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TMI Blog2005 (1) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... Kerosene, Diesel Oils, Furnace Oil and so on. A part of the electricity so generated is supplied to Tamil Nadu Electricity Board (TNEB, for short) and the remainder captively consumed. According to MRL, 0.28 MT of RFO was used for generating one mega watt of electricity during the period 12/1993 to 7/1998. On this basis the Department estimated the quantity of RFO (LSHS - LOW SULPHUR HEAVY STOCK - in Department's parlance) which must have been used, during the said period, for generating the known quantity of electricity supplied to TNEB, and raised demand of duty on MRL on this quantity of RFO/LSHS, invoking the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944 on the ground of suppression of facts. This demand was confirmed by the Commissioner of Central Excise, who also imposed a penalty on MRL under Section 11AC of the Central Excise Act for the period 28-9-1996 to 31-7-1998. Hence MRL's appeal, E/364/2000. A similar demand was confirmed against MRL for the period February to December, 1999 by the Asst. Commissioner and sustained by the Commissioner (Appeals). Hence the appeal, E/787/2001. 3. The order impugned in Appeal No. E/7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Instructions on Excisable Manufactured Products" corrected upto 31-1-1985). Relying on these circulars and instructions, ld. Counsel argued that the legislative intent underlying Rule 140(2) and Rule 143A of the Central Excise Rules, 1944 was to exempt from payment of duty all intermediaries, even though marketable, emerging in the process of manufacture of petroleum products from crude petroleum, where such intermediaries were captively consumed for the manufacture of such petroleum products. Ld. Counsel pointed out that this legal position was recognized by this Tribunal in the case of IOC Ltd v. CCE, Calcutta-II [2002 (144) E.L.T. 209 (Tri.- Kolkata). Counsel profusely read out from the Tribunal's order in the cited case, in his endeavour to establish that no duty was payable on vacuum residue/RFO/LSHS, which, according to him, were intermediate products captively used for manufacturing the finished petroleum products. It was contended that the subject goods viz. vacuum residue/RFO/LSHS, which was used for generating steam required for the refining of crude petroleum should be considered as having been used for "conducting such further manufacturing processes" referred to unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intermediaries manufactured in declared refineries and the same overrided the general provisions including Rules 9 and 49. It was also submitted that the circulars and instructions relied on by the appellants' Counsel had been issued long before Rules 9 and 49 were amended to provide for levy of duty of excise on intermediate products cleared for captive consumption. According to ld. Senior Advocate, those circulars and instructions were redundant after the amendments to Rules 9 and 49 and the applicability of Rule 157 in Chapter VII was subject to these rules as amended. He further expressed the view that the Tribunal's decision in IOC case relied on by the appellants was per incuriam in as much as it was contrary to the Apex Court's ruling in J.K. Spinning Weaving Mills case. It was also pointed out that the Rule 139 Notification produced by the appellants' Counsel permitted only removal (without payment of duty) from one warehouse to another warehouse and was not applicable to goods captively consumed. The appellants had failed to produce appropriate Notification issued under Rule 139, to claim coverage of the subject goods (fuel oil/LSHS) under the provisions of Chapter VII. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment under Rule 139. He has placed on record the text of Notification No. 21/86-C.E., dated 10-2-1986 as amended by Notification No. 303/86-C.E., dated 15-5-1986 and the same reads as under : "(8) In pursuance of Rule 139 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No. 265/67-Central Excises, dated the 28th November, 1967, the Central Government hereby directs that the provisions of Chapter VII of the said rules, shall extend to each of the excisable goods falling under Heading Nos. 27.07, 27.10, 27.11, 27.12 and 27.13 (except sub-heading No. 2713.12), 27.14, 27.15 and the goods of the following description, namely, benzene, toluene and xylene, falling within Chapter 29 in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986). 2. This Notification shall come into force on the 28th day of February, 1986." It has also been shown to us that LSHS and other residual fuel oils stood placed under sub-heading 2713.30 of the Central Excise Tariff during the material period. Thus it appears to us that there was a Notification by Central Government under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be accepted." (Emphasis added) Ld. Counsel has claimed that the appellants have been undertaking their manufacturing processes in their declared refineries with the sanction of the proper officer and in accordance with the instructions of the Commissioner and, therefore, they are entitled to exemption from payment of duty on intermediary products like Fuel Oil/LSHS captively consumed. 