2006 (12) TMI 385 - AT - Central Excise

Summary

Issues:
1. Interpretation of Notifications granting exemption from excise duty.
2. Determination of duty liability on Residual Crude Oil (RCO) used as fuel.
3. Consideration of whether removal of goods under bond constitutes nil rate of duty or duty exemption.

Analysis:

Issue 1 - Interpretation of Notifications granting exemption from excise duty:
The case involved the interpretation of Notifications 217/86-CE and 67/95-CE which provided exemption from excise duty on intermediate products when the final product was either exempt from duty or chargeable to nil rate of duty. The dispute centered around whether the appellants were entitled to exemption for RCO used as fuel for the production of steam and electricity based on the final products cleared under bond to M/s. IBP Ltd.

Issue 2 - Determination of duty liability on Residual Crude Oil (RCO) used as fuel:
The Tribunal examined the appellants' activities of clearing Low Sulphur Heavy Stock (LSHS) and naphtha under bond to M/s. IBP Ltd., who utilized the goods under exemption Notifications for electricity generation and fertilizer manufacture. The duty demand was on RCO consumed as fuel for steam and electricity production, as well as on the RCO content in LSHS removed during the disputed period.

Issue 3 - Consideration of removal of goods under bond as nil rate of duty or duty exemption:
The crux of the matter was whether the removal of naphtha and LSHS under bond from the refinery constituted goods chargeable to nil rate of duty or exempt from duty payment. The Tribunal analyzed precedents and emphasized that clearance of final products under bond did not equate to nil rate duty clearance. It was observed that duty could be demanded on the proportionate quantity of RCO used in the manufacture of products cleared at nil rate of duty.

The Tribunal ultimately ruled in favor of the appellants, allowing Appeal No. E/1826/1999 and partially allowing Appeal No. E/177/2006. The demand of duty on RCO used as fuel for steam and electricity production was not sustained, but duty on the proportionate RCO quantity related to cleared products at nil rate of duty was upheld.