When Duty Attributable To Ethanol Was Recovered Separately In Invoice, Same Can Not Be Recovered U/s. 11D Of Central Excise Act: Bombay HC

In a significant relief to Hindustan Petroleum Corporation Ltd. (respondent), the Bombay High Court has delivered a ruling in their favour, stating that the revenue could not demonstrate that the respondent failed to credit the government with the duty collected on ethanol-blended petrol (EBP).

The Division Bench of Justice G.S Kulkarni and Justice Jitendra Jain observed that “In the invoice, the duty paid on the motor spirit (EBP) was not shown separately attributable to the Motor spirit and Ethanol, but the sale price of EBP was a composite inclusive of duty. Thus, the price charged was inclusive of duty, and the duty attributable to Ethanol was not shown and recovered separately in the invoice, the same could not be recoverable under Section 11D of C.E. Act”.

While highlighting that only where any amount is collected representing excise duty, the same is required to be credited to the Government, the Bench observed that in the present case, the Revenue could not show that the respondent after blending ethanol with duty-paid motor spirit collected amounts separately, mentioning the duty on ethanol in the invoices, but the same was not credited to the Government.

In such a situation, Section 11D of the C.E Act was certainly not attracted as the crucial requirement to attract Section 11D was certainly not being fulfilled for the revenue to invoke Section 11D of the C.E. Act, added the Bench.

Advocate Jitendra B. Mishra appeared for the Appellant, whereas Advocate Padmavati Patil appeared for the Respondent.

In the brief facts of the case, the respondent, registered with the Central Excise Department for the clearance of petroleum products, received goods through a pipeline from Mumbai Refineries at their Vashi depots and cleared them to customers. The respondent also cleared EBP, which consisted of 95% Motor Spirit (petrol) and 5% ethanol. They availed a concessional rate of duty for the clearance of EBP as per various notifications issued by the government. However, the Central Excise Department alleged that the respondent did not comply with the conditions of the notifications because the EBP did not meet the Bureau of Indian Standards (BIS) specification 2796:2000. As a result, a demand notice was issued under Section 11D of the Central Excise Act, stating that although the duty was collected from customers, it was not deposited with the government. The show cause notices were adjudicated, and the demands made against the respondent were confirmed, along with interest and penalties. Dissatisfied with the order, the respondent filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which remanded the matter for fresh adjudication. Following the remand, the adjudicating authority confirmed the demand with interest and imposed a penalty of Rs. 1.00 crore on the respondent. On appeal, the CESTAT noted that the respondent conducted tests on EBP samples to ensure their quality and conformity to specifications before clearance. Considering the respondent's previous case history and similar decisions, the CESTAT concluded that the Commissioner of Central Excise was incorrect in confirming the demand under Section 11D of the Central Excise Act.

After considering the submission, the Bench noted that the blending of ethanol with the duty-paid motor spirit was undertaken in licensed premises, and the blended goods were cleared from the same premises.

The Bench further found that the product was subject to strict control and regulations issued by both the Central and State Governments under the Motor Spirit and High-Speed Diesel (Regulation of Supply & Distribution and Prevention of Malpractices) Order, 1998.

“This order mandated strict monitoring and compliance with the quality and specifications of Motor Spirit. At the Vashi Terminal, where duty-paid Motor Spirit and Ethanol were received, the respondent conducted tests on the blended Ethanol Blended Petrol (EBP). Out of 15 tests performed, 9 indicated that the EBP confirmed the specifications set by the BIS 2796:2000 and the Control Order, 1998. Only after verifying compliance with the Control Order, 1998, did the respondent proceed to clear and sell the goods to their customers, similar to other Refineries and terminals”, added the Bench.

While agreeing with the CESTAT’s observation that the respondent, being a Public Sector Undertaking, faced practical difficulties when government laboratories were unavailable for conducting tests, the High Court elaborated that in such situations, the department often accepted test reports from well-equipped private laboratories for classification purposes under the Tariff Act.

The High Court also observed that similar goods were sold from other Terminals of the respondent in Maharashtra without any objection or notice from the Department.

Therefore, the High Court concluded that the benefit of exemption notification could not be denied to the respondent, as observed by the CESTAT.

Cause Title: The Commissioner of CGST & Central Excise v. Hindustan Petroleum Corporation Ltd.

Click here to read/download the Judgment