Case Law Details
Indian Oil Corporation Ltd. Vs C.C.E. & S.T. (CESTAT Ahmedabad)
Introduction
The case of Indian Oil Corporation Ltd. vs. C.C.E. & S.T. revolves around the interpretation and applicability of Notification No. 29/89-C.E. dated 01.03.1989. This article delves into the details of the notification, the conditions for its benefit, and the subsequent legal proceedings.
Detailed Analysis
Notification 29/89-C.E.: Conditions and Scope
The Notification provides a duty exemption on kerosene used in the manufacture of alkylbenzene or heavy alkylate, subject to certain conditions. A key condition is that the kerosene must fall under heading No. 27.10 of the Central Excises Tariff Act, 1985, intended for the production of linear alkyl benzene or heavy alkylate.
Applicant’s Claim and Tribunal’s Decision
The article scrutinizes the claim made by the Applicant that the notification applies to any mineral oil (kerosene) under heading 2710, asserting that it is incorrect. The Tribunal emphasizes that the exemption is specific to “kerosene” falling under chapter heading 27.10 and used in the production of specified chemicals.
Supreme Court’s Directive and Review Petition
Following the Tribunal’s initial order, the case reached the Supreme Court. The court directed a review, focusing on two unresolved issues: the applicability of Notification 29/89-C.E. and the legality of a penalty imposed under Rule 173Q of the Central Excise Rules, 1944.
Tribunal’s Decision on Review
The Tribunal, despite lacking the power to review its orders, adheres to the Supreme Court’s directive. It carefully examines the issues on merit, emphasizing the conditional nature of the exemption and the necessity to verify if the applicant’s products qualify as “kerosene” under the notification.
Conclusion In conclusion, the article highlights the intricacies of the Indian Oil Corporation Ltd. vs. C.C.E. & S.T. case, emphasizing the specific conditions laid out in Notification 29/89-C.E. The remand to the adjudicating authority for further scrutiny reflects the nuanced nature of tax law interpretation. Additionally, the waiver of the penalty underscores the importance of considering bona fide beliefs in taxation matters.
This detailed analysis provides a comprehensive overview of the legal nuances surrounding the case, ensuring that readers gain insights into the complexities of tax law and exemption notifications.
As regard the first issue that whether the benefit of Notification 29/89-C.E. dtd. 01.03.1989 admissible to Applicant or not we examined the relevant text of the said Notification, which is reproduced herein below:-
“Basic excise duty on kerosene used in the manufacture of alkylbenzene or heavy alkylate on a net consumption basis.
In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts kerosene falling under heading No. 27.10 of the Schedule of the Central Excises Tariff Act, 1985 (5 of 1986) intended for use in the manufacture of linear alkyl benzene or heavy alkylate from so much of the duty of excise leviable thereon as is in excess of the duty leviable on the quantity of kerosene consumed in the manufacture of linear alkyl benzene or heavy alkylate.
EXPLANATION: The quantity of kerosene consumed in the manufacture of linear alkyl benzene or heavy alkylate shall be calculated by subtracting from the quantity of kerosene received by the factory manufacturing linear alkyl benzene or heavy alkylate, the quantity of mineral oil, falling under heading No. 27.10 of the said Schedule, generated in such manufacture and returned by the factory to a refinery, declared as such under sub-rule (2) of rule 140 of the Central Excise Rules, 1944.
[Notification No. 29/89-C.E., dated 1-3-1989]
From the plain reading of above notification, it is clear that in above notification benefit was granted to the Kerosene falling under heading No. 27.10 of the Schedule of the Central Excise Tariff Act, 1985 (5 of 1986) intended for use in the manufacture of liner alkyl benzene or heavy alkylate. Clearly the above notification ibid is a conditional exemption notification, benefit of which is admissible subject to fulfillment of the conditions.
The claim of the Applicant that exemption Notification No. 29/89-C.E. dtd. 01.03.1989 applies to any mineral oil (Kerosene) falling under heading 2710 of the Schedule to the Central Excise Tariff Act 1985 is not correct. The said exemption Notification applies only on “Kerosene“ and not for any other mineral oil falling under heading 2710.
