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2001 (10) TMI 406 - AT - Central Excise
Issues:
Challenge to duty demand and penalty imposition based on downgrading of Aviation Turbine Fuel to Superior Kerosene Oil. Analysis: The appeal contested the duty demand of over Rs. 3.6 Lakhs and penalty of Rs. 25,000 imposed on the appellant for downgrading Aviation Turbine Fuel (ATF) to Superior Kerosene Oil (SKO) in a registered warehouse. The appellant argued that they were entitled under Rule 143 of the Central Excise Rules to deal with warehoused goods, including sorting and repacking, as necessary for preservation or disposal. Additionally, Rule 159 stipulates that goods subjected to processes altering their duty liability must be reassessed accordingly. The appellant maintained that the downgrading and removal of ATF were covered by these rules, emphasizing the urgency to supply proper ATF to the Indian Air Force. The Revenue authorities contended that the appellant had sought remission of duty on the downgraded fuel, which was rejected. They invoked Rule 173N and Rule 149 of the Central Excise Rules to demand differential duty and impose a penalty. However, the appellate tribunal noted that the warehoused ATF had indeed been downgraded to SKO and sold as such. Rule 159 specifically addresses goods undergoing changes during warehousing, requiring reassessment based on altered duty liability. In this case, the downgrading was akin to sorting and separation, as permitted by the rules, resulting in the goods being reassessed as SKO. The Central Excise Authorities had erroneously applied Rule 143 and Rule 149 to the situation, which did not involve destruction of goods but rather a permissible alteration for sale. As the duty had been correctly paid under Section 159 of the Central Excise Rules, there was no evasion warranting recovery under Section 11A, and thus no basis for penalty imposition. The tribunal deemed the proceedings unwarranted in law and set aside the impugned orders, allowing the appeal and directing any consequential relief to the appellant.
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