Refinery liable only for duty on goods as removed, not for subsequent mixing under exemption notification 12/2012

The CESTAT Chandigarh allowed the appeal, setting aside orders demanding excise duty on kerosene removed under exemption notification 12/2012. The tribunal held that the refinery appellant was liable only for duty on goods in the condition they were removed. Subsequent mixing of exempted kerosene with motor spirit and high speed diesel at a later stage could not create duty liability for the original remover. The tribunal relied on SC precedents establishing that excise duty liability arises at the point of removal and exemption applies when products are intended for public distribution system clearance.

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Issues Involved:
1. Liability of Central Excise duty on the intermixed quantity of Superior Kerosene Oil (SKO) with Motor Spirit (MS) and High-Speed Diesel (HSD).
2. Applicability and interpretation of CBEC Circular dated 22.04.2002.
3. Whether subsequent mixing of SKO with MS and HSD constitutes manufacture.
4. Invocation of extended period for demand and imposition of penalty and interest.

Detailed Analysis:

1. Liability of Central Excise Duty on Intermixed SKO:
The appellants, M/s HPCL Mittal Energy Ltd., were engaged in manufacturing and supplying petroleum products, including SKO, which was used as an interface in the pumping sequence of MS and HSD. The Department contended that the intermixed SKO, cleared without payment of duty under an exemption, lost its exempted status and thus, the appellants were liable to pay Central Excise duty on the intermixed quantity as applicable to MS and HSD. The Tribunal found that the appellants correctly discharged duty on the products in the condition they were cleared and that subsequent mixing did not create additional duty liability.

2. Applicability and Interpretation of CBEC Circular:
The Department relied on the CBEC Circular dated 22.04.2002 for valuing petroleum products for duty purposes. The appellants argued that the Circular could not override statutory provisions and was not applicable to their case. The Tribunal agreed with the appellants, stating that the Circular did not flow from any statutory provision and could not create a law. The Tribunal emphasized that goods should be assessed based on their condition at the time of removal from the factory.

3. Whether Subsequent Mixing Constitutes Manufacture:
The appellants contended that the subsequent mixing of SKO with MS and HSD did not amount to manufacture and thus did not attract additional duty. The Tribunal agreed, noting that there was no charge in the Show Cause Notice that such mixing constituted manufacture. The Tribunal referenced Section 2(f) of the Central Excise Act, which defines manufacture, and concluded that the intermixing did not fulfill the criteria for manufacture as per the Act.

4. Invocation of Extended Period for Demand and Imposition of Penalty and Interest:
The Department issued Show Cause Notices covering a period from December 2014 to March 2020, invoking the extended period for demand, penalty, and interest. The appellants argued that there was no suppression or intent to evade duty as they had regularly informed the Department about the intermixing and paid applicable duties. The Tribunal found merit in the appellants' contention, citing that the Department was aware of the facts and that the extended period was not justifiable. The Tribunal also noted that as a Public Sector Undertaking, the appellants could not be alleged to have mala fide intentions, and thus, penalties under Rule 26 of the Central Excise Rules, 2002, were not imposable.

Conclusion:
The Tribunal concluded that the appellants had correctly discharged their duty liabilities and that the subsequent mixing did not constitute manufacture. The reliance on the CBEC Circular was misplaced, and the extended period for demand was not applicable. Consequently, the Tribunal set aside the impugned order, allowing the appeals and providing consequential relief as per law.

Final Judgment:
Both appeals were allowed, and the impugned order was set aside in toto. The Tribunal pronounced the order in the open court on 18/09/2024.

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