2006 (4) TMI 361 - AT - Central Excise

Summary

Issues:
- Whether Low Sulphur Heavy Stock (LSHS) utilized for electricity generation and residential purposes is entitled to duty exemption.
- Whether the LSHS used in the refinery conforms to marketable specifications.
- Whether the demand for duty on LSHS used for electricity generation is valid.
- Whether penalty imposition and interest recovery are justified.

Analysis:

1. Duty Exemption for LSHS:
The dispute revolved around whether LSHS used for electricity generation and residential purposes qualifies for duty exemption under Notification No. 67/95-C.E. The appellants argued that the LSHS was not excisable as it was not marketable, citing technical differences between the LSHS marketed and consumed captively. The appellants contended that the LSHS was captively consumed in the refinery for steam and electricity generation, with only a small portion diverted to the residential colony. The Tribunal agreed with the appellants, emphasizing that the impugned product was not marketable due to significant specification variations, leading to the conclusion that no duty could be levied.

2. Conformity to Marketable Specifications:
The appellants presented detailed technical literature on the refining process, highlighting that the LSHS used in the refinery did not meet the specifications required for marketable LSHS. The viscosity, flash point, and sulphur content of the LSHS consumed captively differed significantly from the marketed LSHS. The Tribunal analyzed the specifications and concluded that the impugned product, though termed LSHS, was not marketable due to these variations, thereby rendering it non-excisable.

3. Validity of Duty Demand for Electricity Generation:
The Commissioner of Central Excise, Mangalore, had demanded duty on the LSHS used for electricity generation, arguing that it did not qualify for exemption. The Tribunal, however, found the demand unjustified as the LSHS was solely used within the refinery for steam and electricity production, with only a small percentage diverted externally. The Tribunal deemed the grounds for disallowing duty exemption as far-fetched and insignificant, ultimately setting aside the demand for duty.

4. Penalty Imposition and Interest Recovery:
The appellants contended that there was no suppression or wilful evasion of duty, as they believed in good faith that they were not liable for duty on the impugned goods. The Tribunal agreed, stating that the extended period could not be invoked. Additionally, the Tribunal found no merit in imposing penalties under Rule 173Q, citing lack of contumacious conduct. Regarding interest recovery under Section 11AB, the Tribunal ruled against it, considering the challenge to the levy of duty.

In conclusion, the Appellate Tribunal CESTAT, Bangalore, allowed the appeals with consequential relief, emphasizing the non-excisability of the impugned product due to technical differences from the marketable LSHS and the lack of merit in the duty demand for electricity generation. The Tribunal also rejected penalty imposition and interest recovery, ruling in favor of the appellants.