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M/S. Hindustan Petro... v. The Union Of India
Factual and Procedural Background
The petitioner filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (Tribunal) challenging an adjudication order dated 6 February 2008 by the Commissioner, which confirmed a duty demand of Rs. 3.85 crores. The petitioner sought a waiver of pre-deposit before the Tribunal. By an order dated 11 September 2009, the Tribunal directed the petitioner to deposit Rs. 1 crore within four weeks. The petitioner claimed exemption under Exemption Notification No. 64/95-CE dated 16 March 1995 for supplies of High Speed Diesel Oil (HSD) as stores for consumption on board Indian Navy vessels, supplied through Indian Oil Corporation Limited (IOCL) via dedicated pipelines. The Commissioner issued a show cause notice denying the exemption on the ground that supply was not effected directly to the Indian Navy. The petitioner challenged the Tribunal's order requiring pre-deposit, citing inconsistent subsequent orders by the same Tribunal member granting waiver in similar cases, including those involving the petitioner itself. The Court took note of multiple Tribunal orders with conflicting directions on pre-deposit amounts and waiver.
Legal Issues Presented
- Whether the petitioner is entitled to exemption under Notification No. 64/95-CE for supplies of HSD made through IOCL pipelines to the Indian Navy, given the requirement that supplies must be effected directly to the Indian Navy.
- Whether the Tribunal's inconsistent orders regarding pre-deposit waiver in similar cases, including those involving the petitioner, violate principles of judicial consistency and binding precedent.
- The applicability and interpretation of the Supreme Court's judgment in Leader Engineering Works v. CCE concerning direct supply requirement under the exemption notification.
Arguments of the Parties
Petitioner's Arguments
- The petitioner claims that HSD was supplied as stores for consumption on board naval vessels through IOCL's installations connected directly to naval docks by pipelines, qualifying for exemption under Notification No. 64/95-CE.
- The petitioner contends that prior to 6 September 2004, a duty-free warehousing facility existed, and despite its withdrawal, the petitioner continued the same supply practice through IOCL to the Navy.
- The petitioner challenges the Tribunal’s order requiring a pre-deposit of Rs. 1 crore, highlighting inconsistent treatment by the same Tribunal member who granted complete waiver in subsequent orders involving the petitioner and other oil companies.
Respondent's Arguments
- The Commissioner denied exemption on the basis that the supply was not made directly to the Indian Navy but indirectly through IOCL, thus not qualifying under the exemption notification.
- The respondent placed on record a subsequent Tribunal order dated 14 December 2009 reinstating the requirement of a Rs. 1 crore pre-deposit from the petitioner, reinforcing the view that supplies were indirect.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Leader Engineering Works v. CCE, 2007 (212) E.L.T 168 (S.C.) | Exemption under Notification No. 64/95-CE applies only if goods are supplied directly to the Indian Navy as stores for consumption on board naval vessels, not through intermediaries such as Ship Builders. | The Court noted that the Tribunal initially followed this precedent to deny exemption for indirect supplies but later distinguished it inconsistently in subsequent orders. The Court emphasized the binding nature of this precedent under Article 141 of the Constitution. |
Court's Reasoning and Analysis
The Court observed that the Tribunal’s initial order dated 11 September 2009 correctly interpreted Notification No. 64/95-CE and the Supreme Court’s ruling in Leader Engineering Works to require direct supply to the Indian Navy for exemption eligibility. However, the Tribunal later passed inconsistent orders granting waiver of pre-deposit, including to the petitioner, by distinguishing the precedent on the ground that supplies were made through continuous pipelines rather than intermediaries. The Court found this inconsistency unsatisfactory and contrary to the Tribunal’s duty under Article 141 of the Constitution to follow binding Supreme Court precedents consistently. The Court emphasized that judicial orders must be reasoned, consistent, and free from whim or caprice. Given the conflicting Tribunal orders, the Court decided to set aside the impugned order and remit the matter back to the Tribunal for reconsideration with proper application of mind and adherence to precedent.
Holding and Implications
The Court set aside the Tribunal’s impugned order dated 11 September 2009 and restored the stay application to the Tribunal’s file for fresh decision.
