability of Customs and Central Excise RulesThe Tribunal examined the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996, and the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. These rules prescribe procedures for manufacturers to import or procure goods at concessional rates and ensure their use for intended purposes. The Tribunal noted that these procedures are mandatory and should have been followed by RCF, the user of the Naphtha.The Tribunal concluded that the liability to pay the differential duty, in case of failure to use the goods for the intended purpose, lies with the user manufacturer (RCF) and not the supplier (HPCL). The Tribunal emphasized that HPCL met the pre-clearance conditions of the notification, and the post-clearance condition of actual use should be fulfilled by RCF.Conclusion:The Tribunal held that the duty cannot be demanded from HPCL, as they met the pre-clearance conditions, and the post-clearance use of the goods is the responsibility of RCF. Consequently, no penalty is leviable on HPCL. All four appeals were allowed, and the demands of duty were set aside.(Pronounced in court on 15/4/2013)