Oil & Natural Gas Corporation Ltd. vs Cegat
1994 Latest Caselaw 354 Del

JUDGMENT

M. Jagannadha Rao, C.J.

1. The Writ Petition is filed by the O.N.G.C. (Oil & Natural Gas Corporation Ltd.) for the issue of a Writ of Certiorari, quashing the orders of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (herein under called CEGAT) dated 27-9-1993. There is also an order dated 31-1-1994 by which the CEGAT refused to review the order.

2. The O.N.G.C. was issued a show cause notice under Section 11A of the Central Excises and Salt Act on 25-1-1991 after 3 years from the date of clearance. It gave a reply dated 21-3-1991 and on that basis the Collector passed an order on 17-12-1991 demanding Central Excise duty in a sum of Rs. 4,46,99,520.40 from the O.N.G.C., Hazira, Surat under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A(1) proviso. He also imposed a penalty of Rs. 75 lakhs under Rule 173Q(1) of Central Excise Rules. Against the said order of the Collector, the O.N.G.C. filed an appeal to the CEGAT and sought for stay of pre-deposit in a sum of Rs. 4.27 crores and odd and penalty of Rs. 75 lakhs. The CEGAT passed the order dated 27-9-1993 refusing to stay the deposit of duty, but dispensed with the deposit of the penalty amount. Therefore, the O.N.G.C. filed another petition for stay which was rejected on 31-1-1994. The Writ Petition is then filed.

3. By orders dated 16-3-1994, this Court granted stay of dismissal of appeal by the CEGAT and ordered notice in the Writ Petition. At the stage of issuing Rule, we are disposing of the Writ Petition by consent. Rule D.B.

4. The jurisdiction of this Court under Article 226 is limited to scrutinising the correctness of the order of the CEGAT and is, no doubt, limited. Bearing that factor in mind, we are referring to the facts in brief.

5. The O.N.G.C. is manufacturing lean gas as one of its products. Govt. of India granted exemption from duty by Notification No. 175/85 dated 26-7-1985 under Rule 8(1) of the Central Excise Rules, 1944 falling under Item No. 68 of First Schedule to the Central Excises and Salt Act, 1944 from so much of the duty leviable as is in excess of the amount calculated at the rates specified in the corresponding entry in column (3) of the said Table, subject to the intended use, or the conditions, if any, laid down in column (4). The notification contains a proviso which says that where any such exemption is subject to the intended use, the exemption in such case shall be subject to the following conditions, namely :-

(i) that it is proved to the satisfaction of an officer not below the rank of the Assistant Collector of Central Excise that such goods are used for the intended use specified in column (4) of the said Table; and

(ii) where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of the Central Excise Rules, 1944 is followed.

The Table in the notification contains three items all relating to lean gas obtained from natural gas and out of the said three items. Items (1) and (3) do not carry any duty based on the particular intended use, while Item (2) is amenable to duty at a particular rate. There is an explanatory note below the notification which mentions that notification has been issued granting complete exemption from excise duty on lean gas when intended for use (i) as feedstock in the manufacture of fertilizers and (ii) as fuel for the generation of electrical energy by specified electrical undertakings. Further a concessional rate of duty @ Rs. 64.10 per 1000 cubic metres at a particular percentage and at normal pressure is prescribed on such lean gas when intended for use otherwise than as feedstock in the manufacture of fertilizer.

6. On 9-3-1988 the Central Excise officers visited the O.N.G.C. and scrutinised its records and alleged that the O.N.G.C. had produced and supplied huge quantity of lean gas through pipeline to the Kribhco Fertilizers, Surat (which is also a Public Sector Undertaking) and that the officers learnt that no duty of excise had been paid on such lean gas nor was it accounted for in the Central Excise records. The officers also enquired whether conditions for exemption as required under the aforesaid notification had been fulfillled or not. The show cause notice further observed that the natural gas and condensate was received from Bombay Offshore project at Hazira Terminal in various forms. The natural gas became lean in quality and is called lean gas and is sent to the customers through pipelines i.e. (i) Gas Authority of India Ltd., Surat, (ii) O.N.G.C. Ankleshwar and (iii) Krishak Bharati Co-operative Ltd., Surat. On examination of one of the officers of O.N.G.C., certain facts relating to the procedure of supply of lean gas were revealed. The O.N.G.C. did not file separate classification list claiming exemption under notification dated 26-7-1985 and did not satisfy the condition as laid down in the notification and therefore, it was not eligible for availing exemption under the said notification. According to them, the lean gas manufactured and clandestinely removed was liable to duty for the period 8-1-1988 to 29-2-1988. The intended use of the goods was elsewhere than in the factory of production. According to the Excise authorities, the concessions were subject to two conditions, namely :-

(i) that it was proved to the satisfaction of an officer not below the rank of the Assistant Collector of Central Excise that such goods are used for the intended use.

(ii) where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of Central Excise Rules, 1944 is followed.

The show cause notice stated that the aforesaid conditions were not fulfillled by the O.N.G.C. and hence they were not eligible for the exemption, and that the O.N.G.C. suppressed the material fact that they manufactured/produced and removed the lean gas from their factory/plant without payment of Central Excise duty. This was done to mislead the Central Excise Department with a deliberate and willful intent to evade payment of Central Excise duty leviable thereon, it is contended.

