2013 (7) TMI 132 - CGOVT - Central Excise

Condonable limit for the petroleum products - losses upto 1% - due to natural causes and not due to any allegation of theft, pilferage, clandestine removal etc. Held that - As per the Petroleum Manual the Board has specifically prescribed cumulative loss allowance of 0.5% for motor spirit, kerosene, refined diesel oil and 0.25% of furnace oil and 0.05% for LSHS which is the maximum condonable limit - Circular No. 663/54/2002-CX wherein at para 2 thereof it is clearly laid down that the limit stipulated for condonation of the losses in respect of petroleum product is the maximum limit to which the losses can be condoned - Wrongly allowed losses upto 1%. Government observed that M/s. HPCL was not maintaining proper accounts of such losses properly, which shows that there was a negligence on the part of the respondents. Further they also failed to make any justifiable case based on specific reasons for condonation of losses in excess to the specifically prescribed limit. Hence, the losses exceeding prescribed limits cannot be condoned in normal course. The same view has already been taken by the Government in the revision order No. 976/06, dated 24-11-2006 and 496/2011-CX., dated 19-5-2011 in the applicants own case- Commissioner (A) erred in condoning losses upto 1% in the absence of any special circumstances for the same. - Decided In favor of the Revenue. Penalty under Rule 25 of Central Excise Rules,2002 . Held that - No charge of clandestine removal of goods or any suppression of facts. Therefore, the imposition of penalty under Rule 25 of Central Excise Rules, 2002 is not warranted. Decided against the Revenue.

Summary

Issues:
1. Liability to pay duty for shortages in invoice quantity compared to actual tank withdrawals for losses beyond condonable limits.
2. Allowance for condonation of losses in respect of petroleum products.
3. Proper application of condonable limits as prescribed by the Board.
4. Imposition of penalty under Rule 25 of the Central Excise Rules, 2002.

Issue 1: Liability to pay duty for shortages in invoice quantity compared to actual tank withdrawals for losses beyond condonable limits

The case involved a show cause notice issued to the respondent for non-payment of duty on shortage quantities of petroleum products. The respondents argued that the losses were minimal and within permissible limits, citing Board circulars for condonation of losses. The adjudicating authority found the respondents liable for the demand beyond condonable limits, based on previous orders and the revision order in their own case. The Commissioner (Appeals) set aside the order-in-original, but the Government observed negligence on the respondents' part for not maintaining proper accounts of losses, leading to the restoration of the original order.

Issue 2: Allowance for condonation of losses in respect of petroleum products

The Commissioner (Appeals) allowed condonation of losses up to 1% without specific reasons, which the Government found erroneous. The Government noted that the Board had prescribed specific condonable limits for different petroleum products, and Circular No. 663/54/2002-CX clarified that the prescribed limits were maximum. The Government emphasized that losses exceeding the limits cannot be condoned without special circumstances, as seen in previous orders in similar cases.

Issue 3: Proper application of condonable limits as prescribed by the Board

The Government highlighted that the Board had specified condonable limits for different petroleum products, emphasizing a maximum condonable limit for losses. The Commissioner (Appeals) allowed losses up to 1% without considering specific reasons, leading to the erroneous condonation. The Government reiterated the importance of adhering to the prescribed limits and not condoning losses beyond them without special circumstances.

Issue 4: Imposition of penalty under Rule 25 of the Central Excise Rules, 2002

The Government decided that the penalty of Rs. 25,000 imposed under Rule 25 of the Central Excise Rules, 2002 was not warranted, considering the respondent as a Public Sector Undertaking with no charges of clandestine removal or suppression of facts. Therefore, the penalty was set aside in the final decision.

In conclusion, the Government set aside the impugned order-in-appeal and restored the original order, finding errors in the condonation of losses beyond prescribed limits without special circumstances. The penalty imposed was also revoked due to the nature of the respondent as a Public Sector Undertaking.