9. We have carefully considered the submissions. The warehousing provisions contained in Chapter VII, undisputedly, constituted, a scheme for warehoused goods. Rule 143A is a part of this scheme, which reads : "RULE 143A. Special provisions with respect to goods processed and manufactured in refineries. - With the sanction of the proper officer and in accordance with such instructions as the Commissioner may, from time to time, issue in writing in this behalf the owner of the goods processed or manufactured in a refinery, declared under sub-rule (2) of Rule 140, may blend or treat or make such alterations or conduct such further manufacturing processes in the aforesaid goods in such manner and subject to such conditions as the Central Government may, by notification in the Official Gazette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have carefully considered the above submissions of both sides. We note that for warehoused goods, there are specific provisions. It is a self-contained code dealing with various situations. We note that in terms of Ministry of Finance Circular dated 27-4-1967, Rule 140(2) was introduced in the statute to provide for declaring any premises to be a refinery and to be deemed to be a warehouse. Further, Rule 143A was introduced making the special provisions with respect to goods processed and manufactured in a refinery. It was provided in this Rule that the owner of the goods processed or manufactured in a refinery, declared under the sub-rule (2) of Rule 140 may blend or treat for making such alterations or conduct such further manufacturing processes in the aforesaid goods in such manner and subject to such conditions as the Central Government may by notification in the official gazette specify. We note that there is a set of Rules covering the goods warehoused in a refinery, Rule 144 provides that goods cannot be taken out of the warehouse except as provided by these Rules. Rule 145 provides for which period, goods may remain warehoused. Rule 145A provided about the clearance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her commodity whether in a continuous process or otherwise, in such a place or any premises appurtenant thereto, specified by the Collector under Rule (1), shall be deemed to have been removed from such place or premises, immediately before such consumption or utilisation. We note that Rule 9 provides for time and manner of payment of duty. Rule 9(1) lays emphasis on 'removal' and for purpose of Rule 9, the explanation is applicable. In the instant case, for the purpose of removal, Rule 157, a relevant Rule which lays down that any owner of the goods warehoused may at any time, clear the goods for home-consumption. Thus, the contention of the Revenue that the present goods is covered by sub-rule (1) of Rule 9 does not appeal to us, inasmuch as for removal from the warehouses, the relevant Rule is Rule 157 and not Rule 9(1) or Rule 9(2). Thus the deeming provisions under Rule 9(1), is not applicable to removals of intermediate goods warehoused in a refinery used in the manufacture of end-product. 11. We, further, note that the learned Counsel for the assessee has supported his contention by the decision of this Tribunal in the case of Hindustan Petroleum Corporation Ltd. In paras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issed. 13. We further note that in Cochin Refineries case, this Tribunal had taken a specific view holding that - under Rule 140(2), KRL is a refinery and "thus a warehouse under Rule 140(1). Therefore, even if Isobutane is emerging in pure form and comes into existence at any stage, no duty payment liability would arise so long as it remains in the refinery. Duty would be liable to be recovered only on the entity removed from the refinery in the form in which it is being removed in the form of mixture as in para c above. It is a mixture of compounds that is required to be classified and not the compound which would be stripped off by the buyer from such a mixture. The classification of the mixture and gases applying the cannons of Classification would not be under Chapter Heading 29.........". Thus we find that our views are in complete agreement with the findings of the Tribunal in this case. 14. Having regard to the above discussions, we hold that in the circumstances of the case and in respect of refineries declared to be a deemed warehouse, no duty will be payable on intermediate products, if the same are used in processing, blending, mixing or manufacturing of the end-pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be sustained and, accordingly, Appeal Nos. 786, 1234 and 1235/2001 are allowed. 11. The challenge in Appeal No. E/364/2000 is directed against a demand of duty on a quantity of RFO/LSHS held to have been used for generating electricity supplied to TNEB. The challenge in appeal No. E/787/2001 is similar. Ld. Counsel for MRL/CPCL has argued that the fuel was used for generating steam required for refining of crude petroleum and, therefore, it should be considered as having been used for the manufacture of petroleum products. It is contended that generation of electricity was only incidental to the refining of petroleums. We are unable to accept this argument as, even according to the appellant, high pressure steam required for generating electricity was not required for the refining of petroleum. Only low pressure steam was required for the latter purpose. It is also not in dispute that, for generating high pressure steam, a higher quantity of fuel than that required for generating low-pressure steam was to be used. There is, again, no dispute of the fact that high pressure steam was necessary for running the turbine which generated electricity. What the appellants did was to u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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