2005 (1) TMI 257 - AT - Central Excise

Issues Involved:
1. Duty demand on Refiner Fuel Oil (RFO)/Low Sulphur Heavy Stock (LSHS) used for generating electricity supplied to Tamil Nadu Electricity Board (TNEB).
2. Duty demand on Fuel Oil used for the manufacture of raw naphtha and sulphur.
3. Applicability of warehousing provisions under Chapter VII of the Central Excise Rules, 1944.
4. Limitation and penalty under Section 11A(1) and Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Duty Demand on RFO/LSHS Used for Generating Electricity Supplied to TNEB:

The appellants used RFO/LSHS to generate high-pressure steam for electricity generation, part of which was supplied to TNEB. The Department demanded duty on the quantity of RFO/LSHS used for generating electricity supplied to TNEB, invoking the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944, on the ground of suppression of facts. The Tribunal held that only the quantity of RFO/LSHS required for generating low-pressure steam used for refining crude petroleum could be said to have been used for the manufacture of petroleum products. The extra quantity used for generating electricity supplied to TNEB was dutiable under the general provisions. The Tribunal upheld the demand of duty on this quantity of RFO/LSHS.

2. Duty Demand on Fuel Oil Used for the Manufacture of Raw Naphtha and Sulphur:

The order impugned in Appeal No. E/786/2001 sustained a demand of duty on Fuel Oil used for the manufacture of raw naphtha cleared without payment of duty. Appeal No. E/1234/2001 sustained a demand of duty on Fuel Oil used for the manufacture of Sulphur, a by-product cleared without payment of duty. Appeal No. E/1235/2001 sustained demands of duty on Fuel Oil used for the manufacture of both raw naphtha and sulphur. The Tribunal held that no duty was leviable on any quantity of Fuel Oil used for generating steam required for refining crude petroleum, as such use was covered by the expression "conduct such further manufacturing processes" under Rule 143A. The extraction of sulphur was incidental to the manufacture of petroleum products, and no duty could be demanded on Fuel Oil used for this purpose.

3. Applicability of Warehousing Provisions Under Chapter VII of the Central Excise Rules, 1944:

The appellants argued that their refinery was a "deemed warehouse" under Rule 140(1) of the Central Excise Rules, 1944, and that the warehousing provisions of Chapter VII applied to their goods. The Tribunal agreed, noting that the refinery was declared a warehouse under Rule 140(2) and that the provisions of Chapter VII applied to the goods in question through a Notification under Rule 139. The Tribunal held that the appellants were entitled to the benefit of the Tribunal's decision in the IOCL case, which established that no duty was payable on intermediate products captively used for manufacturing finished petroleum products in a declared refinery.

4. Limitation and Penalty Under Section 11A(1) and Section 11AC of the Central Excise Act, 1944:

The appellants challenged the demand on the ground of limitation, arguing that the Department was aware of the relevant facts since 1975. The Tribunal found evidence of suppression of facts by the appellants, noting that they did not disclose the mechanism of using RFO/LSHS for generating high-pressure steam for electricity generation. The Tribunal upheld the Commissioner's finding of suppression of facts and the invocation of the extended period of limitation. However, the Tribunal reduced the penalty imposed under Section 11AC from Rs. 4.4 Crores to Rs. fifty lakhs, finding that the facts and circumstances did not warrant the maximum penalty.

Conclusion:

Appeal Nos. 786, 1234, and 1235/2001 were allowed, and the demands of duty on Fuel Oil against CPCL were not sustained. Appeal No. E/364/2000 was dismissed with a modification of the penalty amount, and Appeal No. E/787/2001 was dismissed, sustaining the demand of duty.

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