TMI Blog2019 (6) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... -2019 - SHRI P.K. CHOUDHARY, JUDICIAL MEMBER And SHRI V. PADMANABHAN, TECHNICAL MEMBER Shri Arvind Baheti, C.A. for the Appellant (s) Shri S. S. Chattopadhyay, Supdt.(AR) for the Respondent (s) ORDER PER SHRI V. PADMANABHAN The present appeal is directed against Order-in-Original No. CCE/Shillong No.02/2013 dated-13.09.2013 passed by the Commissioner of Central Excise, Shillong. The appellant is a public sector undertaking engaged in refining and marketing of petroleum products falling under Chapter 27 of the schedule to the Central Excise Tariff Act, 1985. The refinery is situated at Golaghat, Assam. The present dispute has arisen for the period June, 2009 to January, 2013. The appellant transported petroleum products viz. Motor spirit (MS), High Speed Diesel (HSD) as well as Superior Kerosene Oil (SKO) by means of the pipeline to Silliguri, West Bengal. For transport of these petroleum products over the distance of 660 kms., the appellant made use of pipeline of M/s. Oil India Ltd. To avoid inter mixing of the petroleum products while transporting through pipeline, the appellant used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustainable for the following reasons: After the withdrawal of the warehousing facility in September, 2004, the refineries were required to discharge Central Excise duty on the petroleum products at the time of their clearance from the refinery by payment of duty at prices prevalent contemporaneously at the depots. The appellant has discharged such duty on the above basis. In respect of the SKO, lost in the process of inter-mixing, he submitted that the duty is liable to be paid only as SKO- the form in which it was cleared from the refinery. He referred to the Rules 4 and 5 of the Central Excise Rules, 2002 to support his argument that the duty is required to be paid at the rate and value prevalent at the time of removal. He further submitted that since SKO (PDS) has got inter-mixed during the transportation by pipeline, the appellant fairly adopted the value of SKO (Industrial) for the quantity lost and paid the Central Excise Duty without availing the exemption for SKO (PDS). He submitted that the reliance placed by the adjudicating authority on the CBEC circular dated 22/04/2002 is misplaced since the circular was issued prior to withdrawal of warehousing provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the other end. While there is no dispute regarding the payment of duty in the increased quantity of MS/HSD, the Department was of the view that the quantum of SKO not accounted as such at the other end, is liable to be charged to duty on the prices at which the same has been sold as MS or as HSD. 11. The appellant s contention on the other hand is that goods are required to be charged to duty at the time of clearance from the refinery, in the form in which it is cleared. Hence, it has been argued that even though a portion of inter mixed SKO and ultimately cleared as MS/HSD, such goods have been cleared from the factory as SKO and as such will be liable to duty only as SKO and not as MS/HSD. Of course, SKO not cleared for PDS will not be entitled to the benefit of exemption. 12. The related question is whether the process of mixing SKO with MS/HSD is a process of manufacture , resulting in SKO getting transformed into MS/HSD. In this regard, we note that this question has not been raised before the lower authority and we find no discussion of this either in the show cause notice or in the impugned order. 13. We have carefully co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, one of the oil companies has represented against the differential duty demanded by the Department on account of shortage of Superior Kerosene Oil (SKO) imported under concessional rate of duty. It has been contented that the movement of petroleum products through pipelines is carried out by product to product method of pumping and in such an event, co-mingling of one product with another is inevitable. The case of the oil company is that shortage of SKO imported under concessional rate of duty is accounted for in terms of the interface quantity i.e. the gain in Motor Spirit (MS)/High Speed Diesel (HSD) and the duty paid by them on this interface quantity is more than the duty foregone on SKO on account of concessional rate of duty. Therefore, as per the assessee, the question of additional duty liability does not arise. The Board has examined the issue from the twin objectives 2. of safeguarding revenue as well as avoiding unnecessary litigation. The existing instructions vide Board s letter F. No. 21/13/66-CX. III, dated 20-3-67 and F. No. 11A/9/70-CX.9, dated 27-3-1973 accept the off-setting of gain observed in one product against loss observed in another pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w 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 adjudicating authority has relied upon clause (iii) of Section 2(f) for holding that activity amounts to manufacture, which reads as under:- 2(f) manufacture includes any process,- i. incidental or ancillary to the completion of a manufactured product; ii. which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or iii. which, in relation to the goods specified in Third Schedule involves packing or re-packing of such goods in a unit container or labeling or relabeling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer; From the reading of the above clause, it is clear that the activity specified in the said claus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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