Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
Madras High Court
Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
1
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 06.12.2018
CORAM :
THE HON’BLE MR.JUSTICE T.S.SIVAGNANAM
AND
THE HON’BLE MR.JUSTICE N.SATHISH KUMAR
W.A.No.254 of 2015
and
M.P.No.1 of 2015
1.Union of India
Ministry of Finance (Department of Revenue)
Through the Under Secretary to the Government
North Block, New Delhi 110 001.
2.The Commissioner of Central Excise,
Chennai-I Commissionerate,
26/1, Uthamar Gandhi Road,
Nungambakkam,
Chennai – 600 034.
3.The Commissioner of Central Excise & Service Tax
Large Taxpayer Unit,
1775, Jawaharlal Nehru Inner Ring Road
Anna Nagar Western Extension
Chennai – 600 101.
4.The Deputy Commissioner of Central Excise
‘C’ Division, Chennai-1 Commissionerate
Ananda Office Centre,
No.459, Anna Salai, Teynampet,
Chennai 600 018. .. Appellants/
Respondents 1 t
vs.
1.M/s.Kothari Petrochemicals LTd.,
http://www.judis.nic.in Thiruvottiyur – Ponneri High Road,
2
Manali, Chennai – 600 068. .. Resp
Peti
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Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
2.M/s.Chennai Petroleum Corporation Ltd.,
Manali, Chennai – 600 068. .. 2nd
5th
Writ Appeal filed under Clause 15 of the Letters Patent to
order dated 24.09.2014 passed in W.P.No.34636 of 2013.
For Appellant : Mr.Rajnish Pathiyil
Senior Central Government Stan
For R1 : Mr.Joseph Kodianthara
Senior Counsel
for Mr.A.R.Ramanthan
For R2 : No appearance
JUDGMENT
(Judgment of this Court made by T.S.Sivagnanam,J.) This writ appeal filed by the Union of India, Ministry of Finance and four others is directed against the order passed in W.P.No.34636 of 2013 dated 24.09.2014. The said writ petition was filed by the first respondent herein praying for issuance of writ of Prohibition to prohibit the appellants 1 to 4 herein from in any manner proceeding further pursuant to the show cause notice NO.20/2013 dated 07.11.2013. The said writ petition was allowed by order dated 24.09.2014. The revenue is on appeal before us challenging the said order.
2.For the sake of convenience, the parties shall be referred to as per their rank assigned in the writ petition.
- The writ petitioner challenged the show cause notice on the ground that it is without jurisdiction, clear abuse of process of law and therefore, the revenue should be prohibited from proceeding further with the show cause notice. Before the learned Single Bench, the revenue raised preliminary objections regarding the maintainability of the writ petition, which objection was overruled by the learned Single Bench and it was held that the writ petition would be maintainable when the show cause notice was issued without jurisdiction and it is a clear abuse of process of law.
- Mr.Rajnish Pathiyil, learned Senior Central Government Standing Counsel appearing for the revenue reiterated the said objection which was raised before the learned Single Bench and relied upon the following decisions which were cited before the learned Single Bench, which is as follows:
1.Medopharam vs. Superintendent of Central Excise, Madras reported in 1995 (77)
ELT 524 (Mad);
2.State of Madhya Pradesh and others vs. M.V.Vyavsaya and Company reported in (1197) 1 SCC 156;
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Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
- Alembic Glass Industries Ltd. vs. Union of India reported in 1998 (97) ELT 28 (SC);
- GKN Driveshafts (India) Ltd. vs. Income Tax Officer and others reported in (2003)
1 SCC 72;
5.G.K.N. Driveshafts (India) Ltd. vs. Income Tax Officer and others reported in (2002) 257 ITR 702 (Delhi);
http://www.judis.nic.in 6.Commissioner of Customs and Central Excise and others vs. Charminar Nonwovens Ltd. reported in (2004) 5 SCC 125;
- Special Director and another vs. Mohd. Ghulam Ghouse and another reported in (2004) 3 SCC 440; and
- Malladi Drugs and Pharma Ltd. vs. Union of India (UOI) reported in 2004 (166) ELT 153 (SC).
5.In addition, the learned Senior Central Government Standing Counsel also referred to the following decisions:
- D e v i C o n s t r u c t i o n s v s . T h e A s s i s t a n t C o m m i s s i o n e r ( S T ) r e p o r t e d i n MANU./TN/5718/2018;
- Executive Engineer, Bihar State Housing Board vs. Ramesh Kumar Singh and others reported in MANU/SC/0180/1996;
- Deputy Commissioner of Central Excise vs. Sushil & Company reported in 2016
(42) S.T.R. 625 (SC);
- U n i t e d B a n k o f I n d i a v s . S a t y a w a t i T o n d o n a n d o t h e r s r e p o r t e d i n MANU/SC/0541/2010; and
- Sri Saravana Steels vs. The Assistant Commissioner (CT)(FAC) and others reported
in MANU/TN/3124/2018.