7. The O.N.G.C. submitted an explanation dated 21-3-1991 stating that the conditions for invoking the proviso to Section 11A(1) of the Central Excises and Salt Act were not fulfillled for the following reasons :-

8. In this case admittedly the classification list was filed claiming exemption under Rule 173B which was already approved by the proper authorities of the Central Excise Department. They said that there can be no collusion between the Public Sector Undertakings, namely O.N.G.C., Gas Authority of India and Kribhco which are Government organisations and whose records are maintained properly and audited. The extended period of 5 years mentioned in Section 11A(1) proviso was, therefore, not applicable to the facts of the case, particularly, when the notice was issued three years after the expiry of the period of limitation.

9. By letter dated 17-8-1988 the O.N.G.C. had informed the Superintendent, Central Excise that by letter dated 12-4-1988 they had furnished detailed break-up of lean gas utilisation in respect of M/s. Kribhco and the duty on lean gas for the period 8-1-1988 to 29-2-1988. Subsequently by the letter dated 12-5-1988 the O.N.G.C. had furnished details of utilisation of lean gas by Gas Authority of India. The first letter showed that the duty leviable was Rs. 16.39 lakhs, while the second letter showed that the duty leviable was Rs. 3.41 lakhs. The O.N.G.C., therefore, requested the Superintendent, Central Excise to kindly permit them to deposit the said amount towards duty. They stated that the delay in computing the excise duty payable on the lean gas was caused due to late receipt of basic data from M/s. Kribhco and M/s. Gas Authority of India Ltd., which were public authorities. The Superintendent, Central Excise, wrote a letter dated 19-8-1988 accepting the said offer and requested the petitioner to pay up the duty as proposed by the O.N.G.C. It is stated by the O.N.G.C. that the duty of Rs. 19 lakhs and odd was paid vide challan in 1988 itself. It was only on 25-1-1991 that after the expiry of six months period mentioned in Section 11A(1) that the present notice was issued on the basis that the department was entitled to enlarged period of limitation. They also pointed out that the O.N.G.C. was entitled to duty exemption for the O.N.G.C. had filed classification lists under Rule 173B which were approved by the Excise authorities and as such and, therefore, the clearances were in accordance with the exemption. Having regard to the nature of the gas supplied, it is not possible to know the exact quantities of lean gas at the time of dispatch and hence the payment of duty was deferred till the quantum of supply was intimated by the receiving parties, namely, Gas Authority of India and Kribhco. The lean gas was only used for fertiliser and electricity generation and for no other purpose and there was no contravention of Rule 173C. The supplies to Kribhco and Gas Authority of India were acknowledged and end-use as certified by them was for fertiliser and generation of electricity. The procedure under Chapter X of the Central Excise Rules, 1944 was followed as soon as details were made available by the receiving agencies. Inasmuch as the gas is supplied through pipeline to the above said authorities, the quantity could be determined only from the other end. The details of the manner in which the gas is conveyed to Kribhco and Gas Authority of India is mentioned.

10. On the basis of the above said show cause notice and the reply, the Collector, Central Excise passed the order dated 17-12-1991 imposing a demand of Rs. 4.46 crores and odd on the O.N.G.C. and also a penalty of Rs. 75 lakhs as stated earlier. The petitioner appealed to the CEGAT and prayed for dispensation of the pre-deposit of Rs. 4.27 crores and odd (after deducting the duty amount already paid) and also for dispensing with the penalty of Rs. 75 lakhs.

11. CEGAT referred to some of the facts mentioned in the show cause notice and in the reply and also referred to the rulings cited. It referred to para 18.2 of the order of the Collector. CEGAT stated that prima facie they agreed with the conclusion of the Collector and would like to stress that the appellants had availed the benefit of exemption notification without observing the conditions laid down therein. Referring to para 18.2 of the Collector's order, CEGAT felt that the argument that the burden of duty was not passed on to the customers was not a valid ground for stay of pre-deposit. CEGAT also observed that no financial hardship was pleaded. Only the deposit of penalty of Rs. 75 lakhs was dispensed with. In the result, the appeal preferred by the O.N.G.C. would stand dismissed, if the duty of Rs. 4.46 crores and odd is not deposited as a condition for the appeal to be heard by the CEGAT.

