2016 (4) TMI 624 - AT - Central Excise

Exisibility on mineral oil sludge - whether the appellants are required to reverse proportional credit on furnace oil received by them which is equivalent to sludge which gets settled in the tank during storage of oil? - Held that - This issue has been decided in favour of the appellant in two of their own cases. Further, even the Board circular no. 84/2/86-CX.3 dated 23. 025 .1987 informing the field formation that sludge is not classifiable under Tariff heading i.e. sludge is different from oil is also to that effect. The provision of Rule 3(3) of CENVAT Credit Rules, 2002 invoked by the Revenue are not applicable to the facts of this present case as it is not an input removed by the assessee as such. It is the sludge which gets settled at the bottom of the storage tank which is considered as waste by them and removed as waste. Therefore,sludge is not classifiable under Schedule to the Central Excise Tariff Act, 1985 - Decided in favour of assessee

Summary

Issues: Classification of mineral oil sludge as excisable, requirement to reverse proportional credit on furnace oil equivalent to sludge settled in the tank.

Classification of Mineral Oil Sludge: The appeal involved a dispute regarding whether mineral oil sludge is excisable. The appellant argued that sludge should not be classified as furnace oil or mineral oil due to its distinct characteristics. The appellant relied on various judgments and a CBEC circular supporting their position. The issue was clarified in a circular by the Ministry of Finance stating that mineral oil sludge falls outside the scope of the Central Excise Tariff Act, 1985 as it is not a manufactured product. The Tribunal considered the arguments, circular, and judgments cited by the appellant, ultimately concluding that the mineral oil sludge is not excisable based on the circular and previous decisions.

Reversal of Proportional Credit on Furnace Oil: Another issue raised was whether the appellants needed to reverse proportional credit on furnace oil equivalent to the settled sludge in the tank. The Tribunal noted that this issue had been decided in favor of the appellant in previous cases, supported by High Court decisions and Tribunal rulings. The Tribunal found that the provision of Rule 3(3) of CENVAT Credit Rules, 2002, invoked by the Revenue, was not applicable in this case as the sludge was considered waste and not an input removed by the assessee. Relying on the precedents and the Board circular, the Tribunal held that the impugned order of the Commissioner was not sustainable in law. Consequently, the Tribunal allowed the appeal, providing consequential relief as necessary.

In conclusion, the judgment addressed the classification of mineral oil sludge and the requirement to reverse proportional credit on furnace oil in light of previous decisions, circulars, and legal provisions. The Tribunal ruled in favor of the appellant, determining that the mineral oil sludge was not excisable and that the appellants were not obligated to reverse the credit on furnace oil equivalent to the settled sludge.