6.Mr.Joseph Kodianthara, learned Senior Counsel appearing for the writ petitioner submitted that the writ petition was maintainable, especially, when it is without jurisdiction and a clear abuse of process of law and the Court is not denuded from exercising its jurisdiction under Article 226 of the http://www.judis.nic.in Constitution of India in these circumstances. In support of his contention, the learned Senior Counsel placed reliance on the following decisions:
1.Madurai Power Corporation (P) Ltd. vs. Deputy Commissioner of Central Excise reported in 2008 (229) ELT 521 (Mad);
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Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
2.J.K.Synthetics Ltd. and another vs. Union of India and others reported in 1981 ELT
328 (Del.);
- Siemens Ltd. vs. State of Maharashtra and others reported in (2006) 12 SCC 33;
- Raza Textiles Ltd. vs. Income Tax Officer, Rampur reported in (1973) 1 SCC 633;
and
5.Bengal Immunity Co. Ltd. vs. State of Bihar and others reported in AIR 1955 SC
661.
- The learned Single Bench considered the decisions cited by the learned counsel appearing for the revenue and rightly noted that writ petitions are not maintainable against the show cause notice and the jurisdiction of this Court under Article 226 of the Constitution of India to interfere with the show cause notice is extremely limited and circumscribed. Further, as rightly observed by the learned Single Bench, it is not a case of inherent lack of jurisdiction but an imposed restriction which has been elucidated in several decisions which were cited by Mr.Rajnish Pathiyil, learned SCGSC appearing for the revenue. In the decisions cited by the learned senior counsel appearing for the writ petitioner, the Court have pointed out that under which circumstances, a show cause notice can be interfered. Therefore, to that http://www.judis.nic.in extent, Mr.Rajnish Pathiyil is correct in contending that the writ petition challenging a show cause notice should not be entertained. However, we do not agree with his submission that there is an absolute and total bar for entertaining a writ petition which has been clarified by the Hon’ble Supreme Court in several decisions and when a show cause notice is challenged as being without jurisdiction or when it is a case of abuse of process of law, this Court is well justified in exercising its jurisdiction under Article 226 of the Constitution of India. Therefore, the preliminary objection raised by the revenue before us is held to be not sustainable and the finding recorded by the learned Single Bench in that regard is affirmed.
- Next we take up for consideration as to whether the learned Single Bench was justified in interfering with the show cause notice. On a reading of the impugned order, more particularly, from paragraph 20 onwards, one gets an impression that the learned Single Bench has gone into the factual thicket, examined the disputed questions of fact, made a rowing enquiry into the manufacturing process and then found that the show cause notice is not sustainable. However, on a closer reading of the impugned order, more particularly, from paragraph 20, it is evidently clear that no such exercise has been done by the learned Single Bench. The learned Single Bench did not go into any disputed questions, did not re-appreciate the factual details which are mentioned in the show cause notice but considered as to whether the http://www.judis.nic.in Department had the jurisdiction to issue such a show cause notice could have been issued, that too, after 24 years during which period the writ petitioner has been carrying on the same manufacturing activity. At this juncture, it would be beneficial to refer to few paragraphs in the impugned order, which is as follows:
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Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
“26.There is no dispute about the fact that the petitioner receives petroleum gases
and other gaseous hydrocarbons from the 5th Respondent, for the purpose of manufacture of polyisobutylene and that after the extraction, the gases and gaseous hydrocarbons are returned to the refinery of the 5th Respondent.
28. After admitting to the application of the main part of the Notifications and the explanations to the same, the stand taken by the Respondents is that the petitioner receives not only PBFS from the 5th Respondent but also various other materials from other vendors and carries on a manufacturing process that leads to a finished product. Since there are inputs other than what is provided by the 5th Respondent, the impugned show cause notice claims that Rule 6 of the CENVAT Credit Rules would apply.
30. Rule 6 deals with the obligation of the manufacturer of dutiable and exempted goods and provider of taxable and exempted services. Sub-rule (1) of Rule 6 states that CENVAT Credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2) of Rule
6. Sub-Rule (2) of Rule 6 obliges the manufacturer or provider http://www.judis.nic.in of output service, who avails CENVAT Credit and who manufactures final products which are chargeable to Duty as well as exempted goods to maintain separate accounts. Sub- rule (2) of Rule 6 reads as follows:-
“(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufacturers such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.”
31. But if a manufacturer of goods or provider of output service opts not to maintain separate accounts, he will have to follow either of the two options mentioned in sub-rule (3) of Rule 6. The first option is to pay an amount equivalent to 10% of the value of the exempted goods (in respect of manufacturer of goods). The second option is to pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in the manufacture of exempted goods.
