Duty paid diesel capable of producing electricity more than that required for residential colony sufficient to prove that there was no evasion.

PJ/CASE LAW/2015-16/2737

Case:-PRERNA SYNTEX VERSUSCOMMISSIONER OF CENTRAL EXCISE, JAIPUR-I

Citation:-2015 (318) E.L.T. 474 (Tri. - Del.)

Brief facts:- Appeal has been filed against Order-in-Appeal No. 59/(MPM)CE/JPR-1/2006, dated 13-3-2006 which upheld the Order-in-Original No. 111/2005, dated 2-12-2005 passed in respect of show cause notice dated 2-12-2004.

Briefly stated, the facts are as under:

The appellants are a 100% export oriented unit and generate electricity for captive consumption. Some of the electricity generated is also supplied to their residential colony. Vide letter dated 28-12-1999 they intimated Revenue that from 1-1-2000 they would be supplying electricity to their residential colony also and would pay duty on the high speed diesel used in generating electricity supplied to the colony; they installed separate meter for that. They procured diesel duty free as well as on payment of duty and claimed that the electricity generated by using duty paid diesel would have been more than the quantity of electricity supplied to the colony. Department issued them a show cause notice dated 2-12-2004 stating that they did not have any separate storage tank for duty paid diesel and thus it was impossible for them to claim that only duty paid diesel was used for generation of electricity supplied to their colony and that they did not use any non-duty paid diesel for generating electricity supplied to residential colony. Therefore, based on the quantity of electricity supplied to the colony during the period January 2000 to July, 2003, the Revenue computed a demand of Rs. 6, 16,913/- being the duty payable on diesel required to produce that quantity of electricity on the presumption that only non-duty paid diesel was used thereon. The said demand was confirmed along with interest and equal mandatory penalty invoking the extended period for wilful misstatement.

Appellant’s contention:- The appellants have contended that :
(i) There was no wilful misstatement or suppression on their part and show cause notice does not invoke proviso to Section 11A for demanding duty.
(ii) The total amount of duty paid diesel used by them during the period would have generated more electricity than the total quantity of electricity supplied to the colony.

Respondent’s contention:- Revenue contented that assessee did not have any separate storage tank for duty paid diesel and thus it was impossible for them to claim that only duty paid diesel was used for generation of electricity supplied to their colony and that they did not use any non-duty paid diesel for generating electricity supplied to residential colony. Therefore, based on the quantity of electricity supplied to the colony during the period January 2000 to July, 2003, the revenue computed a demand of Rs. 6,16,913/- being the duty payable on diesel required to produce that quantity of electricity on the presumption that only non-duty paid diesel was used therefor. The said demand was confirmed along with interest and equal mandatory penalty invoking the extended period for wilful misstatement.

Reasoning of judgement:- It is evident that the appellants had duly intimated Revenue that they would be supplying electricity to their residential colony w.e.f 1-1-2000. They had been procuring (importing) duty paid diesel also and their use of such diesel, it is not disputed by Revenue, would have produced more electricity than the quantity of electricity supplied to the colony for which they had even installed a separate meter. The show cause notice does not bring out as to what they wilfully misstated/suppressed with the intention to evade. It is seen that two more show cause notices on the same issue were issued to the appellants on 23-7-2004 and 1-9-2004. The Hon’ble Supreme Court in the case Nizam Sugar Factory v. CCE, AP - 2006 (74) RLT 564 (SC) = 2006 (197)E.L.T.465 (S.C.) = 2008 (9)S.T.R.314 (S.C.)has held that while issuing second and third show cause notices involving same/similar facts, suppression/wilful misstatement could not be alleged. Further the appellants were not unjustified in thinking that as the total duty paid diesel used by them would have generated more electricity than the quantity supplied to their residential colony, they were complying with condition of Notification No. 1/95-C.E./22/2003-C.E. In the case of Gopal Zarda Udhyog v. Commissioner of CCE, Delhi - 2005-TIOL-123-SC-CX - the Supreme Court observed that mere failure or negligence on the part of the manufacturer does not attract the extended period. In case of CCE v. Chempher Drugs Liniments - 2002-TIOL-266-SC-CX, Supreme Court held that something positive other than mere inaction or failure on the assessee’s part or conscious withholding of information when assessee knew otherwise is required for invoking extended period. In the case Continental Foundation Joint Venture v. CC, Chandigarh-I - 2007 (216)E.L.T.177 (S.C.).Supreme Court has observed that for invoking extended period and mandatory penalty the noticee has to be put on notice explicitly so as to enable them to submit their defence. Thus, the allegation of wilful misstatement/suppression of fact is clearly not sustainable.

Even on merit, the appellants had procured more diesel on payment of duty (by way of import) than required to generate electricity supplied to their colony and this point is not disputed. If it is not possible (because of common storage tank) for the appellants to conclusively demonstrate that duty paid diesel only was used for generating electricity supplied to the colony, it is equally impossible for the Revenue to show that it was not so used or to quantify as to how much duty free diesel out of the mixed lot was used for that purpose. What is being stated here is that such approach of the department is shylockian, untenable and falls in the category of ludicrous hair-splitting. Incidentally, similar demand, against the appellants for a different period was set aside by CESTAT - 2010 (261)E.L.T.945 (Tri.-Del.).

In the light of the foregoing, they allow the appeal.

Decision:-Appeal allowed

Comment:- The gist of the case is that as appellant had procured more diesel on payment of duty (by way of import) than required to generate electricity supplied to their colony it could not be established that duty free diesel was used by them for electricity generation. It is not possible for appellants to conclusively demonstrate that duty paid diesel only was used for generating electricity supplied to the colony because there is common storage tank. However, it is equally impossible for the Revenue to show that it was not so used or to quantify as to how much duty free diesel out of the mixed lot was used for electricity generation used for colony. Hence appeal was allowed as the revenue failed to establish their case.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2737

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