Only product “Kerosene” falling under chapter heading 27.10 and consumed in the manufacture of linear alkyl benzene or heavy alkylate will be eligible for exemption under above Notification. Since the said factual position, related to conditions of notification cannot be ascertain at this stage specifically when the said issue was raised before the Tribunal first time. In the above position of the case, we are of the view that now adjudicating authority must decide and verify the matter first whether products of applicant can be considered as “Kerosene“ for the purpose of above exemption notification and thereafter, verify the use of products for manufacture of liner alkyl benzene / heavy alkylate. As per our above observations, we dispose of the first issue by way of remand to the adjudicating authority for passing a fresh order in the above terms.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
Briefly stated, the fact of the case are that Appellant/Applicant filed appeal before the Hon’ble Supreme Court against the Tribunal Final Order No. A/10818-10819/2015 dated 19.06.2015. The Apex Court in this matter passed the following order:
“1. Shri S.K. Bagaria, Learned Counsel appearing for the appellant Indian Oil Corporation Ltd. would submit that the tribunal, while disposing of the appeals(s) before it, has not decided two more issues viz., (i) Applicability of Notification No. 29/89-CE dtd. 01.03.1989 and duty computation on that basis and (iii) Legality of penalty of Rs. 36,00,000/- (Rupees Thirty Six Crores only) under Rule 173Q of the Central Excise Rules,1944.
2. If that is so, we permit the learned senior counsel to approach the Tribunal by filing a Review Petition before it.
3. If such a Review Petition is filed within a month’s time from today, we request the tribunal to decide those two abovementioned issue on merits, without reference to the period of limitation.
4. The Civil Appeal are disposed of accordingly.”
2. In terms of the above order of Hon’ble Supreme Court, review petition by way of Misc. Application was filed on 19.10.2015 by the applicant/appellant.
3. Learned Shri Chandan Kumar, General Manager (Finance) appearing for the applicant submit that the issue of eligibility of Notification No. 29/89-C.E. flows from reply to show cause notices and same also been specifically dealt with by the Ld. Commissioner is order. A specific ground with regard to the eligibility of Notification No. 29/89 -C.E. has been taken in the statement of facts in the both the appeals filed before the tribunal. Therefore, it would not be correct to contend that the issue of Notification No. 29/89 is sought to be raised first time.
4. Without prejudice, he also submits that Section 35C of the Central Excise Act, 1944 provides that Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or annulling the decision or order appealed against or may refer the case back to the authority which passed such decision or order with such directions as the Appellate Tribunal may think fit, for a fresh adjudication or decision, as the case may be, after taking additional evidence, if necessary. The only limitation contemplated under Rule 10 of the CESTAT (Procedure) Rules, 1982 is that the ground not set forth in the memorandum of appeal shall not be permitted to be urged unless leave of the Tribunal is taken. The Tribunal can, therefore, grant leave to urge a ground that has not been taken in the memorandum of appeal to be urged or to be heard. He placed reliance on the decision Gannon Dunkerley & CO. Ltd. Vs. CCE, New Delhi 2020(43)GSTL 183(Tr-Del)
5. On merit he submits that once it has been held and decided that the final products i.e. LABFS cleared by the Appellant to the manufacture of liner alkyl benzene (LAB) is classifiable under Chapter 2710.29 and not under 2710.99, the benefit of Notification No. 29/89-C.E. dated 01.03.1989 is available to the Appellant.
6. He also submits that the exemption under Notification No. 29/89-CE applies to any mineral oil (Kerosene) falling under heading 27.10 of the schedule to the Central Excise Tariff Act 1985 intended for use in the manufacture of Liner Alkyl Benzene or Heavy Alkylate from so much of the duty of excise leviable thereon as is in excess of the duty leviable on the quantity of mineral oil (Kerosene) consumed in the manufacture of Liner Alkyl Benzene or Heavy Alkylate.
