2015 (12) TMI 1003 - AT - Central Excise

Demand of duty - duty on the quantity of 886.65 kiloliters of intermingled/ interface quantity of MS & SKO and downgraded to HSD - Held that - Appellants are discharging duty from the warehouse on petroleum products as per the practice followed during the relevant period. They received non-duty paid goods through pipelines and stored it in the storage tanks at the warehouse. It is seen from the records that when the petroleum products sent through the pipelines from Kochin, Coimbatore, Karur pipelines, in specific sequence of SKO, MS, SKO, HSD, SKO, MS and the product is changed in the pipeline at regular interval and there will be intermix of two products. In the present case it is SKO & MS. We also find from the order of the adjudicating authority in respect of two of the intermingled/ interfaced quantity, the appellants have already upgraded it. Whereas, in the case of 886.65 kiloliters of interfaced quantity, wherein 50% of MS and 50% of SKO are intermixed, either downgraded or upgraded by the appellants based on the test report of the samples drawn from the intermingled products. It is tested in their own laboratory. On receipt of the test reports, the intermixed product is transferred to the respective main tank containing HSD or MS oil. We also find that the interface quantity is received separately and stored in slop tanks only after the testing and depending upon the report, these goods are transferred to the respective main tank and thereafter cleared on payment of excise duty. There is no dispute on the fact that the interface/intermingle quantity has to be cleared as HSD or MS or SKO. Therefore, higher products MS & SKO once it is intermixed it loses its originality and therefore it cannot be cleared to a consumer as MS or SKO, if it doesn t meet specification. Therefore, as per the BIS standards and as per the test report, the product if it is higher quality, it is upgraded and if it is lower quality, it is downgraded. It is the general practice followed for all the petroleum products cleared through pipeline where the intermingled/interface quantity emerges and stored separately and subsequently upgraded or downgraded. - there is no dispute on the fact that the interface/intermingle quantity has to be cleared as HSD or MS or SKO. Therefore, higher products MS & SKO once it is intermixed it loses its originality and therefore it cannot be cleared to a consumer as MS or SKO, if it doesn t meet specification. Therefore, as per the BIS standards and as per the test report, the product if it is higher quality, it is upgraded and if it is lower quality, it is downgraded. It is the general practice followed for all the petroleum products cleared through pipeline where the intermingled/interface quantity emerges and stored separately and subsequently upgraded or downgraded. - Decided in favour of assessee.

Summary

Issues:
Demand of duty on intermingled/ interface quantity of petroleum products and classification as HSD.

Analysis:
The appeal was filed against an order by the Commissioner of Customs, Central Excise, and Service Tax regarding the demand of differential duty on intermingled petroleum products. The appellant, a PSU, received non-duty paid petroleum products through pipelines and stored them in a warehouse. The products were transferred through pipelines in a specific sequence, leading to intermixing of products like SKO and MS. The adjudicating authority demanded duty on intermingled products classified as MS, resulting in the appeal.

The appellant argued that duty is payable on excisable goods only upon removal and that duty should be paid based on the applicable rate at the time of removal. They presented test reports confirming HSD specifications for intermingled products, stating that in the petroleum industry, intermixed products are downgraded and cleared as HSD as per BIS standards. The appellant highlighted a previous order in their favor on a similar issue and contended that the duty was correctly paid after downgrading the intermingled products to HSD.

On the other hand, the Ld. AR supported the findings of the adjudicating authority based on a Board's Circular that suggested accepting the higher value in case of intermixing of products. After hearing both sides and examining the records, the Tribunal found that the main issue was the demand of duty on intermingled products classified as HSD. The Tribunal noted that the appellant had followed industry practices for discharging duty on petroleum products stored in the warehouse.

The Tribunal observed that the intermingled products were either upgraded or downgraded based on test reports confirming HSD specifications. They found that the Board's Circular did not provide guidelines for classifying intermingled products and that in the appellant's own case, a previous order had dropped proceedings on a similar issue. The Tribunal concluded that the appellant correctly discharged duty by downgrading the intermingled quantity to HSD oil, as per industry practices and BIS standards. Therefore, they set aside the demand for differential duty and the penalty imposed, allowing the appeal.