By TIOL News Service

CHENNAI, JAN 10, 2019: AFTER extraction of Poly Iso Butylene supplied to the petitioner by Chennai Petroleum Corporation Ltd., 83% of the Poly Butylene feedstock is sent back to the supplier refinery.

As per Notification No 157/89-CE, later continued vide Notification No 4/2006-CE and 12/2012-CE, duty leviable as is in excess of the duty on gas consumed in the manufacture of Poly Iso Butylene is exempted. The gas consumed is computed by subtracting the quantity of gas received back by the refinery from the gas supplied.

It is the case of the department that since the assessee is manufacturing both dutiable and exempted goods (i.e. goods which are returned to the refinery), in terms of Rule 6 of the CCR, 2004 they are liable to pay 10% amount as they failed to maintain separate accounts for CENVAT Credit.

The assessee challenged the Show Cause Notice in a Writ Petition.

The High Court, Single Judge Bench observed -

+ The impugned show cause notice actually has the effect of destroying the very exemption notification.

+ The exemption Notification as originally issued on 17.07.1989, was actually rescinded by another Notification dated 01.03.1994, when Modvat was extended to petroleum products including LPG.

+ When companies like the petitioner made representations, the Government of India decided to restore the exemption by issuing a Notification No.116/94-CE dated 24.06.1994. Later, the Government of India passed an order dated 24.03.1995, directing refund of the Duty paid during the period from the date of withdrawal of exemption and its restoration.

+ It is clear that the Government of India was fully aware of the nature of the exemption Notification, the nature of the manufacturing process carried on by the petitioner and the entitlement of the petitioner to the benefit.

+ Being an authority functioning under the Government of India, the second Respondent is bound by the exemption Notification as well as the decision taken by the Government of India way back in 1995.

+ Therefore, the impugned notice is wholly without jurisdiction and nothing but an abuse of the process of law, enabling this Court to interfere with the same under Article 226.

+ The impugned show cause notice is nothing but an attempt to unsettle what was settled for nearly 24 years. What was settled for 24 years was not merely at the level of the Commissioner of Central Excise but at the level of the Government of India as seen from the ad hoc Notification issued in 1995 directing refund.

The Writ Petition was allowed by setting aside the SCN.

Incidentally, the High Court also held that the Writ Petition was maintainable since the SCN was issued without jurisdiction and it was a clear abuse of process of law.

We reported this order as - 2014-TIOL-1923-HC-MAD-CX .

The department is aggrieved by this order and, therefore, are in Writ Appeal before the High Court.

The counsel for the Revenue again raised a preliminary objection regarding maintainability of the Writ Petition and cited more than a dozen case laws in this regard.

The respondent assessee countered this submission by citing a host of case laws.

The High Court negated the preliminary objection raised by the Revenue by noting that the apex court had clarified that when a SCN is challenged as being without jurisdiction or when it is a case of abuse of process of law, the Court is well justified in exercising its jurisdiction under Article 226 of the Constitution of India. Accordingly, the finding recorded by the Single Bench in this regard was affirmed.

Insofar as the core issue is concerned, the High Court inter alia referred to the findings of the Single Bench and after noting that the Revenue has not dislodged the findings recorded therein adverted to the ad hoc exemption order and observed -

"11. The Central Government clearly understood the manufacturing process and taken into consideration that the return quantity of LPG has ultimately been cleared on payment of appropriate duty by oil Companies, the Central Government is satisfied that the burden of excise duty on the returned quantity of LPG, which was originally supplied by MRL to the writ petitioner at the price for industrial use, has fallen on the writ petitioner which is much more than the excise duty applicable on the quantity of LPG actually consumed by them. The adhoc exemption order is a clear answer to the case of the appellant."

The High Court also extracted the Circular 29/3/2018-GST dated 25.01.2018 issued by the Board wherein in the matter of 'Applicability of GST', it is clarified that -

"4. Accordingly, it is hereby clarified that, in the aforesaid cases, GST will be payable by the refinery only on the net quantity of Polybutylene feedstock and Liquefied Petroleum Gas retained by the manufacturer for the manufacture of Poly Iso Butylene and Propylene or Di-butyl para Cresol. Though, the refinery would be liable to pay GST on such returned quantity of Polybutylene feedstock and Liquefied Petroleum Gas, when the same is supplied by it to any other person."

The Division Bench of the High Court, therefore, held -

"14. …, we are of the clear opinion that the learned Single Bench was perfectly right in entertaining the writ petition and quashing the impugned show cause notice that it has been wholly without jurisdiction. Furthermore, the learned Single Bench rightly held that they cannot upset the apple-cart and try to come to a new conclusion, that too, after a period of nearly 24 years. Further, when the impugned show cause notice is issued against the adhoc exemption order issued by the Government of India, then it is a clear case of abuse of process of law. Therefore, we confirm the finding of the learned Single Bench on this ground."

Concluding that there are no good grounds to interfere with the order passed by the Single Bench, the Writ Appeal was dismissed.

(See 2019-TIOL-81-HC-MAD-CX)