2014 (7) TMI 1117 - AT - Central Excise

Exemption from the excise duty under Notification No. 6/2002-C.E. or Notification No. 6/2006-C.E. - held that - As regards the demand of duty on BHGO and naphtha for the period prior to 1-7-2001, this Tribunal considered this question in the Chennai Petroleum case (2008 (6) TMI 29 - CESTAT, CHENNAI) and it was held that no duty would be leviable on any quantity of fuel/oil/LSHS used for generating steam required for refining of crude petroleum in the appellant s refinery in view of the provisions of Rule 43(a) of the Central Excise Rules as the refinery was a bonded warehouse and the use of fuel/oil/LSHS without payment of duty was permitted for the conduct of further manufacturing process within the refinery. - This is also in conformity with the ratio of the decision of the Apex Court in the case of Chennai Petroleum (2007 (4) TMI 4 - SUPREME COURT OF INDIA) wherein it was held that exemption on goods arising in the manufacture of electricity, which in turn was used in the manufacture of petroleum products, would be available as the activity was undertaken within the refinery, which was deemed as a warehouse. Following the ratio of the said decision, in the present case also it has to be held that the demand for the period prior to 1-7-2001 in respect of BHGO and naphtha used within the refinery for the manufacture of electricity, which was further used in the manufacture of goods dutiable or otherwise will not sustain in law. If the appellant has undertaken the credit reversal as claimed by them, benefit of Notification No. 67/95 cannot be denied to the appellant provided the reversal has been correctly done and whenever there is a delay in reversal, interest liability has been discharged on the quantum of credit reversed from the due date to reversal till the actual date of reversal. Finance Act, 2010 retrospectively amended the Cenvat Credit Rules as it stood at various points of time so as to provide for reversal of credit attributable to inputs used in the manufacture of exempted final products subject to the appellant reversing the credit and the credit so reversed is certified by a Chartered Accountant/Cost Accountant and interest liability is discharged at the rate of 24% per annum for the period of delay in reversal. - benefit of this retrospective amendment ought to be given to the appellant, if these conditions are complied with. However, this is a matter of verification which has to be undertaken by the adjudicating authority and the appellant has to lead the necessary evidence that they have discharged the credit liability as provided for under the Finance Act, 2010 along with appropriate interest liability. Subject to submission of such evidence, the adjudicating authority has to consider the matter afresh and extend the benefit of Notification No. 67/95. Excise duty would be leviable on naphtha used in the generation of electricity, which, in turn, were consumed for lighting of roads/yards, administrative building, cafeteria etc. Following the ratio of the said decision in the present case also, it has to be held that the appellant would be liable to pay Excise duty on BHGO and naphtha used in the manufacture of electricity, which, in turn, has been used in administrative/canteen building etc. The quantum of such BHGO and naphtha needs to be worked out and the duty demand needs to be quantified. - Matter remanded back - Decided in favour of assessee.

Issues Involved:
1. Excisability and marketability of BHGO.
2. Duty liability on BHGO and naphtha for the period prior to 1-7-2001.
3. Applicability of Notification No. 67/95 for BHGO and naphtha captively consumed.
4. Verification of credit reversal and interest liability.
5. Duty liability for BHGO and naphtha used in the generation of electricity for non-manufacturing purposes.
6. Penalty imposition.

Detailed Analysis:

1. Excisability and Marketability of BHGO:
The appellant argued that BHGO is an intermediate product and not marketable, hence not excisable. The Revenue countered this by presenting evidence from show cause notices and statements from the appellant's officials, indicating that BHGO is classifiable under specific sub-headings of the Central Excise Tariff Act and is similar to HSD/LDO. The Tribunal referred to various sources, including Oxford Dictionary and Encyclopedia Britannica, to establish that gas oil is a marketable product. The Tribunal concluded that BHGO is an excisable product under CETH 2790.99.

2. Duty Liability on BHGO and Naphtha for the Period Prior to 1-7-2001:
The Tribunal referenced the Chennai Petroleum case, which held that no duty would be leviable on fuel/oil/LSHS used for generating steam required for refining crude petroleum within a refinery deemed as a bonded warehouse. Thus, for the period prior to 1-7-2001, no duty liability would accrue on BHGO and naphtha used within the refinery for generating electricity used in manufacturing.

3. Applicability of Notification No. 67/95 for BHGO and Naphtha Captively Consumed:
Notification No. 67/95 exempts goods captively consumed in the manufacture of dutiable goods. The appellant contended that they reversed the credit on inputs used in the manufacture of exempted goods. The Tribunal stated that if the appellant has correctly reversed the credit and discharged interest liability, the benefit of Notification No. 67/95 should be extended. Verification by the adjudicating authority was required to ensure compliance with the Finance Act, 2010.

4. Verification of Credit Reversal and Interest Liability:
The Tribunal emphasized the need for verification of the appellant's claim of credit reversal and interest payment. The adjudicating authority was directed to verify whether the appellant reversed the credit correctly and paid the interest as per the provisions of the Finance Act, 2010, certified by a Chartered Accountant/Cost Accountant.

5. Duty Liability for BHGO and Naphtha Used in the Generation of Electricity for Non-Manufacturing Purposes:
The Tribunal cited the HPCL case, which held that excise duty is leviable on naphtha used in generating electricity for non-manufacturing purposes such as administrative buildings and canteens. Following this precedent, the Tribunal held that the appellant is liable to pay excise duty on BHGO and naphtha used for generating electricity used in non-manufacturing activities. The quantum of such usage and duty needs to be determined by the adjudicating authority.

6. Penalty Imposition:
The Tribunal concluded that since the matter involved interpretation of law, no penalty was warranted.

Conclusion:
The appeals were allowed by way of remand for:
- Verification of credit reversal and interest payment.
- Re-computation of duty and interest liability for BHGO and naphtha used in non-manufacturing purposes.
- No penalty was imposed due to the interpretative nature of the issue.

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