7. He further submits that tariff heading 2710 in the context of exemption notification 75/84-CE has been held against the Appellant in view the Supreme Court judgment in the case of IOCL Vs. CCE 2010 (259) ELT 172 (SC). In that case concessional rate of duty as available under exemption notification no 5/98 was sought for the kerosene supplied to industrial customers. The ratio of the Judgment of Supreme Court is that the benefit of exemption Notification 5/98 would be available only to that variety of kerosene that (i) has a point of 18 or more and is (ii) ordinarily used as an illuminant in oil burning lamps. However, in case of Notification No. 29/89, it is specifically provided that exemption would be available only if kerosene is supplied for the purpose of manufacture of Liner Alkyl Benzene or Heavy Alkylate which is obviously for industrial purpose. Therefore, the ratio of the Supreme court judgment in the context of notification 5/98 cannot be applied in the context of claim for exemption notification number 29/89.
8. He also submits that since the products (LABFS and LARO) though classifiable as ‘Kerosene’ under CETH 2710 were not sold through PDS but supplied for the purpose of manufacture of Liner Alkyl Benzene or Heavy Alkylate same would be eligible for exemption Notification No. 29/89.
9. As regard the imposition of penalty under Rule 173Q(1)(a) of Central Excise Rules, 1944 he submits that it is undisputed facts that classification List were filed, proper invoices were issued, records were kept and returns were submitted disclosing the products LABFS and LARO under Tariff head 2710.20 and not 2710.99 and theses were all within the knowledge of the department. Therefore, the basis of imposition of penalty is illegal.
10. He also submits that issue well settled that when the issue involved is classification dispute or interpretation of Notification, penalty cannot be imposed. He placed reliance on various decisions on the subject issue.
11. Arguing for the Revenue Learned Shri P.R.V. Raman, Special Counsel (Authorized Representative) submit that it is evident from the text of the Order of Apex court in particular, para 2 of the court’s order which begins as “if that is so”- that is has been passed, ex part, at the stage of admission of the Civil Appeal, without perusal of the case records and the relevant provisions of Central Excise Act, 194, governing the rectification of an order passed by the Tribunal. It appears that the court had presumed that correctness of the statement of the Senior Advocate. Besides, it is apparent that the fact that the Hon’ble Tribunal has not been bestowed with the power of review its final order, has also not been brought to the notice of the court. Therefore, it is submitted that the order of the Hon’ble Supreme court may not be regarded as a direction. Further, the final order of the Hon’ble Tribunal has not been either modified or set aside or sent back to the Tribunal for fresh consideration. It is settled legal position that the Hon’ble Tribunal has not been vested with the power of review of its own order. He relies on the decisions of the Hon’ble Apex court in the following cases.
(i) Deva Metal Powders Vs. State of UP – 2008(221)ELT (16)(SC)
(ii) CCE Vs. A.S.C.U Ltd. 2003 (151)ELT 481(SC)
12. He also submits that the only way in which an order of the Tribunal can be amended is by invoking the provisions of Section 35C(2) of the Central Excise Act, 1944, where under, the Tribunal has been empowered to rectify any mistake apparent on record and amend its order is so required.
13. He also submits that the first issue relates to the applicability of Notification No. 29/89 dtd. 01.03.1989 to LABFS cleared by the Appellant for the manufacture of LAB and duty exemption on the return stream of mineral oil. In the appeal memorandum, filed by the appellant, there is no plea claiming the benefit of the aforesaid Notification. Beside, in the written submission filed on behalf of IOCL at the time of the hearing held by the Hon’ble tribunal, there is no whisper about this issue. Accordingly, in the submission on behalf of the department as also in the final order passed by the Hon’ble tribunal there is no mention about the said issue. The Hon’ble Tribunal cannot, therefor, be faulted for not deciding the said issue, when the issue was not raised before them. To this extent, the statement made before the Apex court by the Senior advocate was misleading and erroneous.
14. He further submits that the issue being totally new cannot be raised or consider after the passing of the final order since it would amount to a review of the said final order.
15. As regard the second issue relates to the imposition of penalty under Rule 173-Q of Central Excise Rule 1944 he submits that, there is no specific plea in the appeal memorandum seeking annulment or modification of the penalty imposed on the appellant though invoking of longer period of limitation as far as the duty demand is concerned has been contested. This tantamounts to not pressing the aspect of penalty and interest.
