1. Brief facts of the case are that the appellant are engaged in the manufacture of various petroleum products falling under Chapter 27 and 29 of the
schedule to the Central Excise Tariff Act, 1985. During scrutiny of the record, department noticed that the appellant determined the interface quantity
of Superior Kerosene Oil (SKO for short) which was supplied through pipeline with Motor Spirit (MS for short) and High Speed Diesel (HSD for
short). The appellant paid duty on such interface quantity of adopting assessable value of SKO (non Public Distribution System (PDS) at the prevalent
rate. The case of the department is that the appellant, instead of paying excise duty on the interface quantity of SKO as per rate prevalent for SKO,
they should have paid excise duty higher of the two duties, after determining the duty payable on SKO and duty payable on MS/HSD. The contention
of the department is solely based on CBEC Circular No. 636/27/2002-CX dated 22.04.2002 which is issued under F. No. 261/27/5/2002-CX-8,
clarifying that in the event of intermixing of SKO with MS/HSD during movement of these petroleum products through pipeline, the higher of two
duties i.e. duty payable on SKO not used for intended purpose and duty payable on surge/gain of MS or HSD shall be payable for intermixed/
interfaced quantity. Accordingly, the duty of intermixed part of SKO and MS/HSD as the case may be, should be quantified and higher of the two is
payable. The Adjudicating Authority in the adjudication confirmed the demand of differential Central Excise duty with interest and also imposed
penalties. Therefore, the present appeal.
2. Heard both sides and perused the record. The issue is no longer res-integra as in the appeals in the appellant’s own case only for a different
period, this Tribunal has already decided the matter in the order No. A/11838-11841/2018 dated 31.08.2018 wherein the following order was passed:-
“4. We have carefully considered the submissions made by both the sides and perused the record. We find that the fact is not in dispute
that while clearing the goods, the appellant 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 per the provisions of Section 4, the excise duty is
payable on the transaction value at the time of removal of the goods from the factory. In the present case, the goods cleared from the
factory is MS/HSD and SKO. Accordingly, the duty on these products is payable as per price of the respective product prevailing at the time
of removal of the goods. As regards MS and HSD, the duty was paid on the transaction value. As regards SKO, since the same was not sold,
the duty was paid on the prevailing price of SKO on the basis of sale price prevailing for SKO naturally which is higher than the price of
SKO sold under Public Distribution System, therefore, the correct price was adopted by the appellant while clearing the interface quantity
of SKO. The sole reliance of the Adjudicating Authority is on the Board Circular dated 22.02.2002, which is reproduced below:-
“Petroleum products movement through pipeline â€" Rate of duty on intermixed quantity â€" Clarifications
Circular No. 636/27/2002-CX., Dated 22-4-2002
F. No. 261/27/5/2002-CX-8
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
Subject : Movement of petroleum products through pipeline â€" Determination of duty on interface quantity.
The problem of accountal of petroleum products resulting from intermingling of different products pumped through pipelines has been
engaging the attention of the Board for quite some time. In a recent case, 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 product. Though in the scheme of accountal of one product for the other, the duty payable on the interface SKO (comingled
products) taken as MS or HSD is presently more than the duty liability on the shortage of imported SKO, however, the situation can be
reverse also. Furthermore, it is a fact that the SKO imported under concessional duty is not fully utilised for the intended purpose and in
such case, the concessional duty cannot be extended. The Board is therefore, of the view that in the event of inter mixing of the products,
the higher of the two duties i.e. duty payable on SKO not used for intended purpose and duty payable on surge/gain in MS or HSD shall be
payable for the intermixed/interface quantity. In other words, the duty of inter mixed part of SKO and MS/HSD as the case may be, may be
quantified and higher of the two values may be accepted. The existing instructions on the subject stand modified to the above extent.â€
On careful reading of the above Circular, we find that the Circular suggests that even on clearance of SKO, the price of HSD/MS should be applied.
However, this proposal of the Board Circular does not flow from any statutory provision. As discussed above, the appellant have correctly applied the
price of respective goods cleared from the factory at the time of removal. Therefore, we do not find any support of any statutory provisions in the
Board Circular. The Hon'ble Supreme Court time and again held that the board Circular cannot vitiate the law or the Board Circular cannot be issued
contrary to the statutory provisions. We refer some of the judgments on this issue:-
(a) 2008 (229) ELT 641 (SC) â€" Sindur Micro Circuits Limited vs. CCE Belgaum
(b) 2009 (235) ELT 385 (SC) â€" Atul Commodities Pvt. Limited vs. CC, Cochin
(c) 2003 (156) ELT 819 (Bom) â€" Narendra Udeshi vs. UOI
(d) 2015 (326) ELT 26 (SC) â€" DGFT vs. Kanak Exports
4. In view of the above judgments, it is clear that the Board can only clarify the existing law but cannot create law by itself. Therefore, the above
Board Circular dated 22.04.2002 having without support of any Act or Rule, is not binding on the assessee.
5. As regards the issue that after removal of goods, intermixing of SKO with MS/HSD amounts to manufacture, we find that there is no charge in the
show 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 re-labeling 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;â€
From the reading of the above clause, it is clear that the activity specified in the said clause (iii) will amount to manufacture only in respect
of the goods specified under Third schedule. It is undisputed that the products of the appellant are not specified under third schedule,
therefore, whatever activity mentioned in clause (iii) shall not apply to the goods which are not specified in Third schedule. For this reason,
intermixing of SKO with HSD/MS does not amount to manufacture. 6. As per our above discussion, the differential duty demand raised on
interface quantity of SKO is clearly not sustainable. Hence, the impugned orders are set-aside and the appeals are allowed.
3. In the present case, there is no change in the facts and circumstances of the case as compared to the above decision. Therefore, the issue is no
more res-integra. Accordingly, the impugned order is not sustainable hence the same is set-aside. The appeal is allowed.
(Pronounced in the court on 29.10.2021)