33. Therefore, the sheet anchor of the case of the Respondents is that the petitioner is engaged in the http://www.judis.nic.in manufacture of both dutiable and exempted goods and that therefore, Rule 6(3) has to be applied. According to the Respondents 1 and 2, the petitioner has not been maintaining separate accounts and hence he is liable to re-credit the amount as per Rule 14. Rule 14 provides for recovery of the CENVAT credit either taken wrongly or refunded erroneously. The
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Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
recovery is to be made in terms of Section 11A of the Central Excise Act, 1944 together with interest.
34. But the above contentions of the Respondents, appear to be completely misconceived. The second Respondent appears to have taken a decision after nearly 23 years, as though the very extraction of Polyisobutylene by the petitioner from PBFS sent by the 5th Respondent is a manufacturing process. The Notifications for exemption issued in the years 1989, 2006 and 2012, which I have extracted elsewhere, make it very clear that petroleum gases and other gaseous hydrocarbons received from the refinery and returned after extraction of Polyisobutylene are exempted. There has never been a dispute in the past 24 years that what is received by the petitioner and what is sent back by the petitioner are both petroleum gases. This is why the apportionment of 17% and 83% as between the petitioner and the 5th Respondent has come to be accepted. The second Respondent has also omitted to take note of the fact that what is returned to the 5th Respondent is also exempted at the hands of the 5th Respondent.”
9.The revenue has not been in a position to dislodge the finding recorded by the learned Single Bench in the aforementioned paragraphs. An important and vital factor which should have been borne in mind by the http://www.judis.nic.in revenue is that notifications issued by the Government deal only with the petroleum gases and other gaseous hydrocarbons received by the factory from the refinery intended for use in the manufacture of polyisobutylene or Methyl Ethyl Ketone (MEK) and returned by the factory to the refinery from where such petroleum gases and other gaseous hydrocarbons are received. The notification contains an explanation which states that for the purposes of the exemption the quantity of the petroleum gases and other gaseous hydrocarbons consumed in the manufacture of polyisobutylene shall be calculated by subtracting from the quantity of the said gases received by the factory manufacturing polyisobutylene the quantity of the said gases returned by the factory to the refinery, declared as such under Rule 20 of the Central Excise Rules, 2002, which supplied the said gases. Thus, what is to be borne in mind is that the product is petroleum gases and other gaseous hydrocarbons. If we turn to the show cause notice issued, the attempt of the revenue is that the composition of the goods received by CPCL and the goods returned to CPCL are different in its chemical composition and the product is distinguishable.
The revenue nowhere denies the fact that the product returned is a petroleum gas which should have been the only factor that is relevant.
10.The above finding given by us is fortified by perusing the adhoc exemption order No.22/3/95-CX dated 24.03.1995. The need for issuing adhoc exemption order was on account of rescinding of Notification No.64/94-CE http://www.judis.nic.in dated 01.03.1994. The adhoc exemption order pursuant to exemption from Central Excise duty on return stream polybutylene enriched liquified petroleum gas (PELPG) supplied by M/s.Madras Refineries Ltd (MRL) to the writ petitioner.
After taking note of the representation, the exemption was granted and the relevant portion of the notification reads as follows:
“5.KSCL has represented that they consumed only a small portion of the polybutylene
enriched LPG received for the extraction of polybutene and it would be unbearable
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Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
for them if the duty is to be borne on the entire quantity of LPG received.
6.Having regard to the circumstances mentioned above and particularly the fact that
returned 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 KSCL at
the price for industrial use, has fallen on KSCL which is much more than the excise
duty applicable on the quantity of LPG actually consumed by them.
- Accordingly, having regard to the circumstances of exceptional nature and in exercise of the powers conferred by sub section (2) of Section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts the quantity of LPG falling under heading No.27.11 of the Schedule to the Central Excises Tariff Act, 1985 (5 of 1986) supplied by MRL to KSCL during the period 1.3.94 to 23.6.94 http://www.judis.nic.in intended for use in the manufacture of polybutene, from so much of the duty of excise leviable thereon as is in excess of duty leviable on the quantity of polybutylene enriched LPG consumed in the manufacture of polybutene subject to the condition that no credit of excise duty paid on the quantity of LPG so returned is availed of and the burden of excise duty on such quantity of LPG has not been passed on by them, in any form, to their consumers. The quantity of polybutene enriched LPG consumed in the manufacture of polybutene shall be calculated by subtracting from the quantity of polybutene enriched LPG received by the factory manufacturing polybutene, the quantity of LPG generated in such manufacture and returned by the manufacturer of MRL.