The direct consequence is that the Tribunal must reconsider the petitioner’s stay application afresh, applying the binding Supreme Court precedent and ensuring judicial consistency. No costs were ordered. The Court did not establish any new legal precedent but reinforced the importance of consistency and adherence to binding Supreme Court rulings by the Tribunal.
ORAL JUDGMENT (Per Dr. D.Y Chandrachud, J.) :
1. Rule. With the consent of the learned counsel appearing on behalf of the respondents, rule is made returnable. The learned counsel appearing on behalf of the respondents waives service. With the consent of the learned counsel, taken up for hearing and final disposal.
2. The petitioner is in appeal before the Customs, Excise and Service Tax Appellate Tribunal, aggrieved by an order of adjudication passed by the Commissioner on 6th February 2008 confirming a demand of duty of Rs. 3.85 crores. An application for waiver of pre-deposit was filed before the Tribunal. By its order dated 11 September 2009, the Tribunal directed the petitioner to deposit an amount of Rs. 1 crore within a period of four weeks and to report compliance.
3. The issue which arises before the Tribunal in the appeal pertains to an Exemption Notification (No. 64/95-CE) dated 16 March 1995. Under Serial No. 3 of the Notification, an exemption is provided in respect of all goods other than cigarettes ‘if supplied as stores for consumption on board a vessel of the Indian Navy or Coast Guard’. The petitioner claims to have supplied High Speed Diesel Oil as stores for consumption on board naval vessels. According to the petitioner, the product has been supplied through the installations of Indian Oil Corporation Limited, which are directly connected to the naval docks through dedicated pipe lines. The case of the petitioner is that prior to 6 September 2004 a facility of removing petroleum products without payment of duty from the refinery to the warehouse was available. The prevailing practice of Indian Oil Corporation Limited was to place orders upon the petitioner, confirming the quantities intended for supplies to Naval Vessels. The petitioner made supplies against specific indents placed by Indian Oil Corporation Limited and claimed the benefit of Exemption Notification No. 64/95-CE. With effect from 6 September 2004, the warehousing facility was withdrawn. The petitioner continued the same practice, as before, of supplying or clearing specified quantities of HSD oil through pipe lines to IOCL's warehouse at Wadala, which in turn was cleared by IOCL to Naval Vessels.
4. A show cause notice was issued to the petitioner on 25 September 2007 by the Commissioner of Central Excise seeking to deny the benefit of Exemption Notification No. 64/95 on the ground that the supply of HSD was not effected directly to the Indian Navy. The demand, as noted earlier, was confirmed on 6 February 2008. The petitioner has filed an appeal before the Tribunal, in which an application for stay was moved. Stay has been granted subject to a deposit of an amount of Rs. 1 crore, by the impugned order.
5. The grievance of the petitioner before the Court is that the same member of the Tribunal, who passed the impugned order dated 11 September 2009 subsequently passed an order on 20 November 2009 in a batch of cases involving the same question, by which a complete waiver of pre-deposit was granted, subject to the filing of a bond. As a matter of fact, it may also be noted that among the stay applications, which were disposed of by the Tribunal on 20 November 2009 were those arising from appeals filed by Bharat Petroleum Corporation Limited as well as the petitioner, Hindustan Petroleum Corporation Limited. The grievance, therefore, is that an inconsistent stand has been taken by the Tribunal not merely in respect of different oil companies but in the case of the petitioner itself.
6. During the course of hearing, learned counsel appearing on behalf of the respondent has placed on the record a subsequent order passed by the same member of the Tribunal on 14 December 2009 in a stay application arising out of an appeal filed by the petitioner, by which the petitioner has been directed to deposit an amount of Rs. 1 crore towards a demand of duty of approximately Rs. 4 crores.
