ORDER
J.N. Srinivasa Murthy, Member (J)
This is the party’s appeal against impugned order dated 6.4.1998 praying for holding that the quantity actually received in the shore tank was the quantity required to be accounted by the appellant, and the quantity alleged to have been unaccounted represented losses during storage and transit on account of natural causes, evaporation, etc. and as such entire quantity ought to have been condoned and duty should not have been confirmed, and for any other relief deemed proper and fit.
1. The facts of the case in brief are, that the appellant manufactures ethylene, propylene, butadiene, benzene petrochemicals, for which imported raw naphtha in 4 consignments falling under Chapter 27 of 1st Schedule of Customs Tariff Act, 1975, as described in the impugned order at pages and in appeal memorandum under bills of entry Nos. 8142, 8143 dated 24.2.1994 and 3368 and 3369 dated 9.2.1994 under IGM Nos. 548(1)(2), 396(1)(2) of quantity of 7500 MT (10968.119 KL), 7482.881 MT (10943.084 KL), 7500 MT (11011.599 KL) 7486.867 MT (10992.17 KL) in all 29969.348 MT (43975.119 KL), ship discharge quantity of 3409.651 MT (10,835.991 KL), 7517.362 MT (20993.390 KL), 2570.648 MT (11115.225 KL), 7405.666 MT (10872.998 KL), and shore quantity of 3395.510 MT (10820.320 KL), 7439.915 KL, 7541.329 MT (11092.061 (KL), and 7373.160 MT (10838.647 KL) respectively. Appellant filed bills of entries for home consumption in which quantities were mentioned in terms of relative bill of lading under which goods were imported into area, claiming concessional rate of duty at Rs. 66/p per KL in terms of Notification No. 158/ 1976 dated 2.8.1976 read with Notification No. 102/90-CE dated 11.5.1990 as amended, on the ground that the raw naphtha was imported into India for the manufacture of petrochemicals, which were provisionally assessed under Section 18 of the Customs Act, 1962 and the goods were allowed to be cleared for home consumption. Whole customs dufy was exempted and that portion of additional duty leviable under Section 3 of the Customs Act, 1962 in excess of duty of Excise leviable on such product manufactured in India was also exempted when intended for use in the manufacture of petrochemicals and fertilizers, subject to condition set out under 1976 notification. At the relevant time duty of excise leviable was to be calculated at Rs. 66 per KL at 1%. On the quantity of raw naphtha consumed for the manufacture of fertilizers and petrochemicals as per the notification of 1990. As per public Notification No. 49/92 issued by Commissioner of Customs, Mumbai, ullage survey report was prepared under the supervision of master of vessel, customs officers and the representative of the appellant. Quantity available for unloading was worked out in terms vessel’s ullage survey report. Appellant is liable to account for the quantity discharged i.e. unloaded by the vessels, as per the department. After import quantity of naphtha were transferred to the appellant’s plant at Thane Belapur in three different stages (1) on discharge from this ship to the storage tank of Bharat Petroleum Corporation Ltd. refinery at Mahul, where naphtha is stored by BPCL under an arrangement between the appellant and BPCL. Transfer is made through under sea/underground pipelines of approximately 20 kgs. Long from Butcher Island to BPCL Refinery (recorded and certified as discharge quantity by the surveyor, which is in fact a notional quantity. (2) naphtha received at the shore storage tank at BPCL Refinery as “out-turn quantity” is recorded and certified by BPCL and Central Excise Department at BPCL refinery.
2. Naphtha stored at BPCL refinery is thereafter transferred through underground pipeline of approximately 30 kms long from BPCL to the appellant’s plant at Thane Belapur Road for use in the manufacturing process. The quantity of naphtha transferred from BPCL is received at the appellant’s plant and the same is fully used and consumed in the manufacturing process. The receipted quantity is recorded and certified by the appellant’s and also by Central Excise Department vide “end use certificates”. Assistant Commissioner of Customs issued a show cause notice dated 12.12.1997 alleging that the appellant had separate generation of return steam naphtha and this naphtha has neither been consumed in the manufacturing process, nor has been sold to crude oil refineries as per para 156(J)(18) read with para 23 of Export Import Policy 1992-97 and Foreign Trade (Development & Regulation) Act, 1972 and called upon the appellant to show cause as to why action should not be taken for the contravention of the above Policy under Sections 111(d) and 112 of the Customs Act, 1962 and also why differential duty of Rs. 11,68,04,329 as per the annexure should not be charged from them. It was further alleged that the quantity on which duty was leviable is the quantity ascertained as per the difference between discharge quantity and quantity consumed as per end-use certificate issued by the Central Excise authorities. It was also alleged that the appellant did not consume 70,648 MT (103.626 KL) and 64.721 MT (95.02387 KL) of imported naphtha covered under bill of entry Nos. 3368 and 3369 both dated 9.2.1994, nor submitted the end-use certificate in respect of bill of gntry Nos. 8142 and 8143 dated 24.2.1994. After receipt of the replies dated 2.1.1998, 18.2.1998 and hearing the appellant and after perusal of the documents produced, impugned order was passed on 6.4.1998 confirmed the demand of differential duty of Rs. 23,01,779 and Commissioner accepted the contention of the appellant that there is no violation of Exim Policy. Hence this appeal.
