2008 (5) TMI 74 - AT - Central Excise

Fuel Oil captively used in mfg. of other petroleum products such as Raw Naphtha which is supplied to ferliliser manufacturers, attracts NIL rate of duty as per notification 67/95 revenue allege that exemption is not admissible Whether respondents are entitled to the benefit of the special scheme for refineries provided u/r 143A - order given by this bench is in conflict with the decision taken by the co-ordinate Bench in the respondent s own case matter referred to Larger Bench

Summary

Issues Involved:
1. Whether duty of excise was leviable on Fuel Oil used for generating steam required for the manufacture of Raw Naphtha.
2. Whether the special provisions for refineries under Rule 143A of the Central Excise Rules, 1944 continued to be in force under the Central Excise (No. 2) Rules, 2001 and the Central Excise Rules, 2002.
3. Whether the respondents are entitled to the benefit of the special scheme for refineries provided under Rule 143A after 30-6-2001.

Issue-wise Detailed Analysis:

1. Duty of Excise on Fuel Oil Used for Generating Steam:
The respondents, engaged in manufacturing petroleum products, used Fuel Oil to generate steam for fractional distillation of crude petroleum. The department issued show-cause notices for recovery of duty on Fuel Oil, arguing that exemption under Notification No. 67/95-CE was not admissible. The Assistant Commissioner confirmed the demand, stating that Fuel Oil was excisable and captively consumed in manufacturing exempted Raw Naphtha. However, the Commissioner (Appeals) and the Tribunal's earlier decision (Final Order No. 63-67/2005) held that no duty was leviable on Fuel Oil used for generating steam required for refining crude petroleum. The Apex Court upheld this decision, confirming that no duty could be levied on Fuel Oil used for generating steam required for manufacturing Naphtha.

2. Continuation of Special Provisions for Refineries under New Rules:
For the period from April 2000 to June 2001, the Tribunal noted that the Apex Court had settled the issue, confirming no duty on Fuel Oil used for generating steam. However, for the period from July 2001 to March 2002, the department argued that with the omission of Rule 143A and no similar provision in the new rules, the Tribunal's earlier decision was not applicable. The respondents contended that the transitional provisions of Rule 32 of the Central Excise (No. 2) Rules, 2001 made the old provisions applicable. The Tribunal examined Rule 20 (warehousing provisions) and Rule 32 (transitional provisions) of the new rules, concluding that the special scheme for refineries did not continue under the new rules. The Tribunal found that the factory of production and warehouse were separate premises, and the new rules did not envisage the continuation of the old scheme.

3. Entitlement to the Benefit of Special Scheme after 30-6-2001:
The Tribunal noted that the Central Government's order declaring the respondent's unit as a refinery under the old rules could not be deemed valid beyond 30-6-2001. The new rules did not have a provision corresponding to the old Rule 143A, and the transitional provisions did not apply to orders issued by the Central Government. The Tribunal held that the statutory scheme for refineries ended with the rescission of the old rules on 30-6-2001. From 1-7-2001, petroleum products were on par with other excisable goods, and the respondents should substantiate their claim under Notification No. 67/95-CE.

Referral to Larger Bench:
The Tribunal recognized a conflict with a co-ordinate Bench's decision in the respondent's own case and referred the matter to a Larger Bench to decide:
(a) Whether the special provisions for refineries under the old rules continued under the new rules.
(b) Whether the respondents are entitled to the benefit of the special scheme after 30-6-2001.

Conclusion:
The Tribunal concluded that the special scheme for refineries did not continue under the new rules and referred the issue to a Larger Bench for a definitive ruling.