Duty on pipeline flushing fuel barred where returned goods were reprocessed under a preserved transitional excise regime.

Duty could not be demanded on High Speed Diesel used only to flush the pipeline before export where the material was returned for reprocessing under the refinery's established practice. The earlier regime permitted such return and reprocessing under Rule 143A and Notification No. 218/84, and Rule 33 of the 2002 Rules preserved those existing notifications and orders to the extent they remained relevant and consistent with the later rules. Since the flushing material re-entered the refinery for processing and eventual duty-paid clearance, the same goods would otherwise suffer repeated duty. The demand was therefore not sustainable.

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Issues: Whether duty was payable on the High Speed Diesel used only for flushing the pipeline before export, and whether the demand could be sustained despite the old refinery practice, the transitional provisions, and the notification permitting reprocessing of the returned mixture.

Analysis: The appellants were operating a refinery under the earlier excise regime and had long been bringing back the mixture of Superior Kerosene Oil and High Speed Diesel for refining and reprocessing. The activity was covered by Rule 143A of the Central Excise Rules, 1944 and by Notification No. 218/84. Although the current rules did not contain a specific provision for such return and reprocessing, Rule 33 of the Central Excise Rules, 2002 preserved notifications and orders in force on 28 February 2002, to the extent they were relevant and consistent with the new rules. The demand would also result in repeated duty on the same goods, since the HSD used for flushing returned to the refinery for processing and subsequent clearance on payment of duty.

Conclusion: The demand was not sustainable and the assessee succeeded.

Ratio Decidendi: A demand for duty cannot be sustained where the goods are used only for a technical flushing process, are returned for reprocessing under a preserved transitional regime, and the applicable older permission remains relevant and consistent with the later excise rules.

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