3. Shri D.B. Shroff, the Learned Counsel for appellant has submitted in the course of arguments that Notification No. 158/76 exempts raw naphtha intended for use in the manufacture of petrochemicals. As per (sic) in the case of State of Haryana v. Dalmia Dadri the words intended for use does not mean “actually used”. The only requirement of the above notification is that importer should give an undertaking that he would use the goods for the above purpose i.e. for manufacture of petrochemicals and he should maintain an account of the imported goods received and consumed in the place of manufacture. The appellant has done so. Central Excise officers had given a certificate certifying the quantity received and consumed. The appellant has fully complied with the requirement of the notification. Notification does not permit the department to demand customs duty if all the conditions are fulfilled. That contingency arises only when Clauses (a) to (c) of the notification are not fulfilled, under 11(d). Department cannot demand customs duty on some theoretical differences. There is no allegation of diversion of any quantity by the appellant. Subject to evaporation loss, all the raw naphtha imported by the appellant received was consumed by the appellant. Merely because there was some evaporation loss, it cannot mean that the appellant had not intended to use the said raw naphtha or the condition of notification was violated to deny the benefit of notification, as per . In the impugned order Commissioner, has failed to appreciate that a mere perusal of survey report, show that there has been a loss at every stage of recording and loss of raw naphtha even on the ship holds, and has proposed to hold that pipeline was a sealed one and there could not be any loss. He has failed to take into consideration the loss that could have occurred in the BPCL refinery tank. He admits the loss and holds it is negligible and the appellant had not questioned the measurement of quantity of naphtha unloaded as certified by the ullage surveyor nor sought for condonation of loss due to accident or leakage and in the past party had never demanded such losses. Show cause notice never proceeded on the basis of any permissible loss, and the appellant had no opportunity, as this was the first case of imported naphtha being taken for final assessments. Total loss of 430 KL of raw naphtha amounts to less than 1 percent and it ought to have been allowed. It is not permissible in law to take the quantity shown as quantity discharged, as this is only a notional quantity as per surveyor’s report. The difference between the notional quantity discharged and the quantity received as per shore out turn is 164.499 KLS. This is not actual, but notional and this amount of raw naphtha did not exist at all. Thus no duty can be levied on the same. The difference between the shore out turn as per shore out turn and the quantity mentioned in the end-use certificate was 265.77 KLS. This differential amount of raw naphtha was never received by the appellant from the BPCL Refinery Tank. As admittedly this quantity was not sold to BPCL or diverted from BPCL tank to any other party; it has to be considered as accounted for as evaporation loss while in transit, storage and handling, measurement errors etc. No duty in any case could be demanded. So the appeal has to be allowed. Shri C.P. Rao the Learned DR has argued that the appellant has not accounted 430.3 KLS. of raw naphtha and the loss occurred cannot be accepted, as no such stand was taken in prior imports and there was no scope for such loss, in the present import, and survey done is accepted by the appellant, and the ullage survey report reflect the quantity imported. End-use certificates produced do not cover it. There is no dispute about the unloading of 436.269 KL of naphtha from steamer to BPCL tank. There is no account of receipt of the same into appellant’s factory. Transit loss upto 1% is granted only for ocean loss. Naphtha is transported across long distance in steamer quantity unloaded from the steamer, correctly determined by ullage surveyor, has to be accounted for the consumption in full, by the appellant, of the quantity of raw naphtha imported. The appellant has not questioned the measurement of quantity of raw Naphtha unloaded from the steamer by surveyor nor sought for condonation of loss. Raw naphtha is conveyed through underground pipes. Question of evaporation does not arise at all. So under these circumstances, the contention of the appellant cannot be upheld. The impugned order is proper and correct.
4. Point for consideration is whether there are sufficient and satisfactory grounds to set aside the impugned order? Our finding is in the affirmative.
