[Order per : S.L. Peeran, Member (J)]. - The appellant is a PSU unit. They have obtained clearance from the Committee of Secretaries for pursuing this appeal. By impugned Order-in-Original No. 21/2004 dated 31-1-2005, the Commissioner of Central Excise has confirmed demands in respect of captive consumption of diesel steam arising from the processes of sour crude. The sour crude underwent the process of refining and as a result diesel steam emerged, which was captively consumed on payment of duty in the generation of electricity in the captive power plant available in the refinery, which was also cleared on payment of duty outside the refinery to the market.
2. During the year 1996, the Ministry of Environment of Forest issued a Notification specifying the maximum sulphur content as 0.50% by mass to control environmental pollution caused by emission due to burning of fuels. The Ministry of Petroleum and Natural Gas vide their letter dated 27-4-1998 directed oil companies to adhere to the new guidelines specified in the Ministry of Environment of Forest. It also issued an order dated 28-10-98 making any person selling motor spirit not confirmed to the specified standards liable to prosecution, as it would amount to “malpractice” in terms of Clause 2(e) read with 2(r) of the order dated 28-12-98. The Bureau of Indian Standards (BIS) also laid down in IS-1460:2000 laying standards in which the maximum sulphur content in diesel was reduced from 0.50% to 0.25% by mass. Therefore, as a result of these developments, the appellants set up a Diesel Hydro Desulphurization Plant (DHDP) at a cost of Rs. 550 crores in order to reduce the sulphur content to meet the standards prescribed by the Ministry of Environment of Forest as well as BIS.
2.1 They also intimated by their letter dated 28-11-2002 to Jurisdictional Superintendent of Central Excise about the fact that the diesel which did not meet the specification would be stored in separate tanks as they were not marketable and latter they would be taken up for conversion. Based on their letter, the Jurisdictional Superintendent of Central Excise also amended the registration certificate approving the tanks for storage of these materials. However, the Department raised demands in respect of product which had been stored in these intermediate tanks which did not meet the specifications and were not required to be sold in the market due to its high sulphur content. The appellants had also utilized the same for further captive consumption which had higher suplhur content of more than 0.25%. Their contention is that the demands cannot be raised on these products, as it does not meet the specifications laid down by the Ministries and the BIS. They have also relied following ruling which according to them has settled the issue in their favour.
(a) UOI v. Delhi Cloth & General Mills Ltd. - (S.C.)
(b) Himalaya Drug Company v. CCE -
(c) Cipla Ltd. v. CCE - 2004 (64) RLT 823
3. The learned Counsel relied on the judgment rendered in MRPL by this Bench in the case of Final Order No. 746-747/2006 dated 5-4-2006 = (Tribunal) wherein similar demands raised in respect of LSHS captively used in power generation in captive power plant was held to be not satisfying the BIS specifications and consequently held that the same to be non-marketable and non-excisable. It is contended by the learned Counsel that the Revenue has also not proved with evidence that such product which was kept in intermediate tanks and utilized for the captive consumption was marketable and dutiable. In this regard, he relied on the rulings rendered in Rashtriya Ispat Nigam Ltd. v. CCE - (b) UOI v. Sonic Electrochem - and several other contentions were also raised by the learned Counsel pertaining to the fact that refinery as a warehouse and that no duty is required to by paid for goods captively consumed in this regard. The following rulings are relied upon :
(a) Cochin Refineries Ltd. v. CCE -
(b) IOCL v. CCE -
(c) IOCL v. CCE -
(d) judgment in appellant’s own case rendered by Mumbai Bench by Final Order No. A/492/WZB/2005/C-I dated 20-5-2005 and in Final Order Nos. A/1173-1175/WZB/2005/C-III dated 15-7-2005.
It is submitted that the benefit of these judgments would be available even under the Central Excise Rules, 2001 & 2002 by virtue of provisions of Rule 33 of the said Rules as settled by the decision of the Tribunal rendered in the case of Chennai Petrochem Corporation Ltd. v. CCE - .
3.1 The learned Counsel also submitted that the demands pertain to 3-5-2001 to 31-12-2002 and the show cause notice was issued on 29-6-2004 and therefore, demands prior to 1-6-2003, is also barred by time.
4. The learned JDR reiterated the Departmental contentions.
5. On a careful consideration, we notice that the appellants were clearing the diesel steam emerging in the course of refining of sour crude on payment of duty and also was captively consumed on payment of duty. However, the situation changed in 1996 when the Ministry of Environment of Forest issued a Notification specifying the maximum sulphur content as 0.50% by mass to control environmental pollution caused by emission due to burning of fuels. The Ministry of Petroleum and Natural Gas accepted these guidelines and as a result-BIS also laid down specification under IS-1460:2000. This prevented the appellants from clearing the goods in the market, hence by their letter dated 28-11-2000 addressed to the Superintendent of Central Excise, explained about the situation and prayed for storing the goods which were not marketable in separate tanks. The registration certificate was itself amended and permission was granted. The question is as to whether these goods which are not marketable and not satisfying the requirements for marketability can be made excisable. In a similar situation, this Bench in the case of MRPL by Final Order Nos. 746-747/2006 dated 5-4-2006 = (Tribunal) upheld the assessee’s contention that when the LSHS was not meeting the specifications for marketability purpose, then they cannot be considered as goods. Such being the case, their captive consumption also cannot be made excisable. This ruling clearly applies to the facts of the case. Similar rulings rendered in the case of Himalaya Drug (supra); Cipla (supra) and other cited judgments by the learned Counsel also applies to the facts of the case.
5.1 We also find that the other contentions raised by the learned Counsel pertaining to the non-dutiability of goods in such a situation where the refinery is declared as warehouse is also required to be accepted in terms of the judgment rendered in the case of Cochin Refineries (supra) and ICOL (supra) and in the appellants own case. Furthermore, there was no suppression of facts and the demands prior to 1-6-2003 are also barred by time. The contentions of the assessee are accepted. Therefore, the impugned order is not legal and proper and hence, the same is set aside by allowing the appeal.
(Operative portion of this order was pronounced in open Court on conclusion of hearing)