In the case of Chennai Petroleum Corporation, the Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that duty demand on petroleum products should be based on net quantity after adjusting gain and loss.
M/s. Chennai Petroleum Corporation Ltd, the appellant is a Public Sector Undertaking and is engaged in the manufacture of petroleum products such as Naphtha, High-Speed Oil and LPG falling under Chapter 27 of the First Schedule to the Central Excise Tariff Act (CETA), 1985.
The officers of DGCEI visited their refinery and collected details based on intelligence that the appellants were not discharging the appropriate duty on the quantity of petroleum products cleared through pipelines from their refinery. It was noted that the appellant was clearing their final products through the pipeline to the terminal located at Muttom which is 1.2 km away from their refinery and is owned by M/s. Indian Oil Corporation Ltd. (IOCL).
IOCL, which is a holding company of the appellant had leased out 11 tanks in their terminal at Muttam to the appellant. It was noticed by DGCEI that the appellant had not paid excise duty based on the quantity removed from their refinery, but they had accounted, prepared an invoice and paid excise duty based on the quantity of petroleum products received into the leased tanks at Muttam terminal which is located outside the refinery.
The first allegation for the demand of duty is that the appellant has not paid duty on the actual quantity of petroleum products cleared from their refinery. It was submitted that the appellant has paid duty based on the quantity that has been received in their storage tanks at the terminal at Muttam. Due to the volatile nature of the petroleum products, there was a difference in the quantities of the products that were despatched from the refinery and that were received at the tanks at Muttam.
The department while quantifying the duty has calculated the duty only for quantities which were found in excess dispatched and those which were found as excess received were ignored, which is not correct.
The appellant paid more duty on receipt quantity than that payable on dispatch quantity. There is no physical loss or shortage warranting payment of duty. Any loss is due to transit loss or human error in measurement, which is permissible if within the limits prescribed.
It was viewed that there is a difference in the quantity of petroleum products that has been despatched from the refinery and the quantity received at the terminal at Muttam. that there may be a loss in quantity during the transportation of the petroleum products from the refinery to the terminals. Such variation in the quantity may occur due to variations in temperature, the dip method of measuring etc.
The loss of the quantity is due to temperature variation, the variation caused by the dip method of measurements etc. As the goods are petroleum products, which are volatile in nature, sometimes there may be a loss in quantity at the time of receipt at the terminal.
A two-member bench comprising Ms SulekhaBeevi C S,(Judicial) and Mr M Ajit Kumar,(Technical) observed that clarification had to be issued by the department as to the method for demand of duty on petroleum products and remanded matter to the original authority who was directed to re-quantify the duty demand based on the clarification issued by the Department dated 14.02.2014.
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