Hindustan Petroleum Corporation Limited Vs Commissioner of Central Excise (CESTAT Hyderabad)
CBEC Circulars of 1956 and 1959 did provide losses which were condonable only with respect to some goods. However, the Circular of 1981 clarifies that the condonation of losses up to the limit of 1% the authorities need not enter into a detailed scrutiny to verify the bonafide of the reported loss. It further clarifies that the claim of losses above 1% must be scrutinized to satisfy that they are genuine. In this case, we find from the revised annexure to the order in original dated 2.5.2008 (revised on 4.8.2008), the losses in almost in all the cases is below 1%. We also find that in respect of certain commodities such as Sulphur, Naptha, JBO, ATF etc, the Commissioner has reckoned condonable limit of 0%. This is probably because these products were not mentioned in Circulars of 1956 and 1959. However, since the 1981 Circular of the Board clarifies that losses of up to 1% can be allowed without detailed scrutiny and loss above 1% can be condoned after scrutiny, we find no reason to not condone losses in these cases as claimed. There is no allegation, let alone evidence, that the losses were not genuine or that the products were suspected to have been diverted or pilfered. With respect to motor spirit, for the month of April 2004, learned Counsel submits that during the calculation error which resulted in an apparent loss of 3443% whereas it only 0.348%.
In view of the above, we find that the appellant is entitled to remission of the losses as claimed and consequently the demand of duty on the appellant cannot be sustained. The appeal is allowed and the impugned order is set aside with consequential relief, if any, to the appellant.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
M/s Hindustan Petroleum Corporation Limited, Vishakapatnam 1 is a Government of India Undertaking which refines crude petroleum and manufactures various finished petroleum products such as HSD, motor spirit, naptha, superior kerosene oil, furnace oil, bitumen, jute batching oil (JBO) and LSHS. It is aggrieved by the order in original dated 2.5.2008 passed by the Commissioner of Central Excise, Vishatapatnam as amended by corrigendum dated 4.8.2008 whereby an amount of Rs. 1,06,58,056/- has been demanded from the appellant as duty under the proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944 along with interest under Section 11AB.
2. Usually, when goods are manufactured duty becomes payable when they are cleared from the factory. However, Rule 20 of the Central Excise Rules, 2002 provides for the Central Government to extend the facility of removing the goods from the factory of production to a warehouse, or from one warehouse to another warehouse without payment of duty. It further provides that in case of warehousing the responsibility for payment of duty on the goods that are removed from the factory lies on the consignee. Further, if the goods which are dispatched for warehousing are not received in the warehouse, the responsibility for payment of duty shall be on the consignor. The appellant has several Local Marketing Installations 2 which are registered as warehouses under the aforesaid provisions and the appellant is entitled to remove the finished products to these LMIs. If goods which are manufactured are lost due to natural causes or accidents, the duty thereon can be remitted by the Commissioner as per Rule 21 of the Central Excise Rules. Such losses are common in petroleum products as they are volatile by nature. As per the instructions of the Central Board of Excise & Customs dated 1.06.1956, 2.3.1959 and 15.12.1989 losses of petroleum products in storage, pipeline deliveries and transit losses etc. are permissible up to some limits. A cumulative loss/gain statement consisting of storage losses, gains and LMI transit losses and gain for each month for all the petroleum products at 15 Degree Centigrade has to be submitted by the assesses on a monthly basis.
3. Up to September, 2003 the monthly excise ER-I returns filed by the appellant were reflecting the opening and closing balance thereafter it had not provided details of the losses. The Range Officer had written a letter dated 3.5.2005 calling for these details but the appellant failed to provide the data. Consequently, a show cause notice covering the period April 2004 to March 2006 was issued based on the information available in the quadruplicate copies of the AR3As (the re-warehousing certificates) received from the consignees. Repeated letters were written to the appellant but it had not provided the required data.
4. Thereafter, the show cause notice was taken up for adjudication. During hearing, the appellant submitted that it had switched over to a new ERP system which resulted in teething troubles and consequential delays in submitting statements of loss of the products during transit. Nevertheless, it submitted the details of the losses to the Commissioner during hearing which were considered by the Commissioner to some extent and duty has been remitted by the Commissioner under Rule 21 of the Central Excise Rules. The Commissioner has not remitted duty on some portion of the losses which resulted in confirmation of demand in the impugned order.
5. Learned Counsel for the appellant Shri Narendra Dave submitted that CBEC Circular dated 1.6.1956 and 2.3.1959 have set condonable limits for the following products:
