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2018 (9) TMI 24 - AT - Central ExciseValuation - interface quantity of Superior Kerosene Oil (SKO) which was supplied through pipeline with Motor Spirit (MS) and High Speed Diesel (HSD) - The case of the department is that the appellant, instead of paying excise duty on the interface quantity of SKO as per rate prevalent for SKO, they should have paid excise duty higher of the two duties, after determining the duty payable on SKO and duty payable on MS/HSD. Held that - While clearing the goods, the appellant have cleared from the factory quantities of MS, HSD and SKO separately. Since all the three goods are supplied through a pipeline, the SKO get mixed with either MS or HSD. As per the provisions of Section 4, the excise duty is payable on the transaction value at the time of removal of the goods from the factory - In the present case, the goods cleared from the factory is MS/HSD and SKO. Accordingly, the duty on these products is payable as per price of the respective product prevailing at the time of removal of the goods - The appellant have correctly applied the price of respective goods cleared from the factory at the time of removal. Whether after removal of goods, intermixing of SKO with MS/HSD amounts to manufacture? - Scope of SCN - Held that - There is no charge in the show cause notice that the activity of supplying HSD/MS with interface SKO amounts to manufacture. Therefore, on this point, the adjudication order travelled beyond the scope of show cause notice which is not permissible in the law. The differential duty demand raised on interface quantity of SKO is clearly not sustainable - appeal allowed - decided in favor of appellant.
Issues involved:
Interpretation of excise duty on intermixed petroleum products; Application of CBEC Circular No. 636/27/2002-CX; Whether intermixing of SKO with MS/HSD amounts to manufacture; Admissibility of penalties imposed. Analysis: Issue 1: Interpretation of excise duty on intermixed petroleum products The case involved a dispute regarding the determination of excise duty on the interface quantity of Superior Kerosene Oil (SKO) intermixed with Motor Spirit (MS) or High Speed Diesel (HSD) during pipeline supply. The department contended that duty should be paid at the higher rate between SKO and MS/HSD. The appellant argued that duty was correctly paid based on the prevailing price of SKO at the time of removal from the factory, as per Section 4 provisions. The Adjudicating Authority relied on CBEC Circular No. 636/27/2002-CX, which suggested applying the price of MS/HSD even on clearance of SKO. However, the Tribunal held that the Circular lacked statutory support and cannot override existing law, emphasizing that duty should be based on the actual goods cleared from the factory. Issue 2: Application of CBEC Circular No. 636/27/2002-CX The Tribunal analyzed the Circular's content, which addressed duty determination on intermixed petroleum products. The Circular implied applying the duty rate of MS/HSD on SKO interface quantity. However, the Tribunal emphasized that the Circular cannot create new law and must align with existing statutory provisions. Citing relevant judgments, the Tribunal concluded that the Circular lacked statutory support and cannot be binding on the assessee, reaffirming the importance of adherence to established legal frameworks. Issue 3: Whether intermixing of SKO with MS/HSD amounts to manufacture The Adjudicating Authority held that intermixing SKO with MS/HSD post-removal constituted manufacture under Section 2(f)(iii) of the Central Excise Act, 1944. However, the Tribunal noted that the show cause notice did not include this manufacturing activity allegation, rendering the adjudication beyond its scope. Further, the Tribunal clarified that Section 2(f)(iii) applies only to goods specified in the Third Schedule, which did not include the appellant's products. Therefore, the intermixing of SKO with MS/HSD did not amount to manufacture as per the legal provisions. Issue 4: Admissibility of penalties imposed The Tribunal, after thorough consideration of the arguments and legal provisions, found the differential duty demand on the interface quantity of SKO to be unsustainable. Consequently, the impugned orders confirming the duty demand, interest, and penalties were set aside, and the appeals were allowed in favor of the appellant. The judgment highlighted the importance of adherence to statutory provisions and the limitations of circulars in the legal framework. This detailed analysis of the judgment showcases the Tribunal's meticulous examination of the legal issues involved and its emphasis on upholding statutory provisions in excise duty matters.
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