16. He also submits that in the written submission field on behalf of IOCL at the time of the hearing held by the Hon’ble Tribunal, there is no mention or plea about the ‘penalty’ issue. The Hon’ble tribunal has rightly taken that the Appellant IOCL had pressed only two points, namely, the classification of LABFS and LARO and their eligibility to the duty exemption under Notification No. 79/84. Justifiably enough, they proceeded to decide on this premise and passed the said final order. The Tribunal cannot be faulted, since IOCL did not press this point. Besides, before the Apex court the aspect of suppression and invoking the extended period of limitation has not been raised. Consequently, rectification of any ‘mistake apparent on record’ does not arise in respect of this issue as well.
17. He submits that IOCL is seeking a review of the final order passed by the Hon’ble Tribunal, in terms of a non-existing power. Taking into account of appeal memorandum filed by IOCL and the written submission filed at the time of hearing held by the hon’ble tribunal, it cannot be said that the tribunal had failed to consider the above mentioned issues, since the same were not pressed by IOCL.
18. Without prejudice the above, he further submits that Ld. Commissioner in order dealt with the issue hand. Having drawn to conclusion that LABFS is different from Kerosence and he has held that applying the same reasoning the benefit of the Notification No. 29/89 would not be available to the LABFS. The respondent has, based on the same reasoning, taken the view that LABFS is classifiable under heading 271099. The Hon’ble tribunal, however held that LABFS would merit classification under heading 271090, thus differing from the finding of the respondent. As for eligibility to avail the duty exemption provided thereunder is not available to LABFS. The Tribunal has held that only those categories of Kerosene, which are distributed through PDS, would be eligible for the said exemption.
19. Further, he submits that the description of the goods appearing in the two Notification, namely 75/84 and 29/89 is in parimateria and it merely ‘Kerosene’. The reasoning given by the Hon’ble Tribunal in respect of applicability of Notification No. 75/84 to clearances of LABFS, would equally apply to the exemption under Notification 29/89. Thus, the said product would not be eligible to the benefit of the exemption under Notification No. 29/89.
20. As regard the penalty issue, he reiterated the finding of order -in-original and submits that IOCL had not made a strong defence against imposition of penalty under Rule 173Q of Central Excise Rule, 1944 and that they cannot claim the benefit of bonafide belief. There is no merit in the present ‘review appeal field by the appellant and the same may be rejected.
21. Heard both sides and perused the records. We find that in the present review application is filed by the applicant on the basis of Hon’ble Supreme Court order dtd. 21.09.2015 and the Hon’ble apex court vide order in para 3 also held that “if such review petition is filed within a month’s time from today, we request the Tribunal to decide those two abovementioned issues on merits, without reference to the period of limitation.” We also noticed that as per the provision of the Central Excise Act, Tribunal has no power to review the order. However, it is well settled law that all subordinate courts/tribunals/authorities were bound by the decision of the Apex Court until it was reviewed or corrected by the same court. The decisions rendered by the Apex Court being the highest judicial fora are binding on all subordinate courts. However, this apex court order can also be considered as remand for deciding the issue on merit. Considering the said facts, we now decide the issues on merits related to applicability of Notification No. 29/89-CE dtd. 01.03.1989 and legality of penalty of Rs. 36,00,000/- under Rule 173-Q of the Central Excise Rules, 1994 addressed by the Hon’ble apex court.
22. As regard the first issue that whether the benefit of Notification 29/89-C.E. dtd. 01.03.1989 admissible to Applicant or not we examined the relevant text of the said Notification, which is reproduced herein below:-
“Basic excise duty on kerosene used in the manufacture of alkylbenzene or heavy alkylate on a net consumption basis.
In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts kerosene falling under heading No. 27.10 of the Schedule of the Central Excises Tariff Act, 1985 (5 of 1986) intended for use in the manufacture of linear alkyl benzene or heavy alkylate from so much of the duty of excise leviable thereon as is in excess of the duty leviable on the quantity of kerosene consumed in the manufacture of linear alkyl benzene or heavy alkylate.