7. The position that has been brought to the notice of the Court is far from satisfactory. In the order of the Tribunal dated 11 September 2009 which is impugned in these proceedings, the Tribunal has, on a construction primafacie of Exemption Notification No. 64/95, rejected the case of the petitioner for a complete waiver of pre-deposit. The Tribunal observed that primafacie the requirement for the grant of an exemption under Notification No. 64/95 is that the supply of stores should be effected directly to the Indian Navy for consumption on board a Naval vessel. The Tribunal has observed that the Notification cannot apply to ‘indirect supplies’ like those involved in the present case. The Tribunal also took note of the fact that with effect from 1st November 2007 Notification No. 37/2007-CE was brought into force, which inserted Entry 3A in the Table annexed to the earlier Notification No. 64/95-CE. By the new entry, fuels falling under Chapter heading 27.10 of the Tariff Schedule have been exempted from the payment of the duty of excise if procured by IOCL from any other manufacturer and supplied as stores for consumption on board a vessel of the Indian Navy or Coast Guard, subject to the fulfillment of certain conditions. The Tribunal however was of the view that the Notification would apply with effect from 1 November 2007 whereas the dispute in the present case relates to a period prior to 1 November 2007. The Tribunal has also took note of the judgment of the Supreme Court in Leader Engineering Works v. CCE 2007 (212) E.L.T 168 (S.C). The case before the Supreme Court related to supplies of stores made not directly to the Indian Navy but to Ship Builders. The Supreme Court upheld the view of the Tribunal that the benefit of Notification No. 64/95-CE was admissible only if the goods were supplied directly to the Indian Navy as stores for consumption on board a naval vessel and not through a Ship Builder on a certificate issued by the Navy that the goods would be used for the manufacture of ships for the Navy. The Supreme Court observed as follows :-
“9. …….. The words of the exemption notification are clear and unambiguous. Goods other than cigarettes are exempted from duty if the same are supplied as stores for consumption on board a vessel of Indian Navy or Coastguard. The purchase order has been issued by ship builders on behalf of the Indian Navy, Government of India under the Ministry of Defense for manufacture or warship in yard. As per notification the goods supplied to the ship builders will not qualify for exemption and only the goods supplied to the Indian Navy directly will qualify for exemption.”
8. The Tribunal disposed of another set of stay applications on 20 November 2009 in which, as noted earlier, Bharat Petroleum Corporation Limited and the petitioner were applicants. The member of the Tribunal, who wrote the impugned order dated 11 September 2009, has also written the subsequent order dated 20 November 2009. However in the subsequent order, same judgment of the Supreme Court in Leader Engineering Works (supra) has been distinguished on the ground that whereas in the case of the petitioner, HSD is being supplied to the Navy through a continuous pipe line, in Leader Engineering Works, the stores were supplied by the assessee to the Indian Navy through Ship Builders. We find that there is a palpable inconsistency on the part of the Tribunal in dealing with stay applications arising out of diverse appeals. The inconsistency is even more pronounced having regard to the fact that the same judgment of the Supreme Court in Leader Engineering Works has been construed differently by the same member of the Tribunal in the orders dated 11 September 2009 and 20 November 2009.
9. The Tribunal, first and foremost, is duty bound by Article 141 of the Constitution of India to ensure that it follows binding precedent of the Supreme Court. The Tribunal as a judicial body must follow principles of consistency when it decides cases. The lack of consistency is clear on the face of record. In fact, as noted earlier the Tribunal has now passed a third order on 14 December 2009 on a stay application arising out of an appeal filed by the petitioner, by which the view taken in the first order dated 11 September 2009 is reiterated and a direction has been issued for the deposit of an amount of Rs. 1 crore towards a demand of duty. Faced with this situation, we are of the considered view that it would be appropriate to remit the proceedings back to the Tribunal for reconsideration of the matter having regard to the observations made by this Court earlier. Judicial orders must be passed by the Tribunal with a greater degree of circumspection and application of mind. Whim and caprice are alien to the judicial process. Consistency, based on judicial precedents should be the norm.
10. In order to facilitate a fresh decision on remand, the impugned order of the Tribunal dated 11 September 2009 is set aside and the stay application is restored to the file of the Tribunal for a fresh decision.
11. Rule is accordingly made absolute in the above said terms. There shall be no order as to costs.
(J.P Devadhar, J.) (Dr. D.Y Chandrachud, J.)
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