2013 (3) TMI 481 - HC - Customs

Transit loss - Naphta - According to the Revenue offsetting of gain observed in one product against loss observed in another product is permissible only in cases where unloading of two compatible type/same type of products are effected through one set of pipeline at one location where the possibility of inter mixing of the product exists. In the present case, since the product unloaded at all the three terminals being same, according to the Revenue offsetting the gain occurred at Vasco to the loss occurred at Mangalore could not be acceded to. Held that - As per Circular No. 55 of 1989, dated 15-12-1989 the storage loss and handling loss should be taken up for condonation on accumulative basis month wise as per the guideline dated 1-6-1956 and 2-3-1959. All the authorities below committed error in holding that if a part of the quantity liable to be discharged at Mangalore is discharged at Vasco then there would be transit loss at Mangalore and transit gain at Vasco. As noted earlier, transit loss can be computed only after the entire quantity is discharged and with reference to the total discharge at each of the destination. In this view of the matter the decision of the authorities below in holding that there is transit loss/transit gain and that the transit loss exceeds 1% and therefore the assessee is liable to pay duty with interest cannot be sustained. - Decided in favor of assessee.

Issues:
1. Dismissal of revision application by Joint Secretary to the Government of India.
2. Transportation of Naphta through Coastal Tanker.
3. Duty demand, interest, and penalty imposed.
4. Upholding of duty demand by Commissioner of Customs (Appeals).
5. Revision application partially allowed by Revisional Authority.
6. Determination of transit loss/gain.
7. Interpretation of Circular No. 55 of 1989.
8. Calculation of storage and handling loss.
9. Error in determining transit loss/transit gain.

Analysis:
1. The petitioner, engaged in manufacturing petroleum products, challenged the order dismissing the revision application. The issue revolved around the transportation of Naphta through Coastal Tanker from Mumbai to various terminals in India in April-May 1997.

2. The Revenue contended that offsetting gains against losses is permissible only under specific circumstances. The order-in-original confirmed a duty demand, interest, and penalty due to alleged discrepancies in the quantity unloaded at different terminals compared to the intended quantities.

3. The Commissioner of Customs (Appeals) upheld the duty demand, leading to the filing of a revision application. The Revisional Authority partially allowed the application concerning the penalty but maintained the duty demand, prompting the writ petition challenging this decision.

4. The Court analyzed the transit loss/gain, emphasizing that such determination should occur after all loaded quantities are discharged. The total transit loss was found to be within permissible limits, less than 1%, as allowed for Naphta products.

5. Circular No. 55 of 1989 was interpreted to calculate storage and handling losses cumulatively on a monthly basis. The Court found the losses incurred were below the permissible 1% limit, supporting the petitioner's argument.

6. The Court corrected the authorities' error in calculating transit loss/gain prematurely. It clarified that transit loss should be assessed after the entire quantity is discharged at all destinations, not individually. The transit loss in this case was deemed acceptable, within the prescribed limits.

7. Consequently, the Court set aside the previous orders, directing the refund of duty with interest to the petitioner. The decision favored the petitioner, emphasizing adherence to proper transit loss calculations and permissible limits, ultimately ruling in favor of the petitioner.

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