2018 (12) TMI 1846 - AT - Central Excise

Transit loss up to 1% on petroleum products exempt from duty payment per 1985 Board circular

The Tribunal allowed the appeal concerning transit loss of petroleum products during movement from refinery to bonded warehouse. The Tribunal held that ... Payment of duty on the quantum of petroleum products lost in transit - Levy of penalty on both the Refinery as well as the Raxaul Depot - Department noticed that there was transit loss in the movement of petroleum products from Barauni to Raxaul - HELD THAT:- The transit loss had happened in the movement of the petroleum products from their Refinery situated at Barauni to the warehouse situated at Raxaul. Keeping in view the nature of the goods which are volatile, some transit loss is inevitable. The question therefore to be decided is whether such transit loss can be condoned or the appellant should make good by payment of duty on such goods lost. The Board had issued a circular as early as 30/10/1985 in which it has been clarified that transit loss upto 1% was permissible. The Adjudicating Authority had declined to grant the benefit of the circular citing the reason that the Warehousing Provision for petroleum products has since been withdrawn and the circular is applicable only for some other situations - the demand in respect of such transit loss which is not in excess of 1% may be condoned, in view of the circular of the Board dated 30/10/1985. It is the claim of the appellant that wherever transit losses were more than 1% they have already discharged the duty liability. Appeal allowed - decided in favor of appellant. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:Whether transit loss of petroleum products during movement from the refinery to a bonded warehouse can be condoned without payment of duty, given the volatile nature of the goods.Whether the Board's circular dated 30/10/1985 permitting transit loss up to 1% applies to the warehousing procedure under which the goods were transferred.Whether the appellant is liable to pay duty on transit loss occurring during movement of petroleum products under bond to a bonded warehouse, especially when the warehousing provisions for petroleum products have been withdrawn.The applicability and relevance of precedents where transit loss up to 1% was allowed in similar circumstances.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether transit loss of petroleum products during movement from refinery to bonded warehouse can be condoned without payment of duty.Relevant legal framework and precedents: The Board's circular dated 30/10/1985 explicitly recognizes that transit loss up to 1% is permissible for petroleum products due to their volatile nature. This circular provides that duty on transit shortages in excess of 1% would be payable, implying tolerance for loss within the 1% threshold. Several Tribunal decisions have upheld this principle, including cases involving Indian Oil Corporation Ltd. and Hindustan Petroleum Corporation.Court's interpretation and reasoning: The Tribunal acknowledged the inherent volatility of petroleum products and accepted that some transit loss is inevitable. It relied on the Board circular which permits transit loss up to 1%. The Tribunal rejected the Adjudicating Authority's refusal to apply the circular on the ground that warehousing provisions for petroleum products had been withdrawn, noting that export warehousing facilities continued and the circular's rationale remains applicable.Key evidence and findings: The appellant's claim that transit loss did not exceed 1% and that duty was paid wherever loss exceeded this threshold was accepted. The Tribunal also noted prior Tribunal decisions that allowed similar transit losses.Application of law to facts: Applying the circular and precedents, the Tribunal found that transit loss up to 1% should be condoned without duty payment. The appellant's compliance with duty payment beyond 1% loss further supported this conclusion.Treatment of competing arguments: The Revenue argued that since the goods were cleared without payment of duty under Rule 20 of the Central Excise Rules and there was short receipt at the bonded warehouse, duty was payable on the lost quantity. The Tribunal, however, gave precedence to the Board's circular and the nature of the goods, thereby rejecting the Revenue's contention.Conclusions: Transit loss up to 1% during movement under bond to the bonded warehouse is permissible and not liable for duty payment.Issue 2: Applicability of the Board circular dated 30/10/1985 to warehousing procedure for petroleum products, given withdrawal of warehousing provisions.Relevant legal framework and precedents: The circular was issued when warehousing provisions for petroleum products were in place. However, the Tribunal referred to subsequent decisions where the circular was applied even after withdrawal of warehousing provisions, especially in export warehousing contexts.Court's interpretation and reasoning: The Tribunal observed that although warehousing provisions for petroleum products were withdrawn in 2004, export warehousing facilities continued. The circular's principle permitting 1% transit loss was therefore still relevant and applicable to the facts of the case.Key evidence and findings: The Adjudicating Authority's reasoning that the circular was not applicable was found to be incorrect in light of continued export warehousing and consistent Tribunal rulings.Application of law to facts: The Tribunal applied the circular to the export warehousing procedure, allowing the 1% transit loss benefit.Treatment of competing arguments: The Adjudicating Authority's narrow interpretation was rejected in favor of a broader, purposive interpretation consistent with the circular's intent and subsequent practice.Conclusions: The Board's circular permitting 1% transit loss applies to export warehousing of petroleum products despite withdrawal of general warehousing provisions.Issue 3: Liability to pay duty on transit loss occurring under Rule 20 of the Central Excise Rules.Relevant legal framework and precedents: Rule 20 allows clearance of goods without payment of duty under bond for export or warehousing. The question arises whether loss during such transit attracts duty liability.Court's interpretation and reasoning: The Tribunal recognized that transit loss beyond the permissible limit attracts duty liability. However, within the 1% limit, duty should not be demanded. The appellant's compliance with duty payment beyond 1% loss was noted.Key evidence and findings: The appellant's records showed duty payment where loss exceeded 1%, demonstrating good faith and compliance.Application of law to facts: The Tribunal held that the appellant is liable to pay duty on transit loss exceeding 1%, but not on loss within that limit.Treatment of competing arguments: The Revenue's demand for duty on all transit loss was rejected; the Tribunal balanced the practical realities of transit loss with legal obligations.Conclusions: Duty liability arises only on transit loss exceeding 1% during movement under Rule 20.3. SIGNIFICANT HOLDINGSThe Tribunal held that 'transit loss up to 1% may be condoned, in view of the circular of the Board dated 30/10/1985.' This principle was applied notwithstanding the withdrawal of warehousing provisions for petroleum products, as export warehousing continued.The Tribunal emphasized that 'keeping in view the nature of the goods which are volatile, some transit loss is inevitable,' establishing the core principle that the law must accommodate practical realities of handling volatile petroleum products.The Tribunal conclusively set aside the impugned orders demanding duty on transit loss within the 1% threshold, thereby allowing the appeal and confirming that duty is payable only on loss exceeding that limit.