5. Perused the show cause notice dated 12.12.1997 and replies of the appellant, documents and notifications, produced. Also perused the impugned order and appeal memorandum, and rulings referred. As per in the case of State of Haryana v. Dalmia Dadri Cement Ltd. Under Section 5(2)(a)(iv) of Sales Tax Act it is held that in plain reading of the relevant clause it is clear that expression “for use” means intended for use. This is the interpretations of the words in the above provision, which enables to get exception from sales tax on sale of cement to State Electricity Board, on the basis of a certificate that cement was required for use in generation or distribution of Electrical Energies (para 7, 10). in the case of Steel Authority of India v. CCE. regarding raw naphtha “intended for use” in the manufacture of fertilizer except under Notification No. 187/61-CC, if Chapter X procedure followed manner of use of goods obtained under Rule 192, not to be actually used in the manufacture of final product use for the purpose of manufacturing the final product sufficient for the benefit of Chapter X Procedure in the case of CCE Vadodara v. Gujarat State Fertilizer Co. Ltd. It is held that “raw naphtha brought under concessional from factory for intended use of manufacture as fertilizer. Assessee captively used ammonia (produced out of raw naphtha) for manufacture of chemical or fertilizers. Such an activity cannot be used to deny the benefit of Notification 187/61-CE dated 23.12.61 as amended by Notification No. 75/84-CE dated 1.3.1984” (paras 2 and 4). in the case of J.M. Baxi & Collector of Customs, Bombay it is held that. For unaccounted goods, in the case of short landing, customs, measurement of shore storage tank is only acceptable method of finding out the unloaded quantity of oil for determination of shortage of oil under Section 116 of the Customs Act, 1962 (para 5) 1988 (36) ELT 667 in the case of South India Corporation (Agencies) Ltd. v. Collector of Customs, it is held by majority decision that in the case of short landing of goods, shortage to be determined on the basis of manifested quantity and quantity mentioned in out turn report under Section 116 of the Customs Act, 1962 (paras 24, 27) In Order No. 1155-59/91 WRB dated 6.6.91 in the case of Bharat Petroleum Corporation Ltd. v. Collector of Customs, Bombay, in C/112, 145/91 and C/539, 540, 558/90, it is held that under Sections 67, 70 and Section 23(1) of the Customs Act, 1962, if warehouse goods are lost or destroyed (otherwise than due to pilferage) at any time before they are cleared for home consumption remission is to be considered in terms of Section 23 of Customs Act, 1962 relying on five member Bench decision in in the case of IOC. The facts of the case on hand are considered below, in the light of the applicability of the general principles laid down in the above rulings.
6. The contention of both sides and above rulings are taken note of. In para 1 at page 20 of the appeal memorandum the appellant has urged that in case of duty liability the demand made under show cause notice dated 12.12.1997 is barred under Section 28 of the Customs Act, 1962, as import is in 1994 February, and end-use certificates are produced on 24th and 31st May, 1995 in respect of the 4 bills of entry, and the demand is issued beyond 6 months from the above date, without any allegation of suppression attracting 5 years period. This is raised for the first time in appeal. It is a point of law and permissible. It requires consideration. Section 28 of Customs Act, 1962 deals with notice for payment of duties to levied, short levied, etc. under Clause (1) when any duty has not been levied or has been short levied etc., the proper officer may (a) in the case of import made by an individual for his personal use or Government or by any educational, research, charitable institution or hospital, within one year (b) in any other case 6 months from the relevant date serve notice on the person chargeable with the duty….Requesting him to show cause why he should not pay the amount specified in notice. In Clause (3) relevant date is explained, as means; (a) Where duty is not levied, date on which the proper officer makes an order for clearance of goods, (b) Where duty is provisionally assessed under Section 18, the date of adjustment of duty after final assessment thereof, (c) In any other case, date of payment of duty.
7. From the appeal memorandum para 1(e) at page 8 bills of entries were provisionally assessed under Section 18 of the Central Excise Act and the goods were allowed to be cleared for home consumption. As per bills of entries it was on 10.2.1994 and 18.2.1994. This case falls under Section 28(3)(b) of the Act, according to which date of adjustment of duty after final assessment. Final assessment is made under impugned order. The appellant has also contended that earlier there was no final assessment and there was no occasion to him to speak about evaporation loss of raw naphtha. So in view of this contention of appellant that demand is time barred under Section 28 of the Customs Act, 1962 cannot be upheld and it is rejected.
8. Now, coming to the merits of the case, from the appeal memorandum and impugned order the limited issue is only in respect of 430.269 KLS. of Naphtha, about its non-accountal/utilisation in the manufacturing process Import of four consignment of total quantity of 29903.327 Mts (43817.604 KLS.) of naphtha which is a total discharge quantity, is confirmed by the appellant. But only 4387.335 KLS. of naphtha was received in the oil tank at factory of appellant, and it was consumed in the manufacturing process There is no return stream of naphtha. These facts are not in dispute. But, the difference, is as per the department. Customs duty was payable on the quantity received in the ships tank, and the appellant should pay duty on the quantity ascertained as per the difference between the discharge quantity and quantity consumed as per end-user certificate. Discharge quantity taken by custom authority in show cause notice was the notional quantity discharge i.e. difference shown in surveyors report between the quantity on board on arrival and quantity on board after completion of discharge. According to appellant, department must take quantity received and consumed by appellant as per end-user certificate of the department, which is the only quantity received by appellant. Storage loss is made out in BPCL refinery tank as raw naphtha is a very volatile substance which is to the extent of 1.38% and 0.8% in respect of items 1 to 4 of Schedule to show cause notice respectively. As per impugned order, eve (sic) [even] if it is accepted, there is a difference of 4303 KLS. between discharged quantity and consumed quantity, which is still unaccounted shortage, on which duty is liable to be paid. Appellant denies that liability under Clause (d) as he has complied all the three requirement of notification under Clauses (a) to (c) of notification No. 158/76.