EXPLANATION: The quantity of kerosene consumed in the manufacture of linear alkyl benzene or heavy alkylate shall be calculated by subtracting from the quantity of kerosene received by the factory manufacturing linear alkyl benzene or heavy alkylate, the quantity of mineral oil, falling under heading No. 27.10 of the said Schedule, generated in such manufacture and returned by the factory to a refinery, declared as such under sub-rule (2) of rule 140 of the Central Excise Rules, 1944.
[Notification No. 29/89-C.E., dated 1-3-1989]
From the plain reading of above notification, it is clear that in above notification benefit was granted to the Kerosene falling under heading No. 27.10 of the Schedule of the Central Excise Tariff Act, 1985 (5 of 1986) intended for use in the manufacture of liner alkyl benzene or heavy alkylate. Clearly the above notification ibid is a conditional exemption notification, benefit of which is admissible subject to fulfillment of the conditions.
23. The claim of the Applicant that exemption Notification No. 29/89-C.E. dtd. 01.03.1989 applies to any mineral oil (Kerosene) falling under heading 2710 of the Schedule to the Central Excise Tariff Act 1985 is not correct. The said exemption Notification applies only on “Kerosene“ and not for any other mineral oil falling under heading 2710.
24. Only product “Kerosene” falling under chapter heading 27.10 and consumed in the manufacture of linear alkyl benzene or heavy alkylate will be eligible for exemption under above Notification. Since the said factual position, related to conditions of notification cannot be ascertain at this stage specifically when the said issue was raised before the Tribunal first time. In the above position of the case, we are of the view that now adjudicating authority must decide and verify the matter first whether products of applicant can be considered as “Kerosene“ for the purpose of above exemption notification and thereafter, verify the use of products for manufacture of liner alkyl benzene / heavy alkylate. As per our above observations, we dispose of the first issue by way of remand to the adjudicating authority for passing a fresh order in the above terms.
25. Adjudicating authority should complete the remand proceedings within three months of the receipt of this order and the applicant shall be allowed adequate opportunity of hearing and submission before a fresh decision is taken.
26. As far as imposition of penalty is concerned, we find that it is a settled legal position that in cases where issue involved is the classification dispute and interpretation of rules / law /exemption notification are involved, no penalty can be imposed. In the present matter no penalty is imposable upon the appellant under Rule 173Q of the Central Excise Rules 1944 as the applicant has not violated any Rules / provisions with intention to evade payment of duty. It is only a matter of difference of opinion regarding classification of goods between the applicant and by the department. Therefore penalty needs to be set aside and we do so.
27. Further, since the Applicant are public-sector undertaking, the allegation of mis-statement, or suppression of fact or contravenes provisions of Rule with intent to evade the payment of duty can not be alleged. It is unconceivable that the public –sector undertaking would try to evade the payment of duty by resorting the wilful suppression of facts or contravention of provisions of law. We also observed that, Tribunal’s in the case of Western Coal Fields Ltd. CCE, Nagpur – 2003 (161) E.L.T. 768 (Tri.-Mumbai) and ONGC v. CCE, Vadodara – 1995 (79) E.L.T. 117 (Tribunal) wherein a view was taken that being a Public Sector Undertaking wholly owned by the Government of India, they could not have evaded the duty and therefore a harsh penalty cannot be imposed.
28. Further the Apex Court in the case of Hindustan Steel Ltd. v. State of Orissa reported in 1978 (2) E.L.T. (J.159) (S.C.) held that the discretion to impose a penalty must be exercised judicially. A penalty will, ordinarily be imposed in cases where the party acts deliberately in defiance of law or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation but not, in the cases where there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Further the Apex Court in the case of Akbar Badruddin Jiwani Collector of Customs reported in 1990 (47) E.L.T. 161 (S.C.) held that mens rea has to be established in imposing penalty.
29. Considering the facts of the this case and on our above discussion, we waive the penalty imposed in this matter.
30. In result, as regard demand of duty, the matter is remanded to the adjudicating authority and on the matter of penalty under Rule 173Q, we set aside the penalty. Appeal is disposed of in the above terms.
(Pronounced in the open court on 10.06.2022)
