Tribunal Rejects Circular, Upholds Appellant's Duty Payment Decision

The Tribunal held that the appellant correctly paid duty on intermixed Superior Kerosene Oil (SKO) based on prevailing prices, rejecting the department's contention to pay duty on the higher of two duties per Circular No. 636/27/2002-CX. The Circular lacked statutory support, and duty was correctly paid on SKO as per transaction value at the time of goods removal. The Tribunal emphasized that Circulars cannot create law and found that SKO intermixing did not constitute manufacture under the Central Excise Act, 1944. Consequently, the Tribunal set aside the differential duty demand, allowing the appeals with any consequential benefits.

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Issues:
Interpretation of Central Excise Tariff Act, 1985 regarding duty payment on intermixed petroleum products; Validity of CBEC Circular No. 636/27/2002-CX; Whether intermixing of SKO with MS/HSD amounts to manufacture; Applicability of Section 2(f)(iii) of Central Excise Act, 1944.

Analysis:
The case involved the appellant, engaged in manufacturing petroleum products, paying duty on intermixed Superior Kerosene Oil (SKO) with Motor Spirit (MS) or High Speed Diesel (HSD) based on assessable value of SKO. The department contended that duty should be paid on the higher of two duties, as per CBEC Circular No. 636/27/2002-CX. The Adjudicating Authority upheld the demand, penalties, and interest. The appellant argued that the Circular lacked statutory support and duty was correctly paid on SKO. They also challenged the finding of manufacture post-removal of goods.

The Tribunal noted that duty is payable on transaction value at the time of goods removal, and the appellant correctly paid duty based on prevailing prices. The reliance on the Circular was questioned as it lacked statutory basis. Citing relevant judgments, the Tribunal emphasized that Circulars cannot create law and must align with existing statutes. The Circular's proposal to apply HSD/MS prices on SKO clearance did not have legal backing, rendering it non-binding on the assessee.

Regarding the manufacturing issue, the Tribunal found no charge in the Show Cause Notice regarding SKO intermixing constituting manufacture. The reliance on Section 2(f)(iii) of the Central Excise Act, 1944 was deemed inapplicable as the appellant's products were not listed in the Third Schedule. Thus, the intermixing of SKO with HSD/MS did not amount to manufacture.

Conclusively, the Tribunal held the differential duty demand on intermixed SKO as unsustainable, setting aside the impugned orders and allowing the appeals with any consequential benefits.

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