2019 (8) TMI 1910 - AT - Central Excise

Differential excise duty demand on intermixed SKO with MS/HSD during pipeline transportation held unsustainable under Section 4

M/s Indian Oil Corporation Ltd. Versus Commissioner of Central Excise & S. Tax, Guwahati.

CESTAT Kolkata held that differential Central Excise duty demand on intermixed SKO with MS/HSD during pipeline transportation was unsustainable. The ... Demand of differential Central Excise duty with interest and penalties - intermixing of SKO with MS/HSD during movement of these petroleum products though pipeline - quantification of duty of intermixed part of SKO and MS/HSD - demand solely based on CBEC Circular No. 636/27/2002-CX dated 22.04.2002 - HELD THAT:- The fact is not in dispute that while clearing the goods, the appellant has cleared from the factory quantities of MS, HSD & SKO separately. Since all the three goods are supplied through a pipeline, the SKO get mixed with either MS or HSD. As per the provisions of Section 4, the excise duty is payable on the transaction value at the time of removal of the goods from the factory. In the present case, the goods cleared from the factory is MS/HSD and SKO. Accordingly, the duty on these products is payable as per price of the respective product prevailing at the time of removal of the goods. As regards MS and HSD, the duty was paid on the transaction value. As regards SKO, since the same was not sold, the duty was paid on the prevailing price of SKO on the basis of sale price prevailing for SKO naturally which is higher than the price of SKO sold under Public Distribution Systems. Therefore, the correct price was adopted by the appellant while clearing the interface quantity of SKO. On careful reading of Board Circular dated 22.02.2002, it is found that the Circular suggests that even on clearance of SKO, the price of HSD/MS should be applied. However, this proposal of the Board Circular does not flow from any statutory provision. The appellant have correctly applied the price of respective goods cleared from the factory at the time of removal. Therefore, there are no support of any statutory provisions in the Board Circular. The Hon’ble Supreme Court has time and again, held that the Board Circular cannot vitiate the law or the Board Circular cannot be issued contrary to the statutory provisions. The Board can only clarify the existing law but cannot create law by itself. Therefore, the above Board Circular dated 22.04.2002 having without having support of any Act or Rule, is not binding on the assessee. After removal of goods, intermixing of SKO with MS/HSD amounts to manufacture or not - HELD THAT:- There is no charge in the Show Cause Notice that the activity of supplying HSD/MS with interface SKO amounts to manufacture. Therefore, on this point, the adjudication order travelled beyond the scope of show cause notice which is not permissible in the law - It is undisputed that the products of the appellant are not specified under third schedule, therefore, whatever activity mentioned in clause (iii) shall not apply to the goods which are not specified in Third schedule. For this reason, intermixing of SKO with HSD/MS does not amount to manufacture. The differential duty demand raised on interface quantity of SKO is clearly not sustainable. Hence, the impugned orders are set aside and the appeals filed by the appellant are allowed. Issues:Interpretation of duty payable on intermixed petroleum products through pipeline based on CBEC Circular No. 636/27/2002-CX; Whether the Board Circular is binding on the assessee; Whether intermixing of SKO with MS/HSD amounts to manufacture post-clearance.Analysis:1. The appellant, engaged in manufacturing petroleum products, was charged differential excise duty on intermixed Superior Kerosene Oil (SKO) and Motor Spirit (MS) or High Speed Diesel (HSD) based on CBEC Circular No. 636/27/2002-CX. The department contended that duty should be paid on the higher of the two duties for intermixed quantities. The Adjudicating Authority upheld the demand, leading to the present appeals.2. The appellant argued that the Board Circular is not supported by any statute, making it non-binding. They paid duty based on the actual quantity of SKO cleared, maintaining that intermixing did not change the nature of goods at the time of removal. The Adjudicating Authority's reliance on Section 2(f)(iii) of the Central Excise Act was challenged as the goods in question were not specified under the Third Schedule.3. The appellant cited judgments where similar departmental orders were set aside. The Revenue reiterated the findings of the impugned orders, leading to a detailed consideration by the Tribunal.4. The Tribunal analyzed the facts and found that duty is payable on goods at the time of removal, with the duty correctly paid by the appellant on the respective products. The reliance on the Board Circular was scrutinized, emphasizing that the Circular lacked statutory support. Citing Supreme Court judgments, the Tribunal emphasized that Circulars cannot create law.5. Regarding the manufacturing aspect post-clearance, the Tribunal noted that the Show Cause Notice did not charge the activity of intermixing as manufacture. The Adjudicating Authority's reliance on Section 2(f)(iii) was deemed inapplicable as the goods did not fall under the Third Schedule.6. Consequently, the Tribunal held that the differential duty demand on intermixed SKO was unsustainable. The impugned orders were set aside, and the appeals by the appellant were allowed with any consequential benefits.7. The Tribunal's decision highlighted the importance of statutory provisions over Circulars and emphasized the need for charges in Show Cause Notices to align with legal requirements for sustainable demands.