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Pennzoil Quaker State India Ltd. Versus Commissioner of Central Excise, Belapur

2016 (3) TMI 993 - CESTAT MUMBAI

Demand of excise duty on account of reversal of credit on duty paid finished goods at the depot - demand of excise duty on account of shortages of raw material at the factory both for the period 1999-2000 and 2000-01 - demand time barred - Held that:- The base oil being a petroleum product, its weight and volume is dependant upon temperature and density. At the time of receipt in the factory, base oil is emptied in tank and the procedure for determining the weighment is by deducting the gross am .....

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hich can arise on account of variation in temperature, variation in viscosity while dip reading, temperature and density at the time of measurement of stock. In this regard, the appellant referred to circular No. 55/89-CX.8 dated 15.12.1989 which provides for condonation of shortage and handling losses of petroleum products in a refinery and in the method of determining the quantities of petroleum products for the purpose of accountal in statutory excise records. - Shortage of finished goods .....

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that the shortages found are very minor in nature, i.e. 0.6% which is well accepted in petroleum products as observed in the judgments cited above. Also find that in the show cause notice also, there is no allegation that there is clandestine removal of goods by the appellant. - Further, as far as limitation is concerned, the entire demand appears to be time barred as it relates to financial year 1999-2000 and 2000-01 whereas the show cause notice was served on 26.3.2004 on the basis of shor .....

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he Commissioner, No. 12/COMMR/05-06 dated 9.6.2006 vide which the Commissioner has confirmed the demand along with penalty against the appellant. 2. Briefly the facts of the present case are that the appellant is engaged in the manufacture of lubricating oil classifiable under Chapter 27 of the Central Excise Tariff Act, 1985. The appellant has been verifying the stock of finished goods and raw material in their factory on regular basis and whenever the shortages have been noticed, the credit of .....

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been getting their accounts audited under the Income Tax Act, 1961 and the report is required to be submitted to the Income Tax Department under form 3CD. The annexure attached to the report in form 3CD for the financial year 1999-2000 and 2000-01 showed the following differences in stock of finished goods and raw material. Year ending March, 2000 Year ending March, 2001 Raw materials Base oil Additives Total Base oil Additives Total (i) Opening stock 1,289,610 97,965 13,87,575 5,314,142 305,732 .....

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and traded Total Auto Indus-trial and traded _____ (in num-ber) Total (i) Opening stock 2,526,777 706,237 3,233,014 2,498,282 484,334 - 2,982,616 (ii) Quantity manu-facture/ Purch-ased during the year 13,557,664 1,047,030 14,047,030 11,855,022 930,810 - 12,785,832 (iii) Quantity Purch ased during the year - 177,689 177,689 - 762,045 90,171 852,216 (iv) Sales during the year 12,953,730 1,397,244 14,350,974 (v) Free samples/ gift 371,811 66,086 437,897 (vi) Closing stock 2,758,900 467,626 3,226,52 .....

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s, the stock is also verified at each of the depots and the excess/shortage compared to the book stock at the depot is ascertained. During the audit of central excise records, the auditor verified the form 3CD (audit report) under the Income Tax Act for the period ending on March 2000 and March 2001 and observed shortages in respect of certain finished goods and raw materials as stated in the tables above. The appellant clarified that they have paid the duty of ₹ 1,06,612/- towards the sho .....

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sioner as adjudicating authority confirmed the demand of ₹ 37,44,287/- and imposed penalty of equal amount under Section 11AC of the Central Excise Act. Being aggrieved by the said order, the appellant has filed the present appeal. 3. The learned counsel for the appellant submitted that there are number of reasons for shortages of raw material in the base oil viz. variation in weigh bridge calibration, variation in temperature, minor defect in flow meter, variation in viscosity while dip r .....

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, variation is very minor i.e. 0.6% of the total consumption and the same should be condoned. He also submitted that this Tribunal has consistently held that credit of duty should not be denied for minor variation in the quantity received physically compared to the quantity indicated in the challan, if there is no evidence of removal of goods from the factory premises. In support of this argument, he relied upon the following judgments of the Tribunal:- (i) Neera Enterprises vs. CCE reported in .....

