2017 (10) TMI 334 - AT - Central Excise

Non-payment of excise duty - duty on quantum of MS and HSD available in the pipeline on the date of de-bonding the tanks for storage of MS and HSD - contention of the Revenue is that the pipelines being common, the appellant should have de-bonded the MS and HSD in the pipeline also, instead, later on, when SKO and Naphtha were pumped through the same pipeline, the non-duty paid MS and HSD got cleared and mixed up with duty paid MS and HSD - Held that - Admittedly, the quantity of MS and HSD which are subject matter of dispute have suffered duty as applicable in 2004 when the warehousing provisions were withdrawn. This has been recorded in the impugned order also - The only point is that the MS and HSD in the bonded pipeline as existing on 6.9.2002 got cleared when other petroleum products which were duty-paid were moved through the same pipeline. To that extent, the claim of the appellant that the warehouse quantity was in existence in the pipeline was not technically correct. However, equivalent quantity was only presumed to be in the pipeline as and when the MS and HSD was transmitted through the same. The present confirmation of demand of duty for pipeline quantity as on 6.9.2002 is sustainable as the said quantity has been cleared when other products were pumped through the pipeline. However, since the appellants have conceded that MS and HSD of equivalent quantity as deemed to have been bonded for the period after 6.9.2002 till the warehousing provisions were withdrawn, the duty paid latter should be adjusted against the present demand along with the interest as applicable. Penalty - Held that - no mala fide intention to evade payment of duty on the part of the appellant. The appellant being a Public Sector Undertaking, rebuttable presumption is created regarding non-existence of malafideness. In the present, there is no such allegation or evidence to intend to evade duty - penalty u/r 25 not justified. Appeal allowed in part.

Summary

Issues:
Non-payment of excise duty on petroleum products in the pipeline during de-bonding of storage tanks; Imposition of penalty under Rule 25 of Central Excise Rules, 2002.

Analysis:
The appeal challenged an order by the Commissioner (A) Customs, Cochin, regarding the non-payment of excise duty on petroleum products in the pipeline during the de-bonding of storage tanks. The appellants, engaged in manufacturing and marketing petroleum products, had de-bonded two tanks storing MS and HSD on 6.9.2002 without paying duty, while SKO and Naphtha tanks remained bonded. The Revenue demanded duty on the MS and HSD in the pipeline during de-bonding, arguing that all products in the common pipeline should have been de-bonded. The original authority confirmed a duty demand of &8377; 19,97,845 and imposed a penalty of &8377; 2 lakh. The Commissioner (A) upheld the duty demand for 2002 but noted that the demand for 2004, when warehousing provisions were withdrawn, was not sustainable as duty had been paid in full. The appellant contended that they had paid more duty in 2004 than the demanded amount for 2002, even though de-bonding the pipeline was not done. They argued for interest liability at most, with a potential refund of excess payment.

The appellant's counsel argued that the duty on the disputed quantity was discharged in 2004 when warehousing provisions were withdrawn, resulting in a higher duty payment than the 2002 demand. They emphasized that the duty paid in 2004 was significantly more than the current demand. The counsel also disputed the penalty under Rule 25, stating the appellant, a Public Sector Undertaking, had followed warehousing provisions diligently for years without intent to evade duty.

The Revenue contended that the pipeline should have been de-bonded along with the storage tank in 2002, regardless of later duty payments. They supported the lower authority's findings.

After hearing both sides, the Tribunal acknowledged that duty had been paid in 2004 for the disputed quantity, exceeding the 2002 demand. While the MS and HSD in the pipeline were technically not in bond on 6.9.2002, an equivalent quantity was presumed to be in the pipeline. The Tribunal found the duty demand for 2002 sustainable as the products were cleared when other duty-paid products were pumped through the pipeline. The Tribunal directed the adjustment of latter duty payments against the current demand, along with applicable interest. The penalty under Rule 25 was set aside due to the absence of evidence indicating an intent to evade duty.

In conclusion, the appeal was partially allowed, setting aside the penalty, and the Tribunal directed further action regarding the adjustment of duty payments and pending refund claims.