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

CESTAT Kolkata held that differential Central Excise duty demand on intermixed SKO with MS/HSD during pipeline transportation was unsustainable. The appellant correctly paid duty on respective products at factory removal prices as per Section 4. CBEC Circular requiring HSD/MS pricing for SKO lacked statutory support and was held non-binding. The tribunal found no manufacture occurred post-removal during pipeline intermixing, and adjudication exceeded show cause notice scope. Appeals were allowed and impugned orders set aside.

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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.

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