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the show cause notice that inputs have been removed without payment of duty, then in that case duty cannot be demanded only on the ground of shortage of input/finished goods unless clandestine removal is alleged and in support of this, he placed reliance on the following judgments:- (i) Vindhya Pipes & Plastics reported in 2001 (129) ELT 86 (T); (ii) Kanpur Strips (P) Ltd. reported in 2001 (137) ELT 198 (T); (iii) IPCL vs. CCE reported in 2005 (181) ELT 99 (T). It is his further submission t .....

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goods removed without payment of duty in the show cause notice and there is no evidence to substantiate the clandestine removal of goods. He further submitted that the entire demand is time barred as it relates to financial year 1999-2000 and 2000-01 whereas the show cause notice was served on 26.3.2004 which is after a period of one year from the relevant date. He also submitted that the alleged demand in this case is based on shortages of raw material and finished goods as shown in form 3CD i .....

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that there is no suppression of fact with intent to evade payment of duty on the part of the appellant and therefore extended period cannot be invoked and no penalty under Section 11AC can be imposed. 4. On the other hand, the learned AR reiterated the findings of the Commissioner. 5. I have heard the learned counsel for the parties and perused the records. 6. The matter in a narrow compass involves firstly, the demand of excise duty on account of reversal of credit on duty paid finished goods .....

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ng the oil and reducing therefrom the weight of the tanker after discharging the oil considering the density and temperature. This method sometimes results into shortage or excess quantity of base oil to the extent of 1 to 2% and this is well recognized within the petroleum industry for petroleum products whereas in this case, the shortage as reported in annexure A to form 3CD during the period 2000-01 has only been to the extent of 0.6% of the total consumption which can arise on account of var .....

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r:- It is seen that vide Board s letters F. No. 261/11-A/2/76-CX.8, dated 13-12-1976 and F. No. 8/82/65-CX.3, dated 22-4-1968, it was clarified that all tanks for storage of bulk oil in the refineries as well as marketing installations must be measured both before and after each operation of either receipt into or discharge of oil from the tanks. The difference noticed in the dip readings measured between two operations should constitute the storage loss. 3. The handling losses on the other hand .....

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e tank wagon/Tank lorry taken before and after filling should be taken as quantity cleared. The difference between the two quantities mentioned above should represent handling loss. The appellant relied upon the following case laws in support of their above argument:- CCE, Rajkot vs. Bombay Dyeing & Mfg. Co. Ltd. reported in 1998 (97) ELT 101, wherein in para 3 the Tribunal has held as under:- 3. The ratio of the decision of the (sic) relied? upon by the Tribunal decision Commissioner was th .....

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f moisture. In the present case, for the difference in weight is on account of loss in moisture. There is no contention that the shortage in weight was due to any other factor, such as pilferage theft. The ratio of the Tribunal decision would therefore squarely apply. Neera Enterprises vs. CCE, Chandigarh reported in 1998 (104) ELT 382, wherein in para 5, the Tribunal has held as under:- 5. It is not disputed by the department that the goods were initially removed from the Rourkela Steel Plant o .....

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f the inputs while removing from the depot of SAIL is different from the weight of inputs actually received, there is substance in the submissions of the ld. Counsel that the difference is not substantial and it may be on account of weighing on different scales. Again this could not be a ground for disallowing the Modvat Credit when the duty paid nature of the goods and its use are not in dispute. Tata Motors Ltd. vs. CCE reported in 2005 (179) ELT 413, wherein the Tribunal in para 8 has held as .....

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hange in temperature and other atmospheric conditions. The measurements are taken on the manual basis and there will always be a tolerance error in measurement and the Modvat credit cannot be denied on such difference in weight or measurements under Rule 57A of the Central Excise Rules, 1944. Similar view has been expressed in the case of Commissioner of Central Excise, Rajkot v. Bombay Dyeing & Mfg. Co. Ltd. reported in 1998 (97) E.L.T. 101 (Tribunal). In the present case, the minor shortag .....

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