2019 (6) TMI 871 - AT - Central Excise

Benefit of N/N. 4/2006-CE - clearance of SKO to various oil marketing companies for distribution under Public Distribution System (PDS) - exemption is sought to be denied on the ground that the said quantity SKO used as interface is not ultimately sold through Public Distribution System - CBEC Circular No. 636/27/2002-CX dated 22.04.2002 - HELD THAT - The SKOPDS cleared by the appellant to HPCL. M/s. HPCL has stored in SKO PDS received from various sources in a common tank. The allegation is that part of SKO-PDS received by HPCL is mixed with MS and HSD as the same is used as interface to pump MS/HSD through pipelines to various destinations. A part of SKO-PDS cleared by the appellant is not used for distribution through Public Distribution System but used as interface and consequently, the demand of duty - At the time of clearance itself, the appellant as well as HPCL was aware that the SKO used as interface cannot be segregated from MS or HSD. In other words, the SKO cleared as interface will obviously gets mixed with MS or HSD. From the above, it is also apparent that there is no intention of selling this SKO cleared as interface as SKO. The said SKO is mixed with MS and HSD and results in excess clearance/ receipt of MS and HSD. Mixing of small quantity of SKO in MS or HSD in the factory for any reason, and clearing the same as mixture of MS and HSD, the rate of duty applicable would be of MS and HSD. By using SKO as interface for pumping it into pipelines, the product leaving the factory is intermixed MS or HSD, answering to the description of MS or HSD. The same is received by HPCL as MS or HSD and the same is sold as MS or HSD. In these circumstances, the Revenue is right in demanding the duty on the product as intermixed MS or HSD as the same is cleared and sold as MS or HSD. Time Limitation - HELD THAT - It is apparent that they were fully aware that SKO used as interface cannot be segregated and would remain as part of MS or HSD and it would assume the character of MS or HSD and would be sold as MS or HSD, they cannot claim benefit of limitation. In view of the above, the extended period of limitation has also been rightly invoked. Appeal dismissed - decided in favor of appellant.

Summary

Issues:
Confirmation of demand of Central Excise duty, interest, and imposition of penalty by invoking extended period of limitation.

Analysis:

Issue 1: Confirmation of demand of Central Excise duty
The appellant, engaged in the manufacture of Motor Spirit (MS), High Speed Diesel (HSD), and Superior Kerosene Oil (SKO), cleared SKO to M/s. HPCL for distribution under the Public Distribution System (PDS). The Revenue sought to recover duty on the SKO used as an interface between the delivery of MS and HSD, alleging that the SKO was part of the SKO cleared by the appellant under an exemption. The Tribunal noted that the SKO used as an interface cannot be segregated from MS or HSD, and the essential character of the intermixed MS or HSD remains the same. As the SKO was not intended to be sold as SKO but as MS or HSD, the Revenue was justified in demanding duty on the product as intermixed MS or HSD.

Issue 2: Extended period of limitation
The appellant argued that any diversion of SKO cleared through PDS was due to M/s. HPCL, not them. They presented a letter from M/s. HPCL explaining the use of SKO as an interface and asserting that the SKO used was sweet SKO brought only from HPCL's refinery and not the SKO cleared for PDS. However, the Tribunal found that both parties were aware that the SKO used as an interface would not be segregated and would be sold as MS or HSD, not as SKO in the PDS. As such, the extended period of limitation was rightly invoked, and the appellant's claim based on the end-use certificate issued by HPCL was deemed irrelevant.

In conclusion, the Tribunal dismissed the appeal, stating that the SKO used as an interface assumed the character of MS or HSD and was sold as such, justifying the demand of duty by the Revenue. The appellant's awareness of the situation and the nature of the intermixed product led to the rejection of their arguments.