12. Learned counsel for the petitioner pointed out that two questions were relevant before the CEGAT in the stay application. Firstly, whether the appellant had prima facie complied with the conditions for exemption under notification dated 26-7-1985 and the other, whether there was material to invoke the extended period of limitation to the proviso to Section 11A(1). Learned counsel pointed out that firstly, the exemption notification was complied with inasmuch as the supply of gas through pipeline to the Gas Authority of India and Kribhco, which were both Government undertakings, does not enable the supplier, namely O.N.G.C. to know the extent of gas received at the other end by the Gas Authority of India and the Kribhco because of various natural factors relating to the lean gas and that information is to be received from the receiving authorities and on that basis the procedure under Chapter X was complied with. In fact, the moment the Excise authorities raised the issue, the O.N.G.C. had deposited a sum of Rs. 19 lakhs and odd towards duty on the lean gas supplied to Gas Authority of India and Kribhco and filed classification lists. This is clear from the letter dated 17-8-1988 of the O.N.G.C. addressed to the Central Excise authorities and the reply of the Superintendent of Central Excise dated 19-8-1988 and that nothing happened thereafter till the show cause notice was issued on 25-1-1991 invoking the enlarged period of limitation under the proviso to Section 11A(1). Learned counsel contended that when the duty was paid after due notice to the authorities, there was a delay of about 3 years and, therefore, the proviso to Section 11A(1) was not attracted and the conditions therefore were not satisfied.

13. Learned counsel also placed reliance on the decision of the Karnataka High Court in Collector of Central Excise v. Mysore Lamp Works Ltd. [1994 (64) E.L.T. 193] wherein a Division Bench of the Karnataka High Court dismissed the appeal preferred by the department against the judgment of the learned single Judge allowing the Writ Petition on the ground that the conditions for grant of exemption were satisfied. The Division Bench held that it was not necessary to drive the parties to appeals under the Act. Learned counsel also relied upon a decision in Collector of Central Excise v. Chemphar Drugs & Liniments [1989 (40) E.L.T. 276] wherein the Supreme Court held that the extended period of 5 years is applicable only when some inaction or failure on the part of the manufacturer was proved.

14. CEGAT in its impugned order observed that the ONGC was not entitled to the benefit of the exemption notification as the conditions for availing the same were not complied with, as admitted by the ONGC. This observation was based upon the difficulty in ascertaining the amount of lean gas supplied through pipeline by the ONGC to the Gas Authority of India and Kribhco till the said receiving authorities would inform the ONGC as to the extent of gas received by them. CEGAT also referred to para 18.2 of the Collector's order to the effect that the ONGC had not disclosed in its classification list that they would clear the goods elsewhere than the factory of production and would follow the procedure as required under Chapter X of the Central Excise Rules, 1944 and that the ONGC had supplied gas to the Kribhco. ONGC, Ankleshwar and Gas Authority of India Ltd., Hazira, which were places not inclusive of then factory of production, and end-users outside the factory. They had, therefore, not followed the procedure prescribed in Chapter X and they decided to take benefit of the exemption notification, it was stated.

15. The following observations in para 18.2 of the Collector's order (as extracted in the order of CEGAT) read as under :-

"..... But M/s. ONGC, Surat, have miserably failed to disclose the information of use of lean gas in the factory other than factory of production in their Classification list and also failed to follow the procedure prescribed under Chapter X of the Central Excise Rules, 1944 and thereby they wrongfully availed the benefit of Notification."

A reading of the order of CEGAT shows that it mainly addressed itself to the question whether the conditions for grant of exemption were complied with by the appellant or not without considering the letter of the ONGC dated 17-8-1988. It has also not addressed itself to the question whether the extended period of limitation was prima facie applicable to the facts of case or not under the proviso to Section 11A.

16. Learned counsel for the petitioner contended that the ONGC is a public authority of the Government of India, which was playing an important role in the developmental activities of the country and it was stated the payment of duty would cause undue financial burden on the ONGC (vide para (f) of the application for dispensing with the deposit of duty). It was also stated that no security was necessary as this was a Public Sector undertaking. In para (g) of the said application it was clearly stated that otherwise it will cause undue hardship to the appellants. The CEGAT did not notice these pleadings.

17. We are inclined to agree with the submissions made by the learned counsel for the appellants. Firstly, CEGAT erred in thinking that the financial hardship was not pleaded by the ONGC in the application or appeal, which is not correct. Further CEGAT has not adverted to the effect of the letter dated 17-8-1988 of the ONGC and has not also given any prima facie finding with regard to the applicability of the proviso to Section 11A(1) which gives an extended period of limitation. The CEGAT has also not adverted to the case of the appellants based on the payment of duty of Rs. 19 lakhs and odd as mentioned in its letter dated 17-8-1988 (Annexure V(a) of the paper book before us) and to the reply to the said letter by the Superintendent, Central Excise vide his letter dated 19-8-1988 by which all the necessary facts had been disclosed by the ONGC to the authorities and the question therefore, would arise whether in spite of the said letters, it could be said that the conditions for grant of exemption were not satisfied and whether the conditions for invoking enlarged period of limitation under the proviso to Section 11(a)(1) were attracted.

18. In view of the above said factors, we are of the view that the order of the CEGAT is not sustainable and the same is accordingly quashed to the extent the order directed the deposit of the duty and the matter is sent back to it for a fresh disposal of the stay application in the light of the facts mentioned above. It is also open to the CEGAT to dispose of the appeal also straightaway, if it so deems it.

19. While dealing with the appeal, the CEGAT should also bear in mind that the O.N.G.C. is a Public Sector undertaking of the Government of India and that its property and assets are sufficient security for the duty involved in the appeal.

20. The Writ Petition is accordingly allowed. Pending disposal of the appeal, the stay granted earlier by this Court shall continue to be in operation.