2016 (6) TMI 1020 - AT - Central Excise

Demand of duty on operational loss in excess of 0.5% - permissible limit - business of refining and marketing of Petroleum products - difference between physical stock and the book sock is called operational loss. - Held that - It can be seen that there is no upper limit fixed for operational losses. In case it is higher that 0.5% or 1% the Board has to closely scrutinize the case and satisfy themselves. The department has not conducted any such scrutiny with regard to the operational losses. Again, they have no case that products were removed clandestinely. The operational losses incurred having been disclosed in RT-12 returns the department ought to have conducted periodical verification and satisfied themselves before raising a demand. It is revealed that respondents were disclosing their operational losses in RT-12 returns. In such circumstances, it cannot be said that respondent is guilty of commission of any deliberate act/omission to evade payment of duty. The respondent being a Government of India undertaking, there cannot be any malafide intention to evade payment of duty. The department has failed to establish that the operational loss claimed by respondent is not due to natural causes - No demand - Decided against the revenue.

Summary

Issues:
1. Appeal against dropping of duty demand, interest, and penalty by Commissioner.
2. Discrepancy in physical stock and book stock exceeding permissible limit.
3. Allegations of suppression of facts by the respondent.
4. Contention regarding disclosure of operational losses in RT-12 returns.
5. Scrutiny of operational losses and absence of evidence for clandestine removal.
6. Lack of deliberate evasion by the respondent, being a Government undertaking.

Analysis:

1. The appeal was filed by the Revenue against the Commissioner's decision to drop duty demand, interest, and penalty as per the show cause notice. The Commissioner based the decision on the respondent's regular filing of RT-12 returns every month, limiting the sustainable period for invoking extended period beyond one year.

2. The case involved M/s Bharat Petroleum Corporation, where the department noticed a discrepancy between physical and book stock exceeding the permissible 0.5% limit. The operational loss in petroleum products due to evaporation was considered, with CBEC circular setting the permissible storage loss at 0.5%.

3. The Revenue contended that despite filing RT-12 returns, the respondent did not indicate storage losses tank-wise, leading to allegations of suppression of facts. The extended period was considered invokable, and the Commissioner was criticized for not acknowledging this aspect.

4. The respondent filed cross-objections, claiming that they correctly disclosed operational losses in RT-12 returns, which were within the department's knowledge. The Commissioner's observation highlighted the nature of petroleum products and the need for scrutiny when losses exceed the permissible limit.

5. The judgment emphasized that there is no fixed upper limit for operational losses, and the department should scrutinize cases where losses exceed the permissible limit. As the losses were disclosed in RT-12 returns and no evidence of clandestine removal existed, the department's failure to conduct proper verification was noted.

6. Considering the respondent's disclosure of operational losses, lack of deliberate evasion, and being a Government undertaking, the judgment dismissed the appeal. It concluded that the loss in storage for petroleum products is natural, and there was no evidence of intentional wrongdoing by the respondent, leading to the acceptance of the operational losses claimed.