2024 (8) TMI 10 - AT - Central Excise

Low Sulphur Heavy Stock not marketable due to BIS non-compliance deemed non-excisable product

The CESTAT Kolkata held that Low Sulphur Heavy Stock (LSHS) manufactured by the appellant was not marketable as it failed to meet BIS specifications, ... Entitlement to Excise Duty exemption - Marketability of the product Low Sulphur Heavy Stock (LSHS) - Department took the view that the electricity generated by the usage of LSHS, is not only used in relation to manufacture of final product but also such electricity is being used for the day to day requirement of running their township, refinery hospital, etc. - Time limitation. HELD THAT:- On going through the Test Report given by the Quality Control Department of IOC, it is seen that they have compared the test results of the product vis-à-vis BIS standards. In many cases, the parameters are not matching. In particular, the flash point of the LSHS is given as 50oC to 64oC the minimum requirement is 76oC. Similarly the water content found is 1.5% to 5% whereas the maximum permissible limit is 1% only. When such critical parameters are not met, the product cannot be marketed/sold by the Appellant to any third party. In respect of the petroleum products unless the BIS specifications are met, it would be illegal to sell such products. Therefore, the Test Report on the face of it, clarifies that the product is not marketable. The very same issue was before the Banglore Tribunal in the case of MANGALORE REFINERY & PETROCHEM. LTD. VERSUS C. CE & CUS., BANGALORE [2006 (4) TMI 361 - CESTAT, BANGALORE], wherein the Tribunal has held 'we are of the view that the impugned product, as such is not marketable even though it is loosely termed as LSHS. Since the impugned product is not marketable, the same is not excisable. If the impugned product is not excisable, there is no merit in the demand of duties.' As on date, this decision of the Banglore Tribunal has not been stayed or overturned. Therefore, the issue has reached finality. Time Limitation - HELD THAT:- All the records of the LSHS manufactured and utilized for generation of electricity which is used within the factory and used in the township etc. are very much recorded. The Department did not take any timely action on raising the demand in respect of the LSHS used for the electricity which was consumed at their township refinery, hospital etc. Therefore, the entire demand for the period January 2007 to March 2007 is time barred. Hence the confirmed demand is set aside even on account of limitation to this extent. The appeal is allowed fully on merits and partly allowed on limitation. Issues Involved:1. Marketability of the product Low Sulphur Heavy Stock (LSHS).2. Applicability of Excise Duty on LSHS used for electricity generation.3. Allegation of suppression and time-barred demand.Issue-wise Detailed Analysis:1. Marketability of the Product Low Sulphur Heavy Stock (LSHS):The appellant contended that the LSHS produced did not meet the Bureau of Indian Standards (BIS) specifications, making it non-marketable. Key parameters such as Flash Point and water content did not conform to BIS standards, as evidenced by a Test Report from the Quality Control Department of IOCL. The Flash Point of the LSHS was between 50-64^0C against the BIS minimum requirement of 76^0C, and the water content was 1.5-5%, exceeding the maximum permissible limit of 1%. The appellant argued that since the product could not be legally sold in the market, it was not marketable and thus not excisable. This argument was supported by the precedent set in Mangalore Refinery & Petrochem, Ltd. Vs. CCE & Cus., Bangalore-2006 (203) ELT 591 (Tri.-Bang.), where a similar issue was adjudicated, and it was held that non-marketable products are not liable for Excise Duty.2. Applicability of Excise Duty on LSHS Used for Electricity Generation:The Department's position was that the electricity generated using LSHS was used not only for manufacturing purposes but also for non-manufacturing purposes such as the appellant's township and hospital. Therefore, they argued that the exemption under Notification No. 67/95-CE and 11/97-CE was not applicable for LSHS used in generating electricity for non-manufacturing purposes. However, the Tribunal found that the LSHS in question was not marketable due to non-conformance to BIS standards, and thus, following the rationale in the Mangalore Refinery case, the LSHS was not excisable. The Tribunal also distinguished the present case from Indian Oil Corporation Ltd. Vs. Collector of C. Ex., Baroda-2006 (202) E.L.T. 37 (S.C.), where the product was sold to third parties, which was not the case here.3. Allegation of Suppression and Time-barred Demand:The appellant argued that they had been transparent in their declarations and filings since 1997, and the Department was aware of the usage of LSHS for electricity generation. Consequently, the Show Cause Notice issued on 6 May 2008, for the period January 2007 to March 2007, was argued to be non-sustainable due to being time-barred. The Tribunal agreed with this argument, noting that the Department had all the necessary information but failed to act in a timely manner. Thus, the demand for the period January 2007 to March 2007 was held to be time-barred.Conclusion:The Tribunal allowed the appeal on merits, finding that the LSHS was not marketable and thus not excisable. Additionally, the demand for the period January 2007 to March 2007 was set aside on account of being time-barred. The appellant was granted consequential relief as per law.