1995 (9) TMI 83 - SC - Central Excise

Supreme Court rules on marketability of Burner Fuel Oil residue

The Supreme Court allowed the appeal regarding the marketability of Burner Fuel Oil consumed by the appellant in its refinery. The Court found that the ... Marketability - Captive consumption - Test of marketability: capable of being sold or sold to consumers in the market as it is - Residue requiring further processing or blending to become marketable - Burden on Revenue to establish marketabilityMarketability - Residue requiring further processing or blending to become marketable - Captive consumption - Test of marketability: capable of being sold or sold to consumers in the market as it is - Burden on Revenue to establish marketability - Whether the residuary material described as Burner Fuel Oil, captively consumed by the appellant within its refinery for heating, was marketable in the condition in which it remained after distillation - HELD THAT: - The Court applied the settled test of marketability as requiring that an article be capable of being sold in the market as it is, without anything more. The affidavit filed on behalf of the appellant, which alone constituted the material placed before the Court, stated that after removal of marketable fractions the residue left in the distillation column had very high viscosity, solidified below elevated temperatures and could not be used as a substitute for marketable fuels unless subjected to further processing and blending with low-viscosity stocks such as diesel. The Encyclopaedia extracts relied on by the Revenue indicated that commercial fuel oils are usually blended to obtain desired viscosity and that residues may be used as furnace oil only after blending; they did not establish that the particular residue was marketable as it was. On the material before the Court, therefore, the residue could not be equated with a marketable fuel in its existing condition, and the Revenue failed to show that the residue was marketable within the legal test applied in earlier precedents. [Paras 3, 4, 5, 6]The residuary material (Burner Fuel Oil) was not marketable in the condition in which it remained after distillation and its captive consumption within the refinery was not subject to dutiability on the basis of marketability.Final Conclusion: Appeal allowed; impugned order set aside and consequential benefits to be given in accordance with law; no order as to costs. Issues:Marketability of Burner Fuel Oil captively consumed by the appellant for heating purposes in its own refinery.Detailed Analysis:Issue: Marketability of Burner Fuel OilThe Supreme Court noted that the High Court did not specifically address the marketability of Burner Fuel Oil consumed by the appellant for heating purposes in its refinery, as urged by the appellant. The Court observed that the High Court's judgment was from 1972 and decided to examine the marketability issue itself. The appellant submitted an affidavit stating that the residue left after processing crude oil in the refinery was a waste material with high viscosity, unsuitable for direct use as fuel without further processing. The appellant argued that this residue, termed Burner Fuel Oil, was not marketable without additional processing and blending with low viscosity stock like diesel.The Court referenced previous cases to define marketability as the capability of an article to be sold or sold to consumers in the market without further processing. Applying this definition to the appellant's affidavit, the Court concluded that the residue, in its current state, did not meet the marketability test. The Revenue argued that the residue qualified as fuel oil based on encyclopedic definitions, emphasizing that fuel oil can solidify under certain conditions but remains classified as fuel oil. However, the Court found that the Revenue failed to demonstrate that the residue met the marketability standard established in previous decisions.In light of the above analysis, the Supreme Court allowed the appeal, overturned the impugned order, and directed that consequential benefits be granted according to the law. No costs were awarded in this matter.