2019 (6) TMI 1605 - AT - Central Excise

Duty on Superior Kerosene Oil (SKO) - duty was paid on Interface quantity of SKO by adopting assessable value of SKO (non-Public Distribution System (PDS) at the prevalent rate - case of the department is that the appellant, instead of paying excise duty on the interface quantity of SKO as per rate prevalent for SKO, they should have paid excise duty higher of the two duties, after determining the duty payable on SKO and duty payable on MS/HSD - CBEC Circular No. 636/27/2002-CX dated 22.04.2002 - HELD THAT - The fact is not in dispute that while clearing the goods, the appellant have cleared from the factory quantities of MS, HSD and SKO separately. Since all the three goods are supplied through a pipeline, the SKO get mixed with either MS or HSD. As per the provisions of Section 4, the excise duty is payable on the transaction value at the time of removal of the goods from the factory. In the present case, the goods cleared from the factory is MS/HSD and SKO. Accordingly, the duty on these products is payable as per price of the respective product prevailing at the time of removal of the goods. Removal of goods, intermixing of SKO with MS/HSD amounts to manufacture or not - HELD THAT - There is no charge in the Show Cause Notice that the activity of supplying HSD/MS with interface SKO amounts to manufacture. Therefore, on this point, the adjudication order travelled beyond the scope of show cause notice which is not permissible in the law - the activity specified in the said clause (iii) will amount to manufacture only in respect of the goods specified under Third schedule. It is undisputed that the products of the appellant are not specified under third schedule, therefore, whatever activity mentioned in clause (iii) shall not apply to the goods which are not specified in Third schedule. For this reason, intermixing of SKO with HSD/MS does not amount to manufacture. Applicability of CBEC Circular No. 636/27/2002-CX dated 22.04.2002 - HELD THAT - The Circular suggests that even on clearance of SKO, the price of HSD/MS should be applied. However, this proposal of the Board Circular does not flow from any statutory provision. As discussed above, the appellant have correctly applied the price of respective goods cleared from the factory at the time of removal. Therefore, we do not find any support of any statutory provisions in the Board Circular. The differential duty demand raised on interface quantity of SKO is clearly not sustainable - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of Central Excise Tariff Act, 1985 regarding duty payment on intermixed petroleum products; Validity of CBEC Circular No. 636/27/2002-CX; Whether intermixing of SKO with MS/HSD amounts to manufacture; Applicability of Section 2(f)(iii) of Central Excise Act, 1944.

Analysis:
The case involved the appellant, engaged in manufacturing petroleum products, paying duty on intermixed Superior Kerosene Oil (SKO) with Motor Spirit (MS) or High Speed Diesel (HSD) based on assessable value of SKO. The department contended that duty should be paid on the higher of two duties, as per CBEC Circular No. 636/27/2002-CX. The Adjudicating Authority upheld the demand, penalties, and interest. The appellant argued that the Circular lacked statutory support and duty was correctly paid on SKO. They also challenged the finding of manufacture post-removal of goods.

The Tribunal noted that duty is payable on transaction value at the time of goods removal, and the appellant correctly paid duty based on prevailing prices. The reliance on the Circular was questioned as it lacked statutory basis. Citing relevant judgments, the Tribunal emphasized that Circulars cannot create law and must align with existing statutes. The Circular's proposal to apply HSD/MS prices on SKO clearance did not have legal backing, rendering it non-binding on the assessee.

Regarding the manufacturing issue, the Tribunal found no charge in the Show Cause Notice regarding SKO intermixing constituting manufacture. The reliance on Section 2(f)(iii) of the Central Excise Act, 1944 was deemed inapplicable as the appellant's products were not listed in the Third Schedule. Thus, the intermixing of SKO with HSD/MS did not amount to manufacture.

Conclusively, the Tribunal held the differential duty demand on intermixed SKO as unsustainable, setting aside the impugned orders and allowing the appeals with any consequential benefits.