No Excise Duty Applicable On Residual Fuel Gas Cleared By Haldia Petrochemicals: CESTAT

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that no excise duty is applicable on Residual Fuel Gas (RFG) cleared by Haldia Petrochemicals.

The bench of P.K. Choudhary (Judicial Member) and K. Anpazhakan (Technical Member) has quashed the demand for excise duty on intermediate excisable goods, i.e., Residual Fuel Gas (RFG), which was cleared by the assessee, Haldia Petrochemicals.

The Appellant/assessee is in the manufacturing of dutiable final products falling under Chapter 27 and Chapter 39 of the Central Excise Tariff Act at its petrochemical complex, with Naphtha being its principal input. In order to meet the electricity and steam requirements of the Petrochemical Complex, the assessee has set up a 116 MW Co-generation Power Plant as a Joint Venture titled HPL Cogeneration Limited (HPLCL) within the factory complex.

During November 2000 to January 2004, the assessee removed RFG generated from cracking Naphtha to HPLCL for generation of electricity and steam following the procedure laid down under Rule 4(5)(a) of the Cenvat Credit Rules (CCR). The electricity and steam generated out of the supplied ‘RFG’ were returned to the Appellant for use in the manufacture of dutiable final products.

The department noted that since the RFG was an intermediate excisable product manufactured out of cracking naphtha, It could not be removed from the factory without payment of excise duty under Rule 4(5)(a) of the CCR or under Notification No. 214/86.

A show-cause cum demand Notice was issued to them for the said period on April 16, 2004, demanding duty of Rs. 10,67,40,103 alleging suppression of facts. The Commissioner adjudicated the notice, confirmed the demand, and imposed an equivalent penalty.

The assessee contended that intermediate products such as ‘RFG’ could be cleared for job work under Rule 4(5)(a) of the CCR, being covered by the expression "partially processed inputs". Notification No. 214/86 confers exemption to dutiable goods manufactured by the job worker, and since electricity and steam generated by the job worker were generally exempted, no benefit was claimed under Notification No. 214/86.

The assessee stated that ‘RFG’ could not be construed as excisable since it was not capable of being taken to the market. The assessee also disputed its classification under Tariff Heading 2711.90 as a non-existent tariff entry. The department has failed to discharge the burden of proving marketability and dutiability.

The issue raised was whether RFG, an intermediate excisable good, could be cleared without payment of duty for job work under Rule 4(5)(a) of the CCR for conversion into electricity or steam and return thereof for use in the manufacture of dutiable final products.

The CESTAT relied on the decision in the assessee’s own case in which the demand of duty was dropped on the removal of another intermediate product, i.e., ‘CLS’ cleared to M/s. HPLCL during the period November 2000 to October 2002 under Rule 4(5)(a) of the CCR for generation of steam and electricity, which were received back by the Appellant and used in the manufacture of final products.

Case Title: M/s. Haldia Petrochemicals Limited Versus Commissioner of Central Excise, Haldia

Case No.: Excise Appeal No.762 of 2010

Date: 26/06/2023

Counsel For Appellant: Arvind Baheti

Counsel For Respondent: S.S.Chattopadhyay

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