Pipeline interface kerosene exemption fails when SKO knowingly mixes with MS/HSD and extended limitation is upheld.

SKO cleared as pipeline interface and knowingly mixed with MS/HSD did not retain exemption under Notification No. 4/2006-CE, because the material was not used for sale as kerosene through the Public Distribution System. The intermixed product continued to answer the description of MS/HSD for assessment purposes, and the end-use certificate did not displace the contemporaneous evidence showing awareness that the interface would merge with the final product. On those facts, suppression or bona fide mistake was not established, so extended limitation was available and the duty demand on the intermixed product was sustained.

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Issues: (i) Whether SKO cleared under Notification No. 4/2006-CE could retain exemption when it was used as interface in the pipeline and got mixed with MS/HSD; (ii) whether duty could be demanded on the intermixed product as MS/HSD and whether the extended period of limitation was rightly invoked.

Issue (i): Whether SKO cleared under Notification No. 4/2006-CE could retain exemption when it was used as interface in the pipeline and got mixed with MS/HSD.

Analysis: The clearance was made with the knowledge that the SKO used as interface could not be segregated at the receiving end and would necessarily merge with MS or HSD. The material showed that the interface quantity was not intended for sale through the Public Distribution System as SKO, but was used in the course of pipeline operations and formed part of the product ultimately received as MS or HSD. In that situation, the exemption meant for Kerosene for ultimate sale through the Public Distribution System was not available.

Conclusion: The exemption under Notification No. 4/2006-CE was not available to the SKO used as interface, against the assessee.

Issue (ii): Whether duty could be demanded on the intermixed product as MS/HSD and whether the extended period of limitation was rightly invoked.

Analysis: The addition of SKO used as interface did not alter the essential character of MS or HSD. The product cleared and received after intermixing answered to the description of MS/HSD and could be assessed accordingly. The correspondence from HPCL showed awareness at the time of clearance that the interface SKO would not remain separate, and the end-use certificate was therefore immaterial. On the same facts, suppression or bona fide mistake was not made out, so invocation of the extended period was justified.

Conclusion: Duty on the intermixed product as MS/HSD and invocation of the extended period of limitation were upheld, in favour of Revenue.

Final Conclusion: The appeal failed in its entirety, and the demand, classification approach, and limitation finding were sustained.

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