2023 (4) TMI 764 - AT - Central Excise

Clandestine Removal - Loss of quantity due to temperature variation - Difference in the quantity of petroleum products that has been despatched from the refinery and the quantity received at the terminal at Muttam - demand of duty on the pipeline quantity of Naphtha - HELD THAT - It is an undisputable fact that there may be loss in quantity during the transportation of the petroleum products from the refinery to the terminals. Such variation in the quantity may occur due to variation in temperature, the dip method of measuring etc. Some times, there may be some excess quantity of petroleum product which is still in the pipeline and will result in showing excess quantity received at the terminal at Muttom. For these reasons, there has been confusion in the field as to the calculation of duty on the petroleum products which are cleared from the refinery and transported to the terminals of the Oil Marketing Companies. The demand is raised only because of the difference in quantity when the petroleum products are despatched from the refinery and after it is received at the terminals at Muttam. There is no allegation of clandestine removal. It can be reasonably perceived that loss of the quantity is due to temperature variation, the variation caused in dip method of measurements etc. As the goods are petroleum products, which are volatile in nature, some times there may be loss in quantity at the time of receipt at terminal. Likewise, there may be receipt of excess quantity reaching the terminal as some quantity may be retained in the pipeline. After considering these situations, based on the C AG Report, the department has issued clarification that net quantity after adjusting the gain and loss has to be taken for demand of duty. Demand of duty on the pipeline quantity of Naphtha - HELD THAT - According to the department, the quantity that is retained in the pipeline has to be construed a goods already cleared from the refinery and therefore the appellant is liable to duty. The Ld. Counsel for appellant has submitted that they maintain some quantity of Naphtha in the pipeline to facilitate transportation of Naphtha upto the port which cannot be considered as quantity cleared from the refinery. It is seen that the appellant has paid duty much before issuance of the show cause notice and therefore the department ought not to have imposed penalty. The issues are interpretational in nature. A clarification had to be issued by the department as to the method for demand of duty on petroleum products. In regard to the issue of demand of duty on the pipeline quantity of Naphtha, the appellant has paid the duty at the earliest. Taking note of these facts, it is concluded that penalties imposed on account of both the issues are unwarranted and requires to be set aside. The matter is remanded to the original authority who is directed to re-quantify the duty demand on the basis of the clarification issued by the Department dated 14.02.2014. The penalty imposed are entirely set aside - Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Non-payment of excise duty on the actual quantity of petroleum products cleared from the refinery.
2. Duty demand on the pipeline quantity of Naphtha.
3. Invocation of extended period for limitation and imposition of penalty.

Summary:

Issue 1: Non-payment of excise duty on the actual quantity of petroleum products cleared from the refinery.
The appellant, a Public Sector Undertaking engaged in the manufacture of petroleum products, was accused of not paying excise duty on the quantity of products cleared from their refinery. Instead, they paid duty based on the quantity received in leased tanks at the Muttam terminal. The discrepancy was attributed to the volatile nature of petroleum products and measurement variations. The Tribunal noted that there was no allegation of clandestine removal and the difference in quantity was due to transit loss or measurement errors. The Tribunal referenced a clarification issued by the Ministry of Finance on 14.02.2014, which stated that the net quantity after adjusting gain and loss should be considered for calculating duty liability. The Tribunal remanded the issue to the original authority to re-quantify the duty liability as per this clarification.

Issue 2: Duty demand on the pipeline quantity of Naphtha.
The appellant had not paid duty on 1048 Kilo Litres of Naphtha retained in the pipeline for effective transportation. The Tribunal acknowledged the appellant's argument that the quantity retained in the pipeline should not be considered as cleared from the refinery. Noting that the appellant had paid the duty before the issuance of the show cause notice, the Tribunal found the imposition of penalty unwarranted.

Issue 3: Invocation of extended period for limitation and imposition of penalty.
The appellant argued against the invocation of the extended period, stating that they were a Public Sector Undertaking with no intention to evade duty. The Tribunal agreed, highlighting the interpretational nature of the issues and the appellant's cooperation during the investigation. The Tribunal concluded that penalties were unwarranted and set them aside.

Conclusion:
The Tribunal remanded the matter to the original authority to re-quantify the duty demand based on the Ministry's clarification dated 14.02.2014 and set aside the penalties imposed. The appeal was partly allowed and partly remanded.