COMMISSIONER OF CENTRAL EXCISE, CHENNAI-I versus CHENNAI PETROLEUM CORPN. LTD.

Citation: [2007] 5 S.C.R. 322 · Decided: 19-04-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Disposed off

Judgment (excerpt)

A 
COMMISSIONER OF CENTRAL EXCISE, CHENNAI-I 
if( 
v. 
CHENNAI PETROLEUM CORPN. LTD. 
APRIL 19, 2007 
B 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
-..-
Central Excise Tariff Act, I 985: 
.7 
c 
Chapters 27, 28 and 29-0il Refinery-Declared deemed warehouse-
Using Refinery Fuel Oil to produce naptha, sulphur and electricity -Major 
portion of electricity so generated captively consumed but a part thereof 
sold-Demand of duty raised on RFD-HELD: Tribunal was right in its view 
that naptha and sulphur being petroleum products a assessee was entitled 
to exemption in respect of RFO used for producing these items-Similarly 
D assessee was entitled to exemption as regards electricity captively consumed-
But with regard to portion of electricity sold, Revenue was right in demanding 
duty on RFO for the period August 1998 to January 1999-To that extent 
) 
adjudicating authority would determine duty amount afresh. 
E 
Central Excise Act, 1944: 
s. I I-A-Invoking of extended period of limitation for arrears of duty-
Oil Refinery owned by Central Government-Declared deemed warehouse-
Using Refinery Fuel Oil to generate electricity a portion of which sold-
Revenue issuing show cause notices demanding arrears of duty for period 
F December, 1993 to July, 1998 by show cause notice dated 22.12.1998-
'Y 
... 
HELD : There was no suppression on the part of assessee-Revenue was not 
right in invoking extended period of limitation-Demand is beyond limitation. 
Assessee, a refinery, declared by the Central Government to be a 
"deemed warehouse", used Refinery Fuel Oil, i.e. the residuary left after 
G distilling crude oil, in producing petroleum products, namely, naptha, sulphur 
and electricity, which fell under Chapters 27, 28 and 29 of Central Excise 
Tarriff Act, 1985. The major portion of the electricity so generated was 
_. 
.... -
captively consumed, and a part of it was sold to the Tamil Nadu Electricity 
Board. According to the Revenue none of these products, namely, naptha, 
H 
322 
COMMR. OF CENTRAL EXCISE, CHENNAI-1 v. CHENNAI PETROLEUM CORPN. LTD 
323 
sulphur and electricity were petroleum products and, therefore, the refinery A 
was liable to pay duty. Accordingly, demands were raised to pay arrears of 
duty for the period 1993 to July 1998 under show cause notice dated 
22.12:1998 and for the period August 1998 to January 1999 under show cause 
notice dated 17.7.1999. The Tribunal held partly in favour of the assessee 
and partly i'n favour of the Revenue which gave rise to the present appeals B 
and cross appeals. 
..... 
Disposing of the matters, the Court 
,. 
HELD: 1.1. The Tribunal rightly held that naptha and sulphur are 
petroleum products and, therefore, the assessee which was a "deemed c 
warehouse" was entitled to exemption in respect ofRFO used for producing 
naptha and sulphur during the period in question. Consequently, the show 
cause notice dated 22nd December, 1998 demanding duty on RFO used by the 
assessee for the manufacture of naptha and sulphur is not sustainable. 
[Para 4 and 5) (325-F-H) 
D 
1.2. As regards the electricity produced by assessee from RFO and sold 
to Tamil Nadu Electricity Board, Revenue was right in demanding duty on 
RFO. The very purpose behind giving the status of"deemed warehouse" to 
the refinery is to provide exemption to the RFO which is used for producing 
petroleum products. The Deemed Warehouse status demands nexus to the final 
product cleared from it. Generation of electricity, if captively consumed, is E 
exempted from duty. This is because electricity which is genemted in the 
refinery is used to operate the various processes within the refinery. However, 
a portion of the generated electricity, in the present case, Is sold to Tamil 
Nadu Electricity Board. To that extent alone, the Department was right in 
__.. 
.,... 
demanding duty on RFO. (Para 6) (326-A-D) 
F 
Indian Oil Corporation Ltd. v. Collector of Central Excise, Baroda, 
(2006) 202 EL T 37 SC, relied on. 
2.1. So far as the question of Revenue invoking the extended period of 
limitation under Section llA of the Central Excise Act is concerned, the G 
assessee is a Public Sector Company owned by the Government of India. There 
' .... 
... 
was no suppression on the part of the assessee and, therefore," the Department 
was wrong in invoking the extended period of limitation under the show-cause 
notice dated 22nd December, 1998 for the period December 1993 to July 1998. 
The demand to that extend is beyond 

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