2008 (11) TMI 205 - AT - Central Excise

Tribunal rules in favor of Chennai Petroleum Corp. in duty and penalty dispute over Light Diesel Oil

The tribunal found in favor of M/s. Chennai Petroleum Corporation Ltd. (CPCL) in the challenge to the demand of duty and penalties imposed on them for the ... Payment of Duty on LDO - sale of residual - Notification No. 67/95-C.E., dated 16-3-95 exempting clearance of excisable goods for further manufacture within the factory does not cover removals of LDO. As per the Notification, LDO, is also not an input bearing Cenvat credit - LDO had not been removed for manufacture of Furnace Oil. LDO had been mixed with FO and removed on payment of duty owing to operational exigencies such as, when the level of LDO fell below a certain point in the storage tank. It was not possible to pump out the same in such a situation. FO which could be mixed with LDO without the FO losing its properties is pumped into the LDO tank and LDO cleared in admixture with FO - held that - the duty paid was at the rate applicable to FO and not at the rate applicable to LDO which was higher by Rs.1500/- per KL compared to FO. - Difference of duty required to be paid - penalties not to be imposed. Issues:- Challenge to demand of duty and penalties imposed on M/s. Chennai Petroleum Corporation Ltd.Analysis:1. The appeals challenged the demand of duty and penalties on Chennai Petroleum Corporation Ltd. (CPCL) for the removal of Light Diesel Oil (LDO) for captive consumption in the manufacture of Furnace Oil (FO). The duty was demanded as the notification exempting clearance of excisable goods for further manufacture within the factory did not cover LDO. CPCL argued that the LDO was mixed with FO due to operational exigencies and had become non-marketable. They contended that paying duty on the oil mix, which satisfied the description of FO, discharged their duty liability on the LDO. The demand was seen as asking CPCL to pay duty twice on the same quantity of LDO. CPCL relied on a case law to support their argument that duty was not liable on LDO until it was cleared from the factory as LDO.2. The JCDR argued that CPCL should have claimed remission of duty on LDO if it was unfit for consumption and not marketable. The Commissioner found that CPCL's claim of a consignment going off-spec was not substantiated with evidence. It was contended that CPCL did not discharge the duty on the impugned quantities of LDO, and therefore, the impugned orders should be sustained.3. The tribunal considered the submissions and noted that CPCL had removed the LDO as FO without paying the excise duty due on the LDO. While it was acknowledged that no FO was manufactured using the impugned LDO, the duty on LDO had not been paid. The tribunal found that CPCL's inability to clear small quantities of LDO was not a legal justification to remove it as FO. CPCL should have sought remission of duty if the LDO was unfit for marketing. The tribunal ordered that the duty liability on the LDO would stand discharged if the differential amount due compared to the duty paid on the same as FO was paid. The penalties imposed were vacated, and the appeals were allowed by way of remand.