2004 (3) TMI 530 - AT - Central Excise

Cess - Crude oil at offshore installation brought by pipeline and stored at settlement facilities in Uran

Summary

Issues:
Appeal against two separate orders of the Commissioner of Central Excise, Mumbai regarding the payment of cess on crude oil.

Analysis:
The appellants produced crude oil and paid cess as per the Oil Industry (Development) Act, 1974. The crude oil was supplied to refineries in Mumbai and other areas. The Central Excise authorities found that cess was not paid on about 1% of the crude oil dispatched. Show cause notices were issued for recovery of cess and penal action. The appeals were heard together as they involved a common issue.

The issue revolved around the interpretation of the Oil Industry (Development) Act, 1974. Section 2(e) defines "Crude Oil" as petroleum before refining, and Section 15 states that excise duty shall be collected on the quantity received in a refinery. The appellants explained that the quantity measurement was done after settling and removing water from the crude oil. They applied an average water factor for crude oil delivered through containers. The appellants paid cess based on the quantity certified by the refineries, and there was no claim that the crude oil supplied contained no water.

The Tribunal noted that there was no allegation or finding that cess was paid on a lesser quantity than received in the refineries. The appellants' explanation was satisfactory, and it was established that appropriate cess was paid based on the certified quantity. As there was no evidence of underpayment or miscalculation, the demands for recovery of cess and penalties were deemed unsustainable. Therefore, the Tribunal set aside the demands and penalties, allowing the appeals against the Commissioner's orders.

In conclusion, the Tribunal's decision was based on the correct interpretation of the relevant provisions of the Oil Industry (Development) Act, 1974. The appellants' method of calculating and paying cess on the crude oil supplied to refineries was found to be in compliance with the law. The Tribunal emphasized the importance of accurate measurement and payment of cess based on the certified quantity received by the refineries, ultimately ruling in favor of the appellants by setting aside the demands and penalties imposed by the Commissioner.