CENVAT Credit on Interface Availed by Indian Oil u/r 16 is Valid, Not Subject to Credit Reversal: CESTAT [Read Order]
CESTAT ruled that Indian Oil's CENVAT credit on Interface is valid under Rule 16 of the Central Excise Rules, 2002, and cannot be subjected to credit reversal, as the deeming fiction in Rule 16 is confined to its specific intent
![CENVAT Credit on Interface Availed by Indian Oil u/r 16 is Valid, Not Subject to Credit Reversal: CESTAT [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/05/CENVAT-Credit-CENVAT-Credit-on-Interface-Indian-Oil-taxscan.jpg "CENVAT Credit on Interface Availed by Indian Oil u/r 16 is Valid, Not Subject to Credit Reversal: CESTAT [Read Order]")
The Chandigarh bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld the Central Value Added Tax (CENVAT) credit availed of by Indian Oil Corporation on Interface, stating that the deeming fiction in Rule 16 of the Central Excise Rules, 2002, cannot be extended beyond its purpose. Read More: Non-Mention of Rule 46A Not Ground to Reject additional evidence:...
The Chandigarh bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld the Central Value Added Tax (CENVAT) credit availed of by Indian Oil Corporation on Interface, stating that the deeming fiction in Rule 16 of the Central Excise Rules, 2002, cannot be extended beyond its purpose.
Indian Oil Corporation Limited (IOCL), a leading manufacturer of petroleum products, uses a sequential method involving Motor Spirit (MS), High Speed Diesel Oil (HSD), and Superior Kerosene Oil (SKO) to cleanse their pipelines. During this process, a mixture called the interface forms, which contains residues of these products. This interface mixture is then sent back to the refinery along with the crude for reprocessing and extracting various petroleum products.
IOCL availed CENVAT credit on this Interface under Rule 16 of the Central Excise Rules, 2002, which permits credit for goods returned to the factory for remaking, refining, or reconditioning.
During an audit, the department took the view that IOCL should include the CENVAT credit availed on Interface in the amount to be reversed under Rule 6(3A) of the CENVAT Credit Rules, 2004.
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As per this rule, manufacturers are required to proportionately reverse credit on common inputs used for producing both taxable and exempted goods. The department contended that, since some petroleum products manufactured by IOCL by refining Interface along with crude oil were exempt from duty, the credit availed to Interface should also be part of the reversal calculation.
Aggrieved by the orders, IOCL appealed before the tribunal.
B.L. Narasimhan, counsel for the appellants, argued that Rule 2(k) of the CENVAT Credit Rules, 2004, defines an ‘input’ as goods used in or concerning the manufacture of final products. The interface is a mixture of petroleum products generated during pipeline cleaning, which is merely a by-product, not a deliberately used input in refining. Since it is not an input under the definition, the restrictions under Rule 6 (which applies only to inputs used in exempted goods) cannot be invoked.
The counsel added that credit was taken under Rule 16 of the Central Excise Rules, 2002, which allows credit on goods brought back for reconditioning or refining. He submitted that this deeming fiction is meant only for permitting credit on such goods and cannot be extended to apply Rule 6(3A) of the CENVAT Credit Rules, 2004.
By placing reliance on the Supreme Court’s ruling in Mancheri Puthusseri Ahmed v. Kuthirivattam Estate Receiver (1996), the counsel stated that such deeming provisions like Rule 16 must be used strictly for the purpose they serve and not beyond.
Meanwhile, Siddharth Jaiswal, the counsel representing the revenue, pointed out that the Interface, being a common input, must be included in the calculation for proportionate reversal under Rule 6(3A) since it is used in manufacturing both exempted and dutiable products.
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The division bench, consisting of S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), heard the submissions from both sides and reviewed the facts.
The bench noted that Rule 16 allows manufacturers to take credit on returned goods for reprocessing, but this special permission does not mean those goods are to be treated as inputs for all other credit-related rules. The legal fiction is limited to the context of Rule 16 and cannot be expanded to require reversal under Rule 6 unless the law clearly provides for it.
Referring to the Supreme Court’s decision in Mancheri Puthusseri Ahmed v. Kuthirivattam Estate Receiver (1996), the tribunal reaffirmed that legal fictions must be interpreted within their intended limits and not beyond.
The bench also found no proof of suppression or intent to evade duty, especially since IOCL is a Public Sector Undertaking (PSU) that is regularly audited by the department. Since IOCL had already reversed credit at 19.15%, which is higher than the 10.15% demanded by the department, the tribunal held that there was no loss of revenue. As a result, all demands, penalties, and interest imposed by the department were set aside.
To Read the full text of the Order CLICK HERE
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