2025 (7) TMI 1407 - AT - Central Excise

Liability to pay Central Excise duty - intermingled SKO with HSD/MS - not used for intended purpose of PDS and duty payable on surge/gain in HSD/MS - classification of the goods - HELD THAT - The central excise duty is a levy on manufacture or production of excisable goods which are specified in the First and Second schedule to the Central Excise Tariff Act 1985. Further it also transpires from the definition given for the phrase manufacture in terms of Section 2(f) the Central Excise Act 1944 that any process incidental or ancillary to the completion of the manufacture product or any process which is specified in relation to any goods in the Section of Chapter notes of the First schedule to the Central Excise Tariff Act as amounting to manufacture applied on the goods can also be subject to levy of central excise duty. From the classification of the impugned goods viz. SKO HSD MS provided under the First Schedule it clearly emerges that each of the above goods are distinctly classified under 2710 1910 (SKO) 2710 1930 (HSD) and 2710 1211 2710 1212 2710 1213 2710 1219 (MS). Further in order to qualify commodity as MS or HSD the relevant supplementary note has to be fulfilled in terms of technical specifications and BIS standards. The records placed in the case file do not provide any documentary evidence to show that intermix of SKO with MS/HSD have the characteristics of MS or HSD in terms of the aforesaid supplementary note to classify the same as MS or HSD - there is no possibility under the Central Excise tariff for classifying intermix of SKO with MS/HSD as MS or HSD for charging such product with the duty applicable for MS/HSD. It is also found from the facts of the case that it is not in dispute that while clearing the goods the appellants 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 there is no dispute in classification or the valuation of goods involved in the present case such circular issued for the purpose of uniformity in assessment of excise duty cannot be applied in the present circumstances of the case. The dispute in the identical set of facts in the case of M/s Indian Oil Corporation Ltd. Vs. Commissioner of Central Excise in Service Tax Guwahati 2019 (8) TMI 1910 - CESTAT KOLKATA where the Tribunal have held that duty on interface quantity of SKO cannot be demanded the rates applicable for HSD or MS. The impugned order dated 31.03.2015 in confirmation of the adjudged demands and consequent imposition of penalties on the appellants is not legally sustainable - appeal allowed.

Summary

ISSUES:

Whether Central Excise duty is payable on the intermingled Superior Kerosene Oil (SKO) with High-Speed Diesel (HSD) or Motor Spirit (MS) at the higher rate applicable to HSD/MS instead of SKO.Whether the intermixing of SKO with HSD/MS during pipeline transportation amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944.Whether the Board Circular dated 22.04.2002 can be relied upon to demand duty on intermix SKO at the rates applicable to HSD/MS.Whether penalty imposed under Section 11AC read with Rule 25 of the Central Excise Rules, 2002 is sustainable in the facts of the case.

RULINGS / HOLDINGS:

The appellants are not liable to pay Central Excise duty on the intermingled SKO at the higher duty rates applicable to HSD/MS, as the intermix SKO does not fulfill the technical specifications or classification criteria of HSD or MS under the Central Excise Tariff Act, 1985.The intermixing of SKO with HSD/MS during pipeline transportation does not amount to "manufacture" within the meaning of Section 2(f) of the Central Excise Act, 1944, since the goods involved are not specified under the Third Schedule and the process is incidental to transportation, not a manufacturing process.The Board Circular dated 22.04.2002 cannot override or create statutory provisions and thus cannot be applied to demand duty on intermix SKO at HSD/MS rates; the Circular lacks statutory backing and is not binding on the assessee.The imposition of penalty under Section 11AC read with Rule 25 is not sustainable in the absence of a legally valid duty demand.

RATIONALE:

The Court applied the statutory framework of the Central Excise Act, 1944, particularly Sections 2(f), 3, and 4, and the Central Excise Tariff Act, 1985, to determine the classification and valuation of excisable goods. It emphasized that duty is leviable on manufacture or production of goods classified distinctly under the First Schedule, and no provision allows charging duty at different rates on the same goods.The Court relied on the technical definitions and BIS standards for HSD, MS, and SKO, finding no evidence that the intermix SKO possesses characteristics qualifying it as HSD or MS, precluding classification under those headings for higher duty.The Court referred to precedent decisions, including a Tribunal ruling and its subsequent affirmation by the Hon'ble Supreme Court, holding that the Board Circular cannot alter or supersede statutory provisions and that duty must be paid on transaction value at removal, not on an assumed classification based on intermixing.The Court noted that the adjudicating authority exceeded the scope of the Show Cause Notice by treating the intermixing as manufacture under clause (iii) of Section 2(f), which applies only to goods specified in the Third Schedule, which was not the case here.The decision reflects adherence to the principle that administrative circulars cannot create new liabilities absent statutory authority and that classification and valuation must be grounded in law and technical standards.