2024 (12) TMI 151 - HC - Central Excise

Levy of excise duty on the transit loss up to 1% in Naphtha and ATF cleared during the relevant period meant for export - whether in view of the Notification No. 46/2001 dated 26.06.2001 read with Notification No. 17/2001 dated 04.09.2004 and Circular No. 581/2001 dated 29.6.2001 and Circular No. 804/2005 dated 04.01.2005 whether the petitioner is liable to pay excise duty on transit loss up to 1% in view of the Circular No. 261 dated 30.10.1985 issued by the CBEC? - HELD THAT - From the findings arrived at by the revisional authority, it is clear that the revisional authority has ignored the existence of the Circular No. 46/2001 dated 26.06.2001 which is still in operation for the purpose of facility of removal of petroleum products without payment of duty for export warehousing, meaning thereby that as per Circular No. 46/2001, till the goods reached to the warehouse for the export purpose, the same would be treated as removal of petroleum products at the factory gate and the petitioner would be governed by the Circular No. 261 dated 30.10.1985 by which the petitioner is entitled to exemption from duty upto 1% of transit loss. Reliance placed by the revisional authority on the clarification of the Circular No. 804/2005 is misplaced in the facts of the case as it pertains only to the storage loss in export warehouse/tanks whereas the petitioner has claimed the exemption from payment of excise duty on the transit loss till the products of the petitioner are stored in warehouse/tanks whether intermediate or at AFS including those with such mix-storage as per the Notification No. 261 dated 30.10.1985 which is taken into cognizance by the revisional authority in the order dated 14.02.1991 passed in the case of the petitioner. Thus in view of the Notification No. 46/2001 not being disturbed by the CBEC read with Circular No. 261 dated 30.10.1985, the petitioner would be entitled to transit loss upto 1% for non payment of duty on the products transferred from the refinery/factory to the place of storage for the purpose of export only. The impugned orders passed by the revisional authority cannot be sustained. The order passed by the Commissioner (Appeals) is restored to file and the demand raised in order-in-appeal regarding duty, interest and penalty is hereby quashed and set aside and all consequential orders are quashed and set aside - Petition allowed.

Summary

Issues Involved:

1. Liability of excise duty on transit loss up to 1% for petroleum products under Notification No. 46/2001 and related circulars.
2. Interpretation of Circular No. 804/2005 regarding storage and transit losses.
3. Applicability of earlier circulars allowing condonation of transit losses.

Detailed Analysis:

1. Liability of Excise Duty on Transit Loss:

The primary issue was whether the petitioner was liable to pay excise duty on transit loss up to 1% for petroleum products cleared for export. The petitioner argued that under Notification No. 46/2001, they were entitled to remove petroleum products without payment of duty for export warehousing, and as per Circular No. 261 dated 30.10.1985, they were allowed a transit loss of up to 1% without incurring excise duty. The revisional authority initially ruled against the petitioner, stating that no explicit provision allowed for transit losses under the relevant circulars. However, the court found that the Notification No. 46/2001 was still operative, allowing for such removal without duty, and the petitioner was entitled to the 1% transit loss exemption.

2. Interpretation of Circular No. 804/2005:

Circular No. 804/2005 clarified issues post-withdrawal of warehousing facilities, stating that no storage losses in export warehouses would be allowed. The revisional authority interpreted this to mean that transit losses were also not permissible. However, the court determined that this interpretation was incorrect, as the circular specifically addressed storage losses and not transit losses. The court emphasized that the circular did not explicitly deny transit losses, and thus, the petitioner was entitled to the exemption as per earlier provisions.

3. Applicability of Earlier Circulars:

The petitioner relied on earlier circulars, particularly Circular No. 261 dated 30.10.1985, which allowed for a condonation of transit losses up to 1%. The court upheld the applicability of this circular, noting that it had not been superseded by subsequent notifications or circulars regarding export warehousing. The court also referenced a 1991 order, which had recognized the petitioner's entitlement to transit loss condonation, reinforcing the position that such losses were permissible under the existing legal framework.

Conclusion:

The court concluded that the revisional authority's reliance on Circular No. 804/2005 was misplaced and that the petitioner was indeed entitled to a transit loss exemption of up to 1% under Notification No. 46/2001 and Circular No. 261 dated 30.10.1985. Consequently, the court quashed the impugned orders demanding duty, interest, and penalties, and restored the order passed by the Commissioner (Appeals), which had set aside the demand. The judgment reaffirmed the petitioner's right to the transit loss exemption, providing clarity on the interpretation and application of the relevant notifications and circulars.