9. As per para 1(g)(i), raw naphtha is stored in BPCL refinery at Mahul, after it is discharged from the ship, recorded and certified as discharge quantity by the surveyor, a notional quantity, under an arrangement between the appellant and BPCL. This transfer is made under sea/underground pipeline of approximately 20 Kms. long from Butcher Island to BPCL Refinery. Naphtha received at the storage tank of BPCL Refinery as out turn quantity is recorded and certified by surveyor, in the presence of BPCL, representative of appellant and Central Excise Department at BPCL Refinery. From there it is transferred through underground pipeline of approximately 30 Kms. long from BPCL to the appellant’s plant at Thane-Belapur for use in manufacturing process. As per impugned order, appellant’s case of receipt of 43387.335 KLS. of naphtha in oil tank in their factory and its consumption in the process of manufacture and there is no return of naphtha upheld. There is no allegation of sale to BPCL or diversion to domestic market regarding 430.269 KL of naphtha, which was unloaded from the steamer to BPCL tank as certified by ullage surveyor. But its receipt into appellant’s factory is not shown. Differential duty is demanded only on the ground of non-accountal of 430.2691 of raw naphtha. From the impugned order it is clear that regarding the compliance of conditions of notification under Clauses (a) to (c) there is no dispute. As contended by the appellant the quantity unaccounted comes to 1% of total quantity of raw naphtha received by the appellant on import into his factory, 50 Kms. distance is travels (sic) [travelled] for supply of it from the vessel to the oil tank of appellant factory through BPCL refinery. The appellant has taken the stand in reply to show cause notice about the loss during storage in BPCL refinery, which is not accepted in the impugned order. In the absence of it, and in the alternative to stand department has not alleged any other fact such as sale to BPCL or diversion to domestic market, the case of the appellant about the volatile nature of raw naphtha and possibility of evaporation, transit and storage loss has got to be accepted. Under Section 70(2) of the Customs Act, 1962 and notification thereunder No. 122-Cus-dated 11th May, 1963 as amended on No. 279/87 dated 16.3.1967 raw naphtha is covered for grant of remission of duty under Section 23 of the Customs Act, 1962. So, as contended by appellant the impugned order has not condoned it, on the ground importer did not question the measurement of quantity of raw naphtha unloaded as certified by ullage surveyor appointed by them. The appellant in his reply dated 18.2.1998 to show cause notice has taken the stand that “difference was on account of transit loss and for on account of different methods of ascertaining the quantity at various stages and attendant variation/errors/variances there of. So under the circumstances, the case of the appellant has got some force.
10. Now coming to the basis of quantity of raw naphtha discharged for fixing duty liability, as contended by appellant. Survey report in this case shows lot of losses Quantity ascertained as discharged is a notional one. It is the definite case of the appellant that the difference between the shore out turn and quantity mentioned in end-use certificate of K 265.77 KLS. was never received from BPCL Refinery Tank. In the absence of it, accounting for that quantity of shortage by appellant does not arise. It is not shown by the department that what was the quantity of receipt in the appellant’s factory tank. As contended by appellant, quantity received by the appellant and consumed in the manufacturing process as per end-user certificates produced in this case issued by department, is more relevant than the notional quantity 164.499 KLS. as per shore out turn, which did not exist at all. As per in the case of J.M. Baxi & Co. v. Collector of Customs, Bombay. Measurement of shore storage tank is only acceptable method of finding out the unloaded quantity, when there is short landing and goods are unaccounted, under Section 116 of the Customs Act, 1962. In view of the position, the case of the appellant has to be upheld. Demand of differential customs duty under Clause (d) of notification Nos. 158/1976-Cus and 102/90-CE dated 11.5.1990 when condition in Clauses (a) to (c) are complied by the appellant, is not proper and correct. As already discussed and held above, there is no dispute between the department and appellant in this regard. The contention of the appellant is accepted. Point raised is answered in the affirmative. We pass the following order:
ORDER
11. For the reasons indicated above, the appeal is allowed with consequential relief according to law if any and impugned order is set aside.