- The refund application filed by KSCL may be considered by the Assistant Collector of Central Excise in the light of the exemption contained in this adhoc exemption order. The amount of refund as may be found admissible would be subject to the provisions of Section 11B of the Central Excises and Salt Act, 1944.”
- 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 http://www.judis.nic.inby them. The adhoc exemption order is a clear answer to the case of the appellant.
- One subsequent event which has taken place after the GST regime is also very relevant at this point of time. The circular issued by the Government of India, Ministry of Finance (Department of Revenue) in Circular No.39/3/2018-GST dated 25.01.2018 which was placed before us by the writ petitioner along with a memo dated 07.11.2018 clearly clarifies the position.
For better appreciation, the circular is quoted herein below:
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Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
Circular No. 29/3/2018-GST F.No.354/1/2018-TRU) Government of India Ministry
of Finance Department of Revenue (Tax Research Unit) ***** North Block, New
Delhi Dated, 25 January, 2018 To Principal Chief Commissioners/Principal Directors
G e n e r a l , C h i e f C o m m i s s i o n e r s / D i r e c t o r s G e n e r a l , P r i n c i p a l Commissioners/Commissioners, All under CBEC.
Madam/Sir, Subject: Clarification regarding applicability of GST on Polybutylene feedstock and Liquefied Petroleum Gas retained for the manufacture of Poly Iso Butylene and Propylene or Di-butyl para Cresol Regarding.
References have been received related to the applicability of GST on the Polybutylene feedstock and http://www.judis.nic.in Liquefied Petroleum Gas retained for the manufacture of Poly Iso Butylene and Propylene or Di-butyl para Cresol.
- In this context, manufacturers of Propylene or Di-butyl para Cresol and Poly Iso Butylene have stated that the principal raw materials for manufacture of such goods are Liquefied Petroleum Gas and Poly butylene feed stock respectively, which are supplied by oil refineries to them on a continuous basis through dedicated pipelines while a portion of the raw material is retained by these manufacturers, the remaining quantity is returned to the oil refineries. In this regard an issue has arisen as to whether in this transaction GST would be leviable on the whole quantity of the principal raw materials supplied by the oil refinery or on the net quantity retained by the manufacturers of Propylene or Di-butyl para Cresol and Poly Iso Butylene.
- The GST Council in its 25th meeting held on 18.1.2018 discussed this issue and recommended for issuance of a clarification stating that in such transactions, GST will be payable by the refinery on the value of net quantity of polybutylene feedstock and liquefied petroleum gas retained for the manufacture of Poly Iso Butylene and Propylene or Di- butyl Para Cresol.
- 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 an d L i q u e f i e d P e t r o l e u m G a s , w h e n t h e s a m e i s s u p p l i e d b y i t t o a n y o t h e r p e r s o n . http://www.judis.nic.in
- This clarification is issued in the context of the Goods and Service Tax (GST) law only and past issues, if any, will be dealt in accordance with the law prevailing at the material time.
Yours faithfully, (Mahipal Singh) Technical Officer (TRU) Email: mahipal.singh1980@gov.in
13.The above circular is also an answer to the revenue because the GST Council clarified that GST will be payable by the refinery on the value of net quantity of polybutylene feedstock and liquefied petroleum gas retained for the manufacture of Polyisobutylene and Propylene or Di-butyl Para Cresol;
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Union Of India vs M/S.Kothari Petrochemicals Ltd on 6 December, 2018
further, the Central Government has clarified that GST will be payable by the refinery only on the
net quantity of Polyisobutylene feedstock and Liquefied Petroleum Gas retained by the manufacturer for the manufacture of Polyisobutylene and Propylene or Di-butyl Para Cresol; though, the refinery would be liable to pay GST on such returned quantity of Polyisobutylene feedstock and Liquefied Petroleum Gas, when the same is supplied by it to any other person.
14.Considering the above facts, 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 http://www.judis.nic.injurisdiction. 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.
15.In the light of the above, we find no good grounds to interfere with the order passed by the learned Single Bench. Accordingly, the writ appeal fails and dismissed. No costs. Consequently, connected miscellaneous petition is closed.
(T.S.S.,J.)
06.12.2018
cse
Index:Yes/No
Internet:Yes/No
- peaking Order/Non-speaking Order
- o
1.M/s.Kothari Petrochemicals LTd.,
Thiruvottiyur – Ponneri High Road,
Manali, Chennai – 600 068.
2.M/s.Chennai Petroleum Corporation Ltd., Manali, Chennai – 600 068.
http://www.judis.nic.in T.S.SIVAGNANAM,J.
and N.SATHISH KUMAR,J.
cse W.A.No.254 of 2015 and M.P.No.1 of 2015 06.12.2018 http://www.judis.nic.in
Indian Kanoon – http://indiankanoon.org/